Buying property out of state?

Question

Let me start out by saying, when I say out of state I mean within a 4 hour drive of where I currently am (ma) not across the country.

I’ve been following and reading a bit for the last few months and finally decided to make an account as I’m getting more serious about the idea of buying my first property.
I’ve found some properties in neighboring states (with a management co) that aren’t in the greatest areas, but the numbers look good. Is this a bad way to start out? I can try to find something nicer and closer to me, but my thought is I can spend more money and a higher down payment and not as much cash flow vs buying 1/2 properties and spend less money down and have more cash flow. Does this ever make sense and work out?
Think would go with a conventional loan vs a dscr loan.

Drew Murphy · Answer

The reserves is a good point! I have x amount of dollars that i want to use to invest, if i finance some less expensive properties i would spend less on down payments, and have more reserves for repairs and future properties. id like to make my money go as far as it can!

Jim Stutzman · Answer

We own two properties that are 9 hrs away and are closing on one that is 8 hrs away in the opposite direction. As long as I can drive there in a day, I have no problem with the distance.  We also use property managers at our places.  These are all STRs.  We bought in nice areas that don't take a ton of maintenance.

Drew Murphy · Answer

It seems that buying something local that i can manage would be the best route to go, I've been looking and running the numbers and i just cant make it work. Thats why i have been looking into other areas that are a bit cheaper.

Christopher Liu · Answer

Great that you're getting more serious about buying your first property. There is obviously or right or wrong way to get started.

I would suggest that whilst it's important to make sure that the numbers and the performance of your first property are positive and will work, it's maybe beneficial to find a property that you can learn as much from to start with, even if that means you sacrifice some on the numbers. First properties are all about education if you ask me.

I would advocate for buying a property very close by as that will benefit you in many ways and frankly give you a better understanding of the levers that affect the numbers. You will be able to visit the property more often, learn the neighborhood, visit other properties in order to compare your property to, and may be even manage the property yourself and learn about that side of it. Either way, best of luck !

Justin Moy · Answer

Congrats on taking some huge first steps! I don't think its a bad strategy, it's just different. There are people who specialize in all types of assets and asset classes, you just have to know what you're getting yourself into and make sure your team (PM and contractors) are willing to work in that area.

Very generally speaking the higher cash flow areas with higher cap rates will project smaller appreciation returns, so that's also something to consider.

Underwriting will be different too, older buildings will need more budget for repairs and if the area is on the lower income side budgeting more for legal expenses and bad debt write offs as opposed to the nicer properties is also a smart idea.

Good luck!

Lien Vuong · Answer

Higher cash flow and C/D tenant classes are a very common way for people start their investing journey. Some people will even stay in it and expand in those chosen markets. It is just important that you prepare for the additional capital expenditures as they tend to have higher turnover and management fees due to the volatility of those areas. In the long run, it certainly would work out as long as you have the right reserves in place.