Buying RE in a different state than your own?
Rental Property Investor · Cleveland, OH · Member since 2015 · 24 posts · 6 votes
Hi there! Newbie here. I'm really excited to get into REI and have been searching my area for quite some time.
But the prices are too high and/or not worth it to invest here since the Cash on Cash ROI average about 4-8%.
I know I can personally do better in the stock market or peer to peer lending with those rates.
So I've been talking to a couple buddies out of state (OH, MN, ID, etc..) where the markets aren't as crazy as the greater Seattle area.
And I have been baffled by how cheap the prices are and have run some calculations which provide a way better return
I'm under no illusion that I can ask the same rent prices they do here in the Seattle area, but am gathering an average from other rentals in the area.
The problem is, that OH, MN, ID are not around the corner and driving over to check out the property to see if things are still alright is not an easy task.
How have you dealt with buying property out of state? Using a good property management company is key I'm assuming, what else should I watch out for?
Thanks in advance!
I invest in California, Texas and Indiana and it's always about the team you have. The property management team is the most important so do not choose hastily. Vet property management properly and call every company you can.
There are opportunities a little outside of the hot markets, I've found. The Portland, Maine market is hot and the high prices keep smaller multiunit properties from cash flowing. The equity gains are strong in Portland, though. Just a few towns over the prices are lower and the properties cash flow. Going a few more towns away, the prices are cheaper and the cash flows are stronger, however the equity gains aren't there.
T find out about an area go to IREM.org search for ARM certified property managers. Call 5 ask them what they see expenses running per category per unit. What do they see them selling for per unit, what is the market occupancy rate. What are the market rents? Ask them if they know anything coming up for sale. Great way to pick up some good info and possibly a deal.
You can also search NARPM.org for the RMP (Residential Management Professional) and MPM (Master Property Manager) certified.
Are you investing in Maine? Ifso, where?
Michael your in the right place ask BP for references in the area you are interested in and they will refer people they work with. If you want some one to do it all for you there are some company's like Realwealthnetwork.com they find rehabbers and managers in certain markets and do it all for you.
Hi there! Newbie here. I'm really excited to get into REI and have been searching my area for quite some time.
But the prices are too high and/or not worth it to invest here since the Cash on Cash ROI average about 4-8%.
I know I can personally do better in the stock market or peer to peer lending with those rates.
So I've been talking to a couple buddies out of state (OH, MN, ID, etc..) where the markets aren't as crazy as the greater Seattle area.
And I have been baffled by how cheap the prices are and have run some calculations which provide a way better return
I'm under no illusion that I can ask the same rent prices they do here in the Seattle area, but am gathering an average from other rentals in the area.
The problem is, that OH, MN, ID are not around the corner and driving over to check out the property to see if things are still alright is not an easy task.
How have you dealt with buying property out of state? Using a good property management company is key I'm assuming, what else should I watch out for?
Thanks in advance!
Hello Michael,
Welcome to BP and REI! What you asking makes a great point. I know many investors who wish to invest out of state due to the cost of renting in their own cities. Many times people who live on the coasts want to invest in the Midwest, or some other states you mentions. Prices in that market is still much more affordable and rent is still great.
Some options you might want to think of are turnkeys, or property management as you stated.
When you live out of state, is not easy to manage your own property. If you cannot drive to it at a whim, it is nice to have someone who can.
Always do research on whomever you are looking into, Make sure they are the real deal and they will be able to give you proper management for your buck. It is your property after all, and you want to make sure they care for it as you would if you were there.
Please feel free to send me a message if you have any questions.
@Michael D.if you don't have time and resources to build the foundation like finding the realtor, contractors, PM company then other way is to find reputable turnkey providers in the area you are interested to invest. Many investors out of state with not enough time/skills go that route to get into REI space if backyard RE market is not viable option. Ensure to vet them heavily along with the area and product and do visit the place. Never buy sight unseen and understand what you are doing. Just my 2 cents from a different angle
I agree with @Omar Ruiz. I work in Property Management in Indianapolis and vet deals for my clients all of the time. I know that Indy is a hot place to invest because most of my investors are out of state or out of the country. I would recommend staying away from the one-stop shop (rehabbers / property mangers) as they are usually more interested in selling homes than managing them. Find other investors in the area and ask for recommendations. Be sure to interview them. Research their online reviews. Research the types of homes they currently have available for rent. Ask for referrals.
Personally, I don't think fees are as important because the lower cost guys typically either have hidden fees or provide poor property management that creates avoidable costs. In the end, fees end up relatively similar. Look for someone professional, who has a pulse on the local market, has a good reputation, understands the local market and industry, and is well networked. It's a tough industry and it's easy to get a bad reputation. If a PM is not a good one, it's not too hard to figure it out with a little due diligence. There are over 250 realtors, investors, contractors, and property managers who offer property management in Indianapolis and I personally believe that 90% of them do poor work. There are plenty of forums and blog posts on how to find a good property manager and what to look for.
If you haven't already... listed to the Podcast with Chris Clothier. There is a good amount of information about property management in that broadcast.
Best of Luck!
Thanks everyone for the massive amount of information, I'll definitely heed them all moving forward!
Hey Michael! Yep, you nailed it....it's all about the team. Your property manager has to be good or you'll be in trouble. But with the returns and prices available, there's a little time to recover from a bad one if you accidentally get stuck with one.
I live in LA and have always bought out-of-state for the same price/returns reason. Happy to help if you need anything!
@Michael D.Would you buy a stock because the companies headquarters are in your hometown and you can drive by it to make sure the employees aren't trashing the building? OK, I'm being a little facetious (just a little though). The problem is that because real estate is a physical and tangible asset, people treat it differently than other asset classes. You really need to shift your mindset from that of a landlord to that of an investor. The big equity funds like Blackstone and American Homes 4 Rent own tens of thousands of single family homes throughout the country and they don't have people driving around checking on them. The key is to have really strong property management that you can trust and count on. There's no question that investing outside of your home state has more challenges but they can be overcome and sometimes you don't have any choice if your goal is cash flow and you live in a high cost market. I just did a webinar on how to buy in the best markets no matter where you live and in it a did a comparison of the economic and demographic fundamentals of some of the top markets. I'll be happy to share a link to a recording of the webinar if you want to watch it.
Cash on Cash isn't the only return if your comparing it to the stock market. If your in Seattle a place people want to live you'll be paying a lot more upfront with a lower cash on cash return then some where people aren't flocking too. You might factor in the other ingredients before you buy appreciation, depreciation, and my favorite owing less! Just a thought
I like the whole owing less every year the most, it's the only really guarantee if you'll keep other people paying your mortgage you'll owe less, if you have enough cash flow to a pay a 15 year or so payment and you look at interest savings in terms of return on investment it can be a rather surprising how good your overall return can be. But my exit strategy from the 9-5job is owning homes free and clear and collecting rent so when I buy and rehab something I look at it all in keep it forever terms
@Brandon Ingegneritrust me I would like nothing else, but the market is so inflated here that it really doesn't make much sense to do it. Especially when starting out. Scoping out properties in the midwest mainly, the rental property calculator is making overtime for sure :)
I know it's tough out there. I've done some business outside of Seattle. Quick wholesale flips mainly. You have to target a niche. You need the hoarder with 10 cats who can't get out of his own way. You turn a couple of those, and your in good shape.
One area that people fail to mention that is relatively close to you I guess that you could look into is Rapid City SD. Maybe something will pop.
Michael-I live in California, invest in Texas. The success secret has been and is reliable property management with high ethics/values and other investor connections who look for property there.
I agree with @Kaylyn T. you have to find a realtor that you can trust. Some who understands their market and will send you deals. Interview a few... as far as property management I would say you will probably find a great property manager from your agent in that area. Best of luck!
The biggest hurdle for me is finding competent Realtors who will give you accurate comps and drive by the properties to take pictures. I hold a real estate license, and am amazed at how unresponsive and sometimes clueless some agents are. There is a wide range of knowledge and professionalism between agents, and you might have to go through some to find the one that you like. I have made a list of agents that are "naughty" or "nice" so I know who to talk to in those area. I also prefer working with Keller Williams realtors because their training is so good. I haven't bombed out with any of them. You might also look for an agent that is a CRS or GRI designee. They have had some advanced training to get that designation. Hope this helps!
...and ditto what everyone is saying about property managers. They can make the difference between profit and big losses!
I have invested out of state since 2006 and I an doing it profitably. I did have a very steep learning curve but because I had money to cover all repairs and vacancies, I was able weather the storm. A ground team in the area you want to invest is very important, but it does necessary have to be a property management company. In fact, I feel that most pm are predatory in nature looking for prey. Learning how to manage your own properties is time well invested in being a successful real estate investor. It will definitely make a difference in the bottom line and can mean the difference in your making your investments cashflow or not. I have bought 2 properties unseen. One I had a ground team, one I did not. In Houston, my handyman that I used to take of repairs on my other 4 properties there, was my eyes on the ground. I was would pay him a small fee to go look at any property that I had found and give his opinion of the house, repair estimate, the area and also send me pictures of that property. You can also use a realtor for the purpose. Also you can get opinion of the very helpful BP members in the area you are considering investing. So if you making connection with no less than 2 members (3 or more is better) that when you take a trip to area, you can get the grand tour of their city. You get a more rounded view of your targeted area. I eventually found a property that work for me. I also used GoogleMaps to take a tour of the area. One thing I look for is trucks in the area, which would indicate it is a working class area. Also I am checking to see if there is signs in the area of excess crime. You can use www.spotcrime.com to see what is happening around the house within a 1 mile radius.
The 2nd house I bought in Memphis without feet on the ground, but I still did my due diligence. I use Googlemaps to check the area. On Googlemaps make sure to check the date the tour was taken, for some may have been 2 years or older and not represent the house and area present state. I also check for the home prices in the area by using www.eppraisal.com. I use Eppraisal to see what is for sale and what have sold recent in that area at what price. I also found out what was the zip codes that would be ta better bet to invest in the city, which I did in doing a search on BP.
Real estate is the real deal. If something sounds too good to be true when someone is pitching a deal, you better investigate with due diligence. It could be a good deal but unlikely.
I will continue invest out of state, but I want to continue to be increase my buy and hold properties. That being said, I will in future when my resources are appropriate, I will invest here in L.A.
Out of state properties are great to have for income. I love my properties out state because they have afforded me financial independence. The real money is on the West Coast due to appreciation. The problem with the high cost of entry and the time required to get the killer appreciation which come from owning property here. You may have to wait for that magnificent pay day. Or you may get lucky as I did and get in the right time with right situation. My Rome wasn't built in a day. That is okay because I am still growing it. Good luck to you!
O