Considering buying a small multi-family out of state...advice?
Member since 2021 · 9 posts · 5 votes
Considering buying a small multi-family out of state...advice?
Most Popular Reply
@Monica Boyles, all of the advice on here is solid. Rather than repeating what has already been said, I will stress something that I feel was only lightly touched upon - property management.
I see this more often than I'd like, where new investors will buy a property solely based on how it underwrites. If the numbers look good on an excel spreadsheet they jump all over it. Yet they don't put too much focus on the actual management side of it, and end up cutting corners, or engaging a third-rate management company. And sure enough, the investment ends up being a disaster.
Since this is out of state, and you're not likely to self-manage the property, I'd highly suggest putting a lot of your effort into identifying a solid local management company. One of the important things to pay attention to, since you are looking for a small property, is your building's proximity to other properties that the management company is managing. A big mistake a lot of investor make, especially when when it comes to small properties, is that they rely solely on the reviews, feedback and reputation on the company, and disregard how far away the company is from their property. Since you're likely to pay the management company a percentage of income, the management company doesn't end up making all that much on smaller properties, and they tend to not want to inconvenience themselves and deal with issues as they arise, and in a timely manner, if it means traveling a half hour away each time. As apposed to a management company that is already managing a portfolio of properties within a few block from you, and can hop over at any time. As a side note, especially with smaller properties, another thing to pay attention to, is some companies also tend to play games on the accounting and expense side, to prop up how much they make from the property. So definitely do your research on this.
Good luck!
25 Replies
- Markets: There are a lot of great markets around the country, rather than name markets I like and invest in, I'd recommend that you learn what makes a great market then pick one and dig deep. Get to know it like the back of your hand. Get networked with investors, wholesalers, property managers, and other service providers in the area. All of that will build your foundation so you're knowledgeable, well networked, and ready to roll on deals.
- Viewing the property yourself is great, but getting an independent 3rd party's opinion is even better (like a contractor). If you have an agent involved you can get them to Facetime you and walk you around to see the property.
- Get off market deal flow coming your way. Don't just look at properties that are listed on the MLS. Get on wholesalers' marketing lists and start analyzing! Be wary, though. Wholesalers' estimated repair costs can be wildly underestimated.
- Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes3y
@Monica Boyles the financing numbers in this market are tough to make work but rates are as cyclical as the RE market. The OOS markets are a dime a dozen as you can find forums here that both praise and condemn said market, just ask what you are comfortable doing and do a great job of due diligence.
I would say visit the market, meet your team, have at LEAST 3 of each to interview and make sure you stars align. Analyze your deals and then when you feel you aren't ready (no one really is) get your offer accepted and then post any questions back up here, you wont be the first person to have the problem as we have been in that scenario before.
- Real Estate Agent · Miramar Beach, FL · Member since 2016 · 285 posts · 245 votes3y
@Monica Boyles Out of curiosity, what is your logic behind saying that buying in CA doesn't make sense? Are you talking in regards to finding a cash-flowing property or a property with high appreciation potential? What are your goals and what's your current cost of living? Do you plan to stay in your current career for many years? How long do you plan to stay in CA?
I think a lot of people discount buying in CA when in reality, it could make sense if you found a duplex or something similar in a solid area and owner-occupied while renting out the other unit. You will not cash-flow on a duplex if you owner-occupy it, but if your current cost of living is lets say $4K/mo and your all-in cost of ownership of a duplex in SF after a 5-10% down payment is $8K and you can rent one side of the duplex for $4K, then your cost of living has not gone up yet you are now able to access the appreciation of the asset, gain equity in the property via principal pay-down, and gain the tax advantages of owning real estate. This is obviously a simplified example, but that is the general logic I use to make this analysis.
If you are fully sold on out-of-state markets, I agree with @Jonathan Taylor from above. A lot of affordable out-of-state markets are the "siren song" calling to CA investors. Certainly a lot to think through when looking at new markets, but I would start with an area that you are either familiar with, enjoy visiting, or have family/friends. Having at least some connection to the area helps you leverage that knowledge and the network in that area to find a trustworthy team. Plus its always great to have someone you know and can actually trust to drive by on occasion and report back to you.
- Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes3yMarket wise I would pick somewhere that meets your goals. That seems overly simplistic but before you start you’ll need to define if you want to go for more appreciation, tax shelter, cash flow, what type of asset you want now (2-4 unit), what type you think you’ll want if you continue to grow in that area, etc.
Quote from @Monica Boyles:
Hi all - looking to buy my first 2-4 unit multifamily (or possibly STR). I live in the San Francisco Bay Area, so buying locally doesn't make sense. I've been looking at more remote but still desirable parts of California, but obviously CA is just expensive in general. Even though I am aiming to put 30-40% down, it seems like it will be challenging to get rents to cover a loan and basic monthly expenses. Would love any guidance on buying out of state -- from best markets to consider, to techniques for research, how not to get burned, is it OK to purchase sight unseen or would you always recommend viewing in person, etc. I'm sure this topic has been covered before, so please feel free to point me to existing guidance if there is some. Many thanks in advance.
Since you want 2-4 unit buildings you’ll want to look in a market that has many of those. Some places just don’t have a ton of housing stock of that type. My market Pittsburgh has a lot of small multifamily if you wanted a place to start. Happy to answer any questions on Pittsburgh.
The most important component of your success though will be your team. Your realtor, property manager, and contractors will likely be the ones you interact with the most over time, but your lender is also important. You may get referrals to other members of your team from whoever you have first, but it’s also important to look on your own.
Best of luck! If you have my specific questions feel free to ask! - Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes3y
@Monica Boyles while I encourage our clients to come visit, I have helped several out of state buyers invest in DFW. Being their eyes and boots on the ground. I provide live-streaming and or videos so they feel like they are right by my side.
@Monica Boyles, all of the advice on here is solid. Rather than repeating what has already been said, I will stress something that I feel was only lightly touched upon - property management.
I see this more often than I'd like, where new investors will buy a property solely based on how it underwrites. If the numbers look good on an excel spreadsheet they jump all over it. Yet they don't put too much focus on the actual management side of it, and end up cutting corners, or engaging a third-rate management company. And sure enough, the investment ends up being a disaster.
Since this is out of state, and you're not likely to self-manage the property, I'd highly suggest putting a lot of your effort into identifying a solid local management company. One of the important things to pay attention to, since you are looking for a small property, is your building's proximity to other properties that the management company is managing. A big mistake a lot of investor make, especially when when it comes to small properties, is that they rely solely on the reviews, feedback and reputation on the company, and disregard how far away the company is from their property. Since you're likely to pay the management company a percentage of income, the management company doesn't end up making all that much on smaller properties, and they tend to not want to inconvenience themselves and deal with issues as they arise, and in a timely manner, if it means traveling a half hour away each time. As apposed to a management company that is already managing a portfolio of properties within a few block from you, and can hop over at any time. As a side note, especially with smaller properties, another thing to pay attention to, is some companies also tend to play games on the accounting and expense side, to prop up how much they make from the property. So definitely do your research on this.
Good luck!
- 3yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
Quote from @Monica Boyles:
Hi all - looking to buy my first 2-4 unit multifamily (or possibly STR). I live in the San Francisco Bay Area, so buying locally doesn't make sense. I've been looking at more remote but still desirable parts of California, but obviously CA is just expensive in general. Even though I am aiming to put 30-40% down, it seems like it will be challenging to get rents to cover a loan and basic monthly expenses. Would love any guidance on buying out of state -- from best markets to consider, to techniques for research, how not to get burned, is it OK to purchase sight unseen or would you always recommend viewing in person, etc. I'm sure this topic has been covered before, so please feel free to point me to existing guidance if there is some. Many thanks in advance.
Hey Monica
I'll name a few markets for you. Kansas City, MO, Pittsburgh, PA, Tyler, Texas, Louisville KY. We've closed loans in all four cities and the cash flow was great, the values were reasonable and the rents were great.
Stay away from the coasts. The values are way too high to sustain decent cash flow.
Pm me if you need some referrals of good Realtors or Property Managers in the area.
Good luck on your journey,
Stephanie
- 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
@Monica Boyles I made a ton more money buying and holding non-cash flowing properties in Silicon Valley than I did buying cash flowing properties OOS. As long as you are not forced to sell you should do well.
- Real Estate Agent · Member since 2022 · 61 posts · 31 votes3y
Monica- I would say the first and foremost important thing would be to find an agent who specifically specializes in what you are looking for. A lot of agents try to do a little of everything and that can end up being dangerous when it comes to the investment side of the business. Agents who specialize in investment properties typically have a wealth of connections i.e property managers, contractors etc. This is essential! Make sure the agent knows the market, knows how to calculate COC and other important criteria, and has experience in muti-family or STR strategy. From what I know, the MN, FL, and TN markets are super strong for what you are looking for. I hope this information is helpful!
- Member since 2021 · 9 posts · 5 votes3y
Quote from @Stephanie P.:
Quote from @Monica Boyles:
Hi all - looking to buy my first 2-4 unit multifamily (or possibly STR). I live in the San Francisco Bay Area, so buying locally doesn't make sense. I've been looking at more remote but still desirable parts of California, but obviously CA is just expensive in general. Even though I am aiming to put 30-40% down, it seems like it will be challenging to get rents to cover a loan and basic monthly expenses. Would love any guidance on buying out of state -- from best markets to consider, to techniques for research, how not to get burned, is it OK to purchase sight unseen or would you always recommend viewing in person, etc. I'm sure this topic has been covered before, so please feel free to point me to existing guidance if there is some. Many thanks in advance.
Hey Monica
I'll name a few markets for you. Kansas City, MO, Pittsburgh, PA, Tyler, Texas, Louisville KY. We've closed loans in all four cities and the cash flow was great, the values were reasonable and the rents were great.
Stay away from the coasts. The values are way too high to sustain decent cash flow.
Pm me if you need some referrals of good Realtors or Property Managers in the area.
Good luck on your journey,
Stephanie
Thanks Stephanie -- funny, I was looking at Pittsburgh properties last night, since I lived there (years ago) and know the city a bit.
- Member since 2021 · 9 posts · 5 votes3y
Quote from @Ari Stern:
@Monica Boyles, all of the advice on here is solid. Rather than repeating what has already been said, I will stress something that I feel was only lightly touched upon - property management.
I see this more often than I'd like, where new investors will buy a property solely based on how it underwrites. If the numbers look good on an excel spreadsheet they jump all over it. Yet they don't put too much focus on the actual management side of it, and end up cutting corners, or engaging a third-rate management company. And sure enough, the investment ends up being a disaster.
Since this is out of state, and you're not likely to self-manage the property, I'd highly suggest putting a lot of your effort into identifying a solid local management company. One of the important things to pay attention to, since you are looking for a small property, is your building's proximity to other properties that the management company is managing. A big mistake a lot of investor make, especially when when it comes to small properties, is that they rely solely on the reviews, feedback and reputation on the company, and disregard how far away the company is from their property. Since you're likely to pay the management company a percentage of income, the management company doesn't end up making all that much on smaller properties, and they tend to not want to inconvenience themselves and deal with issues as they arise, and in a timely manner, if it means traveling a half hour away each time. As apposed to a management company that is already managing a portfolio of properties within a few block from you, and can hop over at any time. As a side note, especially with smaller properties, another thing to pay attention to, is some companies also tend to play games on the accounting and expense side, to prop up how much they make from the property. So definitely do your research on this.
Good luck!
Great advice - thank you Ari.
- Member since 2021 · 9 posts · 5 votes3y
Quote from @Marshall Leipprandt:
@Monica Boyles Out of curiosity, what is your logic behind saying that buying in CA doesn't make sense? Are you talking in regards to finding a cash-flowing property or a property with high appreciation potential? What are your goals and what's your current cost of living? Do you plan to stay in your current career for many years? How long do you plan to stay in CA?
I think a lot of people discount buying in CA when in reality, it could make sense if you found a duplex or something similar in a solid area and owner-occupied while renting out the other unit. You will not cash-flow on a duplex if you owner-occupy it, but if your current cost of living is lets say $4K/mo and your all-in cost of ownership of a duplex in SF after a 5-10% down payment is $8K and you can rent one side of the duplex for $4K, then your cost of living has not gone up yet you are now able to access the appreciation of the asset, gain equity in the property via principal pay-down, and gain the tax advantages of owning real estate. This is obviously a simplified example, but that is the general logic I use to make this analysis.
If you are fully sold on out-of-state markets, I agree with @Jonathan Taylor from above. A lot of affordable out-of-state markets are the "siren song" calling to CA investors. Certainly a lot to think through when looking at new markets, but I would start with an area that you are either familiar with, enjoy visiting, or have family/friends. Having at least some connection to the area helps you leverage that knowledge and the network in that area to find a trustworthy team. Plus its always great to have someone you know and can actually trust to drive by on occasion and report back to you.
Hi Marshall - I think buying in the Bay Area proper isn't a fit for me as I don't plan to owner-occupy - no plans to move for the time being. Otherwise, your approach could make sense. I do think that Bay-Area-adjacent could work if I can find the right investment. I do like the idea of staying local-ish if I can. Thanks for your suggestions.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes3y
I have sold many CA buyers class A/B buildings on north side of chicago that cashflow. These are 650+ credit type tenants and the numbers pan out well in real life. I have had a few CA clients buy in Ohio or Indiana where the tenants didn't actually pay and it was just a money pit. Chicago north side costs more but is easy to run from california. There also are good areas like Brighton Park on southside where can get a 4 unit for $400k that rents $4800 market rate with nice working class tenants.
- Rental Property Investor · Harrison, NY · Member since 2017 · 37 posts · 18 votes3y
@Monica Boyles
All of the advice on here is on point. I invest in Multi family 5+ units in Memphis. Why that? There aren’t a whole lot of 2-4s like there are here in NY. There are a ton of single fams and small apartment complexes. Why Memphis? I go there a lot and have a family there. We started buying together. Boots on the ground can give you a pretty awesome advantage.
Is there a location in the country that you could have an advantage in? Do you have family in a market that makes sense? Did you go to college somewhere? Do you have a good friend or former colleague in a good market? Do you like traveling to a specific city/region/state?
- Real Estate Agent · Pittsburgh, PA · Member since 2014 · 822 posts · 255 votes3y
As others have said, Pittsburgh PA is a great place for investors as often the buy in is more conducive than other more saturated markets. But you really must know the area well. Hard to do when based out of town. So in order to make a more successful purchase, having someone who you can trust who also lives in the area is key. Though it's often done, my personal preference isn't buying sight unseen. But again this is where having an advocate on your side who's willing to tour the properties for you, taking pix/vids and offering their expert advice can help greatly.
- 3yPatrick DruryBusiness MemberReal Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
@Monica Boyles
Once you pick a market, find an investor-focused agent in the area to help you build your team or as David green calls it the Core 4 which is an agent, lender, property manager, and contractor. If your agent is good, they will source off-market deals as well. - Memphis, TN · Member since 2022 · 230 posts · 99 votes3y
Hey @Monica Boyles
A great place to look when you begin looking at out-of-state investing is Memphis, Tn.
Memphis is a city where you would be able to find cash flow from day 1, especially when putting 30-40% down. A long with the cashflow available here in the city we have also seen stable appreciation for many years now.
I would be more than happy to discuss investing in Memphis with you! Feel free to reach out!
Quote from @Monica Boyles:
Hi all - looking to buy my first 2-4 unit multifamily (or possibly STR). I live in the San Francisco Bay Area, so buying locally doesn't make sense. I've been looking at more remote but still desirable parts of California, but obviously CA is just expensive in general. Even though I am aiming to put 30-40% down, it seems like it will be challenging to get rents to cover a loan and basic monthly expenses. Would love any guidance on buying out of state -- from best markets to consider, to techniques for research, how not to get burned, is it OK to purchase sight unseen or would you always recommend viewing in person, etc. I'm sure this topic has been covered before, so please feel free to point me to existing guidance if there is some. Many thanks in advance.
YES there are markets in the Midwest that will provide double digit net caps, when purchased cash. About 20%++ COC when you refi ,Its all about knowledge
Good luck
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 834 votes
Hi Monica, although it is not necessary to go see the property with your own eyes, any agent could do a showing and get videos of the place to get a more realistic view of it. But, going to see the property yourself isn't a terrible idea, after all this is a huge asset to have, especially if it is your first. Be sure to have multiple houses you'd want to see of course in case one doesn't seem fit for you. I am in Cincinnati, OH, one of the 3 cash flow markets in OH. Cleveland, Columbus, Cincinnati. I would recommend giving Cincinnati a try, let me know and we can hop on a call to get you set up on a search!
Sam McCormack Realtor Quote from @Monica Boyles:
Hi all - looking to buy my first 2-4 unit multifamily (or possibly STR). I live in the San Francisco Bay Area, so buying locally doesn't make sense. I've been looking at more remote but still desirable parts of California, but obviously CA is just expensive in general. Even though I am aiming to put 30-40% down, it seems like it will be challenging to get rents to cover a loan and basic monthly expenses. Would love any guidance on buying out of state -- from best markets to consider, to techniques for research, how not to get burned, is it OK to purchase sight unseen or would you always recommend viewing in person, etc. I'm sure this topic has been covered before, so please feel free to point me to existing guidance if there is some. Many thanks in advance.
You can get 10% net caps or better with cash purchases and much higher COC when you refi in the Midwest markets. There are teams out there that handle everything for you
Good luck
Hi Monica, I have found value investing in Cleveland, OH because it is home to Cleveland Clinic, lot of good neighborhoods, landlord friendly laws, stable appreciation and good cash flowing properties. There are also abundant opportunities for small multi family and SFH. I have been able to scale up to 12 doors in 2 years so definitely recommend this area. Feel free to reach out and we can discuss
- Member since 2020 · 9 posts · 5 votes3y
I live in NJ and invest in upstate NY (3 1/2 hrs away by car). I connected with a co-worker who referred me to a contractor. he referred me to a RE agent. That agent found me a 6 unit, off market, and I use his a a PM as well. He referred me to a residential lender, who then referred me to a commercial lender. The commercial lender referred me to an attorney.
Moral of the story? Find 1 connection and then work by referral.
As for seeing the property in person, I saw 1 time in person for inspection, and 1 time at closing walk through. I have been there 1x since and don't care if I ever go back.
So, GO FOR IT!
- 3yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
is it OK to purchase sight unseen or would you always recommend viewing in person?
I would never advise a person to buy their first investment property sight unseen.
Spent the $500 - $1,000 and fly out there and stay there for 2-3 days.
Get a feel of the house, the neighborhood, meet your connections.
After the first deal, it is okay to buy sight unseen but still get a home inspection.
Basit Siddiqi CPA4.880 Reviews - Member since 2022 · 3 posts · 1 vote3y
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Click the link, fill out the form, and we will also send you interview questions for you to save time and money.https://tryhomeflow.com/find-t... - 3yScott AllenBusiness MemberReal Estate Agent · Columbus, OH · Member since 2020 · 449 posts · 471 votes
Look into markets in the Midwest. Try to narrow it down to three different markets that you like. Network with investor friendly agents that can explain their market more to you then if you can, visit those markets for a weekend to decide which one you'll want to move forward with. After that, work on building your core four and locking something up to close on and get started. Best of luck!
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