Great markets for out of state beginners?

16 Replies

Hello Everyone!


I originally planned on buying my first rental property here in my home state of California however, I am having a hard time finding cash flowing properties within my price range and for what I qualify for. So I began looking at other markets and was amazed at how much easier it was to locate cheap homes with decent to great cash flow. Indianapolis and Cleveland just to name a few. With Out of State investing being the option that fits my financial situation better, should I attempt to make my first deal outside my home state? Or should I first get my feet wet in my local markets first? I would also gladly accept suggestions for any markets that are great for first-time investors. 

Details:

I currently have about $20,000 I am willing to invest for real estate. That's including down payment and repairs.

I was Recently pre-approved for about $200,000

Traveling to different states would not really be an option, aside for maybe once if I was committed to a specific location. 

@Antonio Ramos as long as cash flow is your objective, you'll have no choice but to invest outside of CA. Most of the best cash flow markets are in the Midwest and Southeast. In addition to good cash flow however, you should also look at the economic and demographic trends of the market. Look for markets with growing populations, growing jobs and income. Of the two markets that you mention, I think Indianapolis is by far the strongest. Indy has a growing population and a divers, vibrant economy whereas Cleveland has a shrinking population. That's not to say that Cleveland doesn't cash well but you want to consider the long term value of your asset. Another good cash flow market in the Midwest is Kansas City. I would put both Indy and KC at the top of the list. We've been active in both markets for nearly 10 years and know them well. I'd be happy to chat with you about both if you want to connect.

@Antonio Ramos Yup, what @Mike D'Arrigo said. Your best bets are the MidWest and Southeast. You can get solid, cashflowing properties here that don't break the bank to buy into. Ohio is fantastic! You just have to watch out for buying anything below a C+ class property anywhere. Those will eat up your returns much faster than you think.

Best of luck, sir! :)

Originally posted by @Antonio Ramos :

Hello Everyone!


I originally planned on buying my first rental property here in my home state of California however, I am having a hard time finding cash flowing properties within my price range and for what I qualify for. So I began looking at other markets and was amazed at how much easier it was to locate cheap homes with decent to great cash flow. Indianapolis and Cleveland just to name a few. With Out of State investing being the option that fits my financial situation better, should I attempt to make my first deal outside my home state? Or should I first get my feet wet in my local markets first? I would also gladly accept suggestions for any markets that are great for first-time investors. 

Details:

I currently have about $20,000 I am willing to invest for real estate. That's including down payment and repairs. 

I was Recently pre-approved for about $200,000

Traveling to different states would not really be an option, aside for maybe once if I was committed to a specific location. 

Hey Antonio... I recently wrote an article that is almost as if it is custom tailored to answer your exact question. If I link to it here they will remove my post for self-promotion though LOL... so you can PM me if you want to read it and I will send it to you.

Originally posted by @Antonio Ramos :

Hello Everyone!


I originally planned on buying my first rental property here in my home state of California however, I am having a hard time finding cash flowing properties within my price range and for what I qualify for. So I began looking at other markets and was amazed at how much easier it was to locate cheap homes with decent to great cash flow. Indianapolis and Cleveland just to name a few. With Out of State investing being the option that fits my financial situation better, should I attempt to make my first deal outside my home state? Or should I first get my feet wet in my local markets first? I would also gladly accept suggestions for any markets that are great for first-time investors. 

Details:

I currently have about $20,000 I am willing to invest for real estate. That's including down payment and repairs. 

I was Recently pre-approved for about $200,000

Traveling to different states would not really be an option, aside for maybe once if I was committed to a specific location. 

 What's more important than the market is what and where you buy IN the market. In no particular order I have listed some of the most popular markets for out of state investors

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi


You can make or loose money in any of those markets. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

I currently invest in Erie, PA and will be entering Columbia, Missouri soon.

Make certain you invest in a market that has job growth....

To tell you the truth, I would probably avoid just buying a one-off SFD or something. You would definitely have to pay 10% to a manager, so there goes all your profit right there. 

Being able to qualify for leverage IS a good thing, but it's tough. I would say if you are a beginner, the geographic distance is probably going to cause you some anxiety over the years.

If you're looking to profit 7-9% a year and then have a chance at a 50% kicker at the time of sale, over about 5 years, get into an apartment complex as a passive investor. I think $50k ought to do it, so maybe now isn't quite the right time. There are some which, according to the SEC, you don't need to be an "accredited investor" in case you don't qualify for that status. 

If you don't have a good resource for learning about multifamily syndications, I would google the podcasts and writings of Rod Khleif and Joe Fairless.

I have a friend in Glendale who would probably meet you for lunch if you came out there and bought, and walk you through some ideas/strategies...

Keep in mind that this is a difficult field and progress can come very slowly. If you have $20k to start, you might see $2,500  profit in a good year, maybe $4k if you use leverage. Or you could lose $2,500 or $4k if you use leverage. Don't expect miracles.

@James Wise gave a lot of solid tips.

I also can't emphasize enough how critical the PM is for out of state investing. You really can't afford to cut corners on this step. Get multiple quotes and references. Scrutinize every contract, look for all of the fees. I've seen some PMs will charge first month rent as leasing fee, 15% service fee for any repairs over $500, eviction fees on top of the actual eviction costs, half month rent just for renewing a lease and a host of other fees that will guaranty you never see a dime in a Midwestern market with older homes.

Hopefully you get a dream property but allow yourself Grace that it may take a year or so to get up to speed in addressing all the deferred maintenance and getting the right tenants in place.

Originally posted by @Jason Merchey :

To tell you the truth, I would probably avoid just buying a one-off SFD or something. You would definitely have to pay 10% to a manager, so there goes all your profit right there. 

Being able to qualify for leverage IS a good thing, but it's tough. I would say if you are a beginner, the geographic distance is probably going to cause you some anxiety over the years. 

If you're looking to profit 7-9% a year and then have a chance at a 50% kicker at the time of sale, over about 5 years, get into an apartment complex as a passive investor. I think $50k ought to do it, so maybe now isn't quite the right time. There are some which, according to the SEC, you don't need to be an "accredited investor" in case you don't qualify for that status. 

If you don't have a good resource for learning about multifamily syndications, I would google the podcasts and writings of Rod Khleif and Joe Fairless.

I have a friend in Glendale who would probably meet you for lunch if you came out there and bought, and walk you through some ideas/strategies...

Keep in mind that this is a difficult field and progress can come very slowly. If you have $20k to start, you might see $2,500  profit in a good year, maybe $4k if you use leverage. Or you could lose $2,500 or $4k if you use leverage. Don't expect miracles.

most apartment deals require the limited partner to be accredited.. IE make 200k a year and net worth of one million.. so that's usually not an option for new investor unless they are as stated successful business or high wage earners.

I believe if all U have liquid excluding your emergency fund is 20k  your not capitalized enough and your running a risk.. Or its going to force you into low C and D class which in itself out of state is very risky for first time investor

 

Not what you want to hear at the moment I am sure but.... save up some more money. Buy a nice, newer home in a solid class B neighborhood and take care of large items up front, if necessary. Have adequate reserves from day one. Find a good PM with reasonable fees and a good performance record. Communicate with them often until you’ve built some trust. Come to the realization that you will incur additional expenses using the PM. This will cut into your profit but there is no way around it. Try and make a trip out every so often. Meet up with your PM. Drive by/walk the property. Try and get a few doors either by multiple SFRs or by a multifamily property. It mitigates risk to a degree and, quite honestly, I think you’ll get better treatment from a PM with multiple properties.

Do your research and put the time in up front to avoid unnecessary heartache.

Philadelphia is a great market for either out of state, or in state investors. There are plenty of cash flowing neighborhoods, especially if your looking at places that will likely be worth a lot more in 5-10 years, but are a little rough around the edges now. I would definitely recommend checking out the city, and looking into areas such as Kensington, Germantown, Frankford, and any neighborhoods surrounding the major universities (Temple, Drexel, etc ). Let me know if you have any questions0- i'm an agent/investor in the area.

Wow! I didn't expect many responses! Thank you to everyone for taking the time. I am going to screen several property managers in the areas to get a better idea of my expenses and costs of operating out of state. From there I believe I'll be able to make a better decision.