San Francisco, CA · Member since 2013 · 9 posts · 3 votes
I haven't started investing yet since I am still saving up to start. I want to use this time to learn as much as I could. I live in San Francisco and the market here is crazy. I was looking into homes to buy and hold in Sacramento but investors usually get to them first with cash offers. Would investing in an out of state property be too risky? I won't be able to afford anything in California for a while. What cities/states around CA would you guys recommend?
As Michael Lauther said, personal contact is essential. It starts with the source of your inventory. Knowing who rehabbed the home and to what standard it was rehabbed is important. Before my first purchase I visited and met the people who were rehabbing and selling and looked at the rehabs and talked with them. Then I had to get a reputable inspector because being remote, they are your eyes on the property before the purchase. I asked the inspector to take a lot of pictures and asked him a lot of questions. Then there is the property manager. Thats the most important piece. Again, I believe in personal contact so I met a couple in person. Again, ask a LOT of questions. Other pieces of the puzzle was a mortgage broker. I got one through a referral that has worked great. Now this is lot of work. Not worth it for one or two homes. But my plan is for multiple properties so now the network is set up, I leverage for more purchases. There is a lot more to this than I can post here but if you want, I can talk to you in more detail about what questions to ask, how to do the diligence etc. You can connect with me as a colleague and we can discuss it offline. Hope that helps.
Anna Z. Welcome to Bigger Pockets. I am a buy and hold landlord and live in NY but invest in Dayton OHIO. In order for me to have any sanity while managing these properties from 700 miles away I need to have reliable people in the community to look after my interests. It is critical to establish personal relationships with those managing things for you otherwise you will be at the mercy of contractors, property managers and real estate agents who may not have your best interest at heart.
I would suggest not investing out of state as a brand new investor but if you do perhaps finding a partner in the community you want to invest in or at least have contacts that you have established in or near the community.
Exactly as Michael says; I live in NJ and my husband and I invest in FL condos. We couldn't do it without an amazing contractor and realtor, who we have met many times and totally trust. A great team is critical for remote landlords.
Prices in Sacramento, and the greater part of California are too high to make a lot of sense as an investment. Most of my investor clients that I speak with here in California invest in other states (such as Arizona, Indiana, Missouri, Georgia, Texas, etc.). Property prices in these other markets relative to their rent (the rent-to-value ratio) is much better and produces greater cash flow and rates of return.
I also consider the "risk" to be lower in these other states/markets. And as far as management goes, you will always have a professional property management firm looking after your assets. You simply work with your management company and let them handle the rest.
Feel free to download my 2013 Housing Market Forecast for some more ideas on markets to consider for investing.
As I like to say, "Live where you want. Invest where it makes sense!"
I'm originally from SF Bay Area as well. I agree the market there is insane. I invest heavily in Wisconsin and have good success in investing out of state.
I would be happy to get in touch with you if you need any advice.
PMs typically charge a percentage of the rents, plus additional fees for other services such as filling a vacancy or dealing with a maintenance problem. Around here, 10% of rents plus half a month's rent to fill a vacancy is typical.
I live in the Bay Area but all my investment properties to date are in Indianapolis. I would like to diversify more so currently looking at other attractive markets. I dont care about the distance from California. I look for two things: the market (numbers) and the team ( a set of people I can trust). If I have those two, I will invest in a city.
Hi Anna Z.--I always say that investing in a bad local market is riskier than investing in a good out of state market. I'm not saying that investing in Sacramento is a bad investment but it's virtually impossible to get something to cash flow in CA. Investing anywhere is risky and you have to do your due diligence carefully. As ANISH TOLIA has said, the two most important things are the numbers and the team. You need those in any market. Property management is a key component of that team. Most property managers will have several different fee's. The most common are the monthly management fee, leasing fee and lease renewal fee. I'm in the process of doing due diligence on PM's in the Indianapolis market and would be happy to share the process I'm going through with them.
Anna, timely post -- I'm in the same boat as you. I live in Los Angeles, which is just as insane. I'm of the firm belief that investment diversification is one of your best friends, and in my humble (and new to BP) opinion, California has three good reasons to look out of state entirely: you're already dependent on it for a job and home; property values are sky high; and it's a high risk area for natural disasters. Add those three up, and it's strong incentive to look elsewhere.
Michael, I've actually been looking at some opportunities in Ohio -- would you be amenable to my asking a few questions offline? I'd very much appreciate it.
Cliff Earle Contact me any time, My recent experience is exclusively in Dayton OH and I concentrate on zip code 45403. If you post your questions however you can get great insight form many members who invest in Ohio. I look forward to hearing from you.
Anna Z. I know you asked Anesh and I look forward to his answer . I find it necessary to make several trips to a target market to meet people. I first find several properties that have potential and begin with the real estate agents representing the owner, usually a bank or a short sale. I make it a point to talk to and meet property managers and have walked the streets meeting the neighbors. I realize this is a very personal approach but unless I can find trustworthy people and maintain good contacts I cannot operate effectively from a distance.
Once I own a property I focus on that area and get to know the neighborhood.
As Michael Lauther said, personal contact is essential. It starts with the source of your inventory. Knowing who rehabbed the home and to what standard it was rehabbed is important. Before my first purchase I visited and met the people who were rehabbing and selling and looked at the rehabs and talked with them. Then I had to get a reputable inspector because being remote, they are your eyes on the property before the purchase. I asked the inspector to take a lot of pictures and asked him a lot of questions. Then there is the property manager. Thats the most important piece. Again, I believe in personal contact so I met a couple in person. Again, ask a LOT of questions. Other pieces of the puzzle was a mortgage broker. I got one through a referral that has worked great. Now this is lot of work. Not worth it for one or two homes. But my plan is for multiple properties so now the network is set up, I leverage for more purchases. There is a lot more to this than I can post here but if you want, I can talk to you in more detail about what questions to ask, how to do the diligence etc. You can connect with me as a colleague and we can discuss it offline. Hope that helps.
Thank you both -- some great advice here. How do you initially go about vetting remote property managers? Related, do you "check up on them" at intervals to see how they are doing, such as talking to your tenants for their reviews? Thank you!
Anna Z. in looking for a PM/team I'm a firm believer if you can't or won't spend the money and get on a plane to go actually meet people and see the area then you need to rethink things.
This is not to say you MUST go visit the area(though it is a good idea), but if $1000 for a plane ticket and hotel in OH or IN will be too much of a drain on your finances you need to reconsider if you are ready to invest there.
What I would do is call a bunch of prospective PMs and see when a local REIA meeting is. Try to plan a trip that you can go to the meeting in the evening to meet people and set up appts with the PMs for the day time. Also drive areas to get a feel for which parts of town you might want to invest in. Now you should be able to make a decently informed decision and have the support you'll need in the area.
Hi Anna Z.
I live in Italy and I already have a rental property in Huntsville, AL.
I am willing to purchase another rental SFH in the US and I started a topic here: https://www.biggerpockets.com/forums/12/topics/89513
I collected some numbers here:
https://docs.google.com/spreadsheet/ccc?key=0AoZFdGAR8vTydFVZdTdBSk1SUUZVd3dNcmMzSExjb2c&usp=sharing
You can find a lot of forecasts, but nobody has the crystal ball.
For example in 2010 and 2011 Moody's and S&P economic forecasts about Huntsville were great. But the recent Government spending cuts affected the Huntsville economy.
My wife and I used to run a handyman company several years ago. About 2-3 times a year, I'd get a call from an out of town investor wanting me to go by their property and see what was going on with it because their PM company had been lying or kept giving them a bunch of stories and charging them for repairs that weren't done. I'd stick close to home, but I'm sure a lot will disagree with me.
Hi Anna,
Welcome and good luck on your journey here.
Your topic is one that hits close to home for me. I'm the RE agent for a investors group working exclusively with out of state and foreign investors in Kansas City MO. We have been very stable here in comparison to the rest of the country during the GFC, and that has brought a lot of investors to the area.
You would not believe some of the horror stories Ive heard from out of state and foreign investors. Most recently I heard of a Cali investor who came to the KC suburbs and bought a 3bd 2ba ranch on a little lake I had never even heard of before for 380K. 380K for a suburban lake house might have been a great deal in SoCal but here that house appraised for 150K and the 3200 rents the first property manager promised "huge red flag!" ended up only being 1250! Even worse yet the property still needed 15K in repairs!!! luckily the renters put up the money for the repairs "never happens" The REALLY REALLY sad thing about all this, for 380K I could have gotten the same buyer a move in ready/rented historic 6plex for 250K with enough left over to get a Central Hyde Park 6 bed SFR CRUSHER, and do a flip project. I'm not trying to brag as much as just express how different the market is here.
I liked what the other poster said about making a real relationship with the people you choose to work with, don't just be another client coming down the pipeline. Get a flight and come see the city you're prospecting meet the people you would be working with. For some agents/investors/wholesalers it must be exhausting constantly prospecting for new clients to burn. Personally I would rather work with the same people repeatedly.
ANISH TOLIA, how do you find a trust worthy team out of state?
The best way to find a trustworthy team out of state is by referral. If you can find other investors that are investing in the area you are looking at, ask them who they use and if they like them. Then call and interview the people who you were referred to.
I have rental property in San Antonio, but live in Oregon. The realtor and property manager I use there were referred to me by other investors there that I trusted and I have had a good experience with them.
Anna- I have large holdings in TX and FL, smaller holdings in UT and AZ and am living in CA! It works for me, but I've been at it a long time and do still maintain additional residences in AZ and UT. Others will answer your mgmt etc questions. Yes it can work and work well. Welcome to BP. Rich
Hi Anna Z
Great topic as I'm in the same situation as yourself. The Vegas market isn't the best for rentals, so I'm looking at Indianapolis and Houston. Hopefully some good referrals can come from BP and those who invest in those areas. Good luck!
Robert Wright, looking at Indianapolis is a good move. Indy is a great cash flow market. A lot of investors have pulled out of Las Vegas and Phoenix and are investing in Indianapolis now. I have considerable experience with the market. Let me know if I can help.
Man, I just hate when I type out a long response and then hit Post and my computer freezes and I lose it! Lol.
Anyway, hi Anna Z.! I'm in your same shoes, I live in LA and know that returns are better elsewhere. I only buy elsewhere, and have done it very well. I just left a comment on a blog talking about how I believe out-of-state investing is actually the easiest route for a beginner investor if you go through turnkey companies (which is all I go through) because it takes so much of the risk out of the equation. I'd love to talk to you in more detail about how I do it from LA, feel free to reach out anytime.