Out of State Investing Pros and Cons

Real Estate Agent · Lowell, MA · Member since 2015 · 187 posts · 67 votes

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

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Russ Kitzberger

Realtor · Cincinnati, OH · Member since 2022 · 81 posts · 58 votes

Some advantages

Truly passive income

Ability to write off visits to the property/location

Low chance of impromptu or emergency situations from tenants/users

The diversified market risk from your primary residence market

It seems most disadvantages are related to non-passive activities or the desire to participate in the management or care of the property. There is also the chance to not be well informed, however, that risk can be mitigated with good counsel.

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Russ Kitzberger
Realtor · Cincinnati, OH · Member since 2022 · 81 posts · 58 votes
4y
Some advantages
Truly passive income
Ability to write off visits to the property/location
Low chance of impromptu or emergency situations from tenants/users
The diversified market risk from your primary residence market
It seems most disadvantages are related to non-passive activities or the desire to participate in the management or care of the property. There is also the chance to not be well informed, however, that risk can be mitigated with good counsel.
4 Reply
Steven Foster Wilson
Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

I think out of state investing is great pending on the market. For example,the price to rent ratio makes for great investments here in Columbus. Not to mention our appreciation has been 8% higher then the US national average, because of the high demand for affordable housing. Ohio is also a landlord-friendly state. OOS investing can be challenging if you do not build and create a good team. But if you are located in a hard market to get into like California, it is not even a question about doing it.

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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
4y
As a new out-of-area investor, you will be competing for the same properties against local and long-time investors who will have far greater knowledge about the market and superior access to necessary services (tradespeople, managers, etc.).
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Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

I recommend you read this article on OOS investing. It explains the importance of creating your core four. You will need to get a local, rockstar Realtor, contractor, lender, and property manager.

https://www.biggerpockets.com/...

I invest locally in Columbus, Ohio
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Ruth Blue
Realtor · Pigeon Forge, TN · Member since 2018 · 230 posts · 111 votes
4y
@Joshua Poitras
My Mom and I are a team here in the Smokies. Out of state investing is the backbone of our lives. When we lived in Orange County, CA, the only place to make good returns was out of state. My Mom started in St George Utah, an 8 hour drive with 2 houses for long term rentals. Next we invested in Pigeon Forge Gatlinburg. My Mom knew the area well from childhood and the opportunity was great. She bought 2 cabins sight in seen and started STR. We never looked back. Now with 6 cabins owned and managing for other out of state owners. If your lucky enough to have local opportunities 100% go for it. My Mom also owns Huntsville AL and those are still out of state but more local with family around. Basically don't be afraid but take the chance. Run your numbers and be ready for adventure.
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Joshua JanusBusiness Member

Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes

Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

I would advise finding an investor friendly realtor. You really want someone that invests in their market themselves and understands the numbers. They should be able to determine the COC, annualized return, estimated ARV of a BRRRR, accurate rent comps and more. The valuation and market value of a multi family property differs from a single family and you want someone that understands the distinctions if you go that route. If they just represent first time single family home buyers and aren't constantly finding off market properties and reviewing deals, you'll find a better investment through someone else.

https://www.kiavi.com/blog/out-of-state-real-estate-investing

https://learn.roofstock.com/blog/out-of-state-real-estate-investing

I choose to invest in Cleveland and Columbus, Ohio. Cleveland is ideal for lower priced multi family properties with soaring cash flow. Columbus is a top five appreciating city in the US with an unexpected mix of cash flow which is backed up by a population and job growth. Breaking the One Percent Rule isn’t uncommon in either of these areas and can be applied as a baseline in situations where immense appreciation isn’t expected in B-C class neighborhoods. Whatever market you choose to put your money in, spend the time to learn it.

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Brad S.
Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?
More Advantages
* You can invest where the trends are and not be limited to your own "backyard." I'm in CA and there has been a general out-migration trend recently, so I can choose to invest in areas that are experiencing high in-migration, or business in-flow, etc
* Being able to invest in more affordable areas. Median home prices in CA are currently over $800k - not very affordable by many standards.
* Being able to invest in areas with better potential returns. that $800k house in CA may get you around $3,000-$3,200/mth rent in a good area. Those are terrible returns from a rental perspective only.
Disadvantages
* Less direct control over your property and investment. You typically need to rely on others more.
* Buying in areas that may not appreciate or be good rental areas. You may get bad advice or management. My 2 first rentals did not appreciate at all over 17 years, when I finally sold them. Even today, they would only be minimally up compared to the price I purchased them at. I should've chose the area better, but the available data was not as good as it is today, and the CoC returns were great ....until repairs and maintenance!
* Paying higher prices for construction/repair work, since you have a harder time vetting and shopping for venders.
that's all I can think of for now...
2 Reply
Peter MckernanBusiness Member
Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

From my prospective, the pro/con. 1. Pro: cashflow is greater 2. Con: appreciation is less (this is dependent on some markets going to other markets)
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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
4y
@Joshua Poitras, while I don't invest directly out of state, I will share disadvantages that I have heard from others. As Russ mentions, these ultimately come down to levels of management, and ultimately trust in others to do what they say:
Placing bad tenants
Misaligned interests, assuming all team is fee based
Can't truly know the markets and submarkets
Poorly executed repairs
Large capex/repair bills
Paying premium for everything
Conflicts of interest, where management may get bid from "friend" and then 2 other high priced places to make "friend" appear best
Additional tax filings in that state
Often times more challenging to finance (clearly there are lenders that do this, but not as many)
Additional costs for travel, assuming you don't blindly trust your entire team
More challenging to replace any member of the team
There are advantages, but for me, they don't outweigh the pros. In all markets, and based on many turnkey numbers I have seen advertised, the cash flow you are seeking is really just deferred maintenance and under reserved capex (assuming you will own for 7+ yrs).
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
The only reason I can see to invest out of state is if you can't find those kind of deals in your backyard, which is the advantage. You can zero in on a specific strategy and hit a market where it's possible hard! Cons, you have less control. Alot of things are left to the mercy of other people. Finding deals, contractors, property management, tenants.
1 Reply
Seth Young
Specialist · Southlake, TX · Member since 2021 · 213 posts · 157 votes
4y
Being able to invest in landlord friendly states that offer much lower prices are both advantages. Equally as important as the market, I would say the team you work with is crucial when investing out of state. @Joshua Poitras
1 Reply
Frank Greg
Lender · rate.bid · Member since 2022 · 324 posts · 62 votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

RE deals are not necessarily always in your backyard or where you reside. There is a cost to limiting where you invest. There is also a cost when you are not local to where you invest.
1 Reply
Alvin Sylvain
Los Angeles · Member since 2018 · 466 posts · 471 votes
4y
David Greene has a book through Bigger Pockets on this very topic. "Long Distance Real-Estate Investing."

The long and the short of what I've gleaned from reading some parts of it is the following: You need to establish a good, reliable, on-site team.

Probably start with a local agent (local to where you want to invest, duh!) From there, you'll need good contractors for whatever rehab you'll need to do, repairs and maintenance, etc. Then you'll need a good property manager, who has access to good maintenance people, coz you're not gonna want to fly out there to fix toilets yourself.

If the numbers work out, and you can rely on your team, there shouldn't be any unmanageable difficulties.
1 Reply
Rodney Sums
Laveen, AZ · Member since 2016 · 584 posts · 528 votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

Advantages:
1.Investment opportunities not present or less lucrative locally is the primary advantage.
examples are: prices are lower than local, taxes are lower, laws are more favorable to landlord, getting in to a market due for more growth than locally or on par with locally but less expensive, less competition from other investors
2. You get to brag to other people and sing cool songs like "I've...got...homes.....I've got hoooooooomes. In different area codes....area coooooooooodes" (See rapper Ludacris for reference)
Disadvantages:
If you're not familiar with or have history with the area you're more reliant on statistics and opinions from your realtor and property manager
It's harder to supervise significant repairs/renovations
Small jobs you could have done yourself require spending money to pay someone else to do it
Fewer opportunities to drive by and check on the place
If the market is hot you may not have time to drive by or see the property in person
Although tax deductible, the expense of traveling to the property when needed
There's more but off the top of my head.
0 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
4y
@Joshua Poitras you should just refer to this as Remote Investing as someone living in San Francisco could invest in San Diego and not want travel to see their properties:)
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Joshua Mason
Member since 2022 · 13 posts · 17 votes
4y
One great advantage I have learned about OOS investing is that you can access much better markets than where you live alot of the time. You also can often find areas that have much better returns as well.
Some of the disadvantages would maybe be the fact that you have less control, but I believe that if you can get connected with the right company who can walk you through the process that you will be able to have a smooth and easy investment process.
Hope that helps!
1 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
4y
If something it far or out of state, you are forced to build great relationships with the professionals in your market.
It becomes an 'investment' much faster this way.
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
Pro: you can tap into a market that’s a lot more investor friendly
Con: finding a team you can trust and rely on
0 Reply
Matt Sledge
Member since 2022 · 7 posts · 2 votes
4y
Quote from @Brad S.:

Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?
More Advantages
* You can invest where the trends are and not be limited to your own "backyard." I'm in CA and there has been a general out-migration trend recently, so I can choose to invest in areas that are experiencing high in-migration, or business in-flow, etc
* Being able to invest in more affordable areas. Median home prices in CA are currently over $800k - not very affordable by many standards.
* Being able to invest in areas with better potential returns. that $800k house in CA may get you around $3,000-$3,200/mth rent in a good area. Those are terrible returns from a rental perspective only.
Disadvantages
* Less direct control over your property and investment. You typically need to rely on others more.
* Buying in areas that may not appreciate or be good rental areas. You may get bad advice or management. My 2 first rentals did not appreciate at all over 17 years, when I finally sold them. Even today, they would only be minimally up compared to the price I purchased them at. I should've chose the area better, but the available data was not as good as it is today, and the CoC returns were great ....until repairs and maintenance!
* Paying higher prices for construction/repair work, since you have a harder time vetting and shopping for venders.
that's all I can think of for now...
Brad
where were the the two properties that didn't appreciate after 17 years?!

0 Reply
John Acheson
Renter · Las Vegas, NV · Member since 2018 · 278 posts · 71 votes
4y
I don't know BUT I'm doing/done two deals in a town,
I only visited over a decade ago, and have only visited
each property once back then ONLY.
So my experience was smooth in a wholesale deal,
AS-IS no inspection, I seller-financed BUT the other
deal was a nightmare incl. eviction, insurance claim,
stolen property, abatement, etc. so I dumped the
property and I think it's cursed, one problem after another,
so it gave me another MBA in real estate LOL.
It's a GREAT WAY to learn:
- problem solving
- trusting a virtual team (via phone/text/email)
- developing phone skills
- getting creative based on heresay
- realizing that stress is part of the deal
- gratefulness for things you can see

which all comes down to Buffet's
"I stay in my circle of competence"
Do you want to become a 10 yr pro
at off-site deal/property mgmt?
0 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
4y
Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

The pro is going to be the ability to buy real estate when you may not be able to do so unless you go out of state. Lots of investors are priced out of their hometowns. The con is you're far away and presumably a lot less familiar with an out of town market vs your own.
1 Reply
Zach Cohen
Member since 2022 · 10 posts · 10 votes
4y
thank you to all the previous commenters, post have been really eye opening.
I am in SoCal and do not want to invest here for multiple reasons: 1. the cash flow seems horrendous, 2. everyone is leaving the state 3. the investment cost is a barrier.
The main issue im hoping someone can help me with is : where is the best place to start with OOS investing, I am just having a hard time picking a market... ones im looking at in no order are ; Columbus Ohio, Cleveland Ohio, Jaxville , Bham Alabama.
Once I select a market what is the next best step to take? contact a realtor ?
given im new its really hard to gain traction and build momentum on this.
thanks!
2 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
4y
Quote from @Zach Cohen:

thank you to all the previous commenters, post have been really eye opening.
I am in SoCal and do not want to invest here for multiple reasons: 1. the cash flow seems horrendous, 2. everyone is leaving the state 3. the investment cost is a barrier.
The main issue im hoping someone can help me with is : where is the best place to start with OOS investing, I am just having a hard time picking a market... ones im looking at in no order are ; Columbus Ohio, Cleveland Ohio, Jaxville , Bham Alabama.
Once I select a market what is the next best step to take? contact a realtor ?
given im new its really hard to gain traction and build momentum on this.
thanks!

Knowing what's what in the markets you are investing in is the biggest thing. I see you're looking at Cleveland. Cleveland can be a tough nut to crack. Out of state investors can make a lot of money here, but they can also make some major mistakes as well. For every investor I see killing it, I see another one screw up royaly by buying a property using the wrong comps or something like that.
The level of risk in Cleveland will vary widely based on the neighborhoods. Trying to compare one part of Cleveland to another can be an apples to oranges scenario. As such, I wrote The Ultimate Guide to Grading Cleveland Neighborhoods to help out of state investors out. The idea isn't to tell you what to buy, just to give you the info you need to assess the risk vs reward of what you are buying.
Good luck out there playa.
0 Reply
Uri Gofman
Member since 2018 · 150 posts · 200 votes
4y
The Cleveland Ohio market is a very good consideration as it features relatively low prices, a large rental pool, and strong cash flow. I would recommend that you don't ever rely on a single source of information on your journey. Always have independent parties giving you their take on any property you're considering (perhaps a realtor and an unrelated home inspector). Never buy a property without having a party independent from the seller giving you their opinion of condition (in most cases, seller generated pics don't tell the whole story). There are many solid opportunities in the market but you may have to pick over some of the less desirable ones until you identify them. Finally, don't consider the least expensive highest yielding properties in this market. In most cases, the actual returns don't work out anywhere near the projected returns and the drama and unpredictability that is associated with this asset class is just not worth it!
Best of luck to you!
2 Reply
Joshua PoitrasPro Member
OP
Real Estate Agent · Lowell, MA · Member since 2015 · 187 posts · 67 votes
4y
Quote from @James Wise:

Quote from @Joshua Poitras:

To my out-of-state investors, what do you believe are the advantages and disadvantages to out of state investing. Or even long distance investing?

The pro is going to be the ability to buy real estate when you may not be able to do so unless you go out of state. Lots of investors are priced out of their hometowns. The con is you're far away and presumably a lot less familiar with an out of town market vs your own.
Im all out west right now. Caps/COC to low on the eastern front. IMO of course.
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