Investing out of state
Member since 2019 · 13 posts · 6 votes
Investing out of state
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Investor · Alameda, CA · Member since 2016 · 132 posts · 170 votes
7y@James Pettinelli - when we were first getting started, we worked through the same series of decision points. Here are a few things I found helpful when vetting markets and properties, "sight unseen."
Educate yourself: pickup a copy of @David Greene's book: Long-Distance Real Estate Investing
It's enjoyable and easy to apply. There are plenty of books that hit on this topic, and this one is more residential focused, but some of the strategies/tactics apply to commercial, as well (assuming you're looking for commercial properties, since that's the forum we're in)
Set your investment criteria - after some self-education, this is the next step since it will guide the markets and submarkets you choose. what are your 'investment criteria?'
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Vetting properties: To your question of "how do I protect myself...?" this is more of a question related to the mid/late stages of your overall approach, whereas the the recommendations above are fundamental 'getting started' steps. Vetting really comes down to people and process. Most of these tips are covered in the other reading/education you'll find out there already, but here some of the things we did:
- If you are doing true 'long distance' investing (not easily driveable), I recommend focusing on finding/building at least a couple local relationships in the market you decide to target. Get to know people who live in the area, whether that's vendors, partners, other investors, etc.
- Get inspections with reliable local partners. Cross-check the inspection reports from each partner, with the other partners... and listen closely to how they discuss the findings. Example: it's interesting to compare the opinions of local insurance professionals vs. inspection companies
- We used WeGoLook.com and it worked well for what we needed it to do. You don't exactly get a detailed report or professional picture and video, back. But it gives you a nice visual gut-check on the specific block and submarket you're looking at, if you don't plan to travel to the property, prior to close
- Go deep vetting the market/submarket with publicly available data sources (like city-data.com). Get to know the recent history of the neighborhood you're looking at
- During due diligence, hold your ground (in a professional, friendly manner) when asking the seller for key documents, like rent roll and bank transaction statements. If the seller isn't willing to prove economic occupancy... you're taking their word for it (and taking on some risk)
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Most important: Regardless of which asset type you focus on, strongly encourage first-time out-of-state investors to work with an experienced partner. Whether that's a turnkey single family rental, a multifamily syndication structure or a great deal you want to buy outright, and are willing to give a % of returns away to an experienced local investor who will ensure you don't strike out on your first one (better to 'hit a double' than strike out altogether, right?)
27 Replies
- Real Estate Investor · Milford, PA · Member since 2014 · 395 posts · 299 votes7y
James, you protect yourself by looking at the property. You don't buy sight unseen.
Research a bunch of markets that interest you. Run the numbers on those markets and then when you have decided on which market you want to invest in GO VISIT THAT MARKET. Spend a few days there meeting with PM's and brokers. Drive to no less the 25 properties and look at the product. Get to know the market. If you like the market drill down on it. Know what vacancy is, rents are, what expenses are per unit, what properties are selling for per door, per sqft, etc.
You may find my response to this following BP post helpful. looking to invest out of state
- Investor · Alameda, CA · Member since 2016 · 132 posts · 170 votes7y
@James Pettinelli - when we were first getting started, we worked through the same series of decision points. Here are a few things I found helpful when vetting markets and properties, "sight unseen."
Educate yourself: pickup a copy of @David Greene's book: Long-Distance Real Estate Investing
It's enjoyable and easy to apply. There are plenty of books that hit on this topic, and this one is more residential focused, but some of the strategies/tactics apply to commercial, as well (assuming you're looking for commercial properties, since that's the forum we're in)
Set your investment criteria - after some self-education, this is the next step since it will guide the markets and submarkets you choose. what are your 'investment criteria?'
---
Vetting properties: To your question of "how do I protect myself...?" this is more of a question related to the mid/late stages of your overall approach, whereas the the recommendations above are fundamental 'getting started' steps. Vetting really comes down to people and process. Most of these tips are covered in the other reading/education you'll find out there already, but here some of the things we did:
- If you are doing true 'long distance' investing (not easily driveable), I recommend focusing on finding/building at least a couple local relationships in the market you decide to target. Get to know people who live in the area, whether that's vendors, partners, other investors, etc.
- Get inspections with reliable local partners. Cross-check the inspection reports from each partner, with the other partners... and listen closely to how they discuss the findings. Example: it's interesting to compare the opinions of local insurance professionals vs. inspection companies
- We used WeGoLook.com and it worked well for what we needed it to do. You don't exactly get a detailed report or professional picture and video, back. But it gives you a nice visual gut-check on the specific block and submarket you're looking at, if you don't plan to travel to the property, prior to close
- Go deep vetting the market/submarket with publicly available data sources (like city-data.com). Get to know the recent history of the neighborhood you're looking at
- During due diligence, hold your ground (in a professional, friendly manner) when asking the seller for key documents, like rent roll and bank transaction statements. If the seller isn't willing to prove economic occupancy... you're taking their word for it (and taking on some risk)
---
Most important: Regardless of which asset type you focus on, strongly encourage first-time out-of-state investors to work with an experienced partner. Whether that's a turnkey single family rental, a multifamily syndication structure or a great deal you want to buy outright, and are willing to give a % of returns away to an experienced local investor who will ensure you don't strike out on your first one (better to 'hit a double' than strike out altogether, right?)
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes7y
Originally posted by @James Pettinelli:
I was initially trying to invest in locations within 1-2 hours driving distance of where I live in Northern VA, but then it occurred to me that that's a very limiting approach. But how do I invest out of state? How do I protect myself from a bad purchase if I can't see what I'm buying? I'd be grateful for any advice people have for long-distance investing. Additionally, I'd be interested in areas around the country experienced BP investors really like to plant their money. Thanks!
When investing out of state most people look at the turnkey markets. Most of the turnkey markets are in the Midwest. Tons of these markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
- Cleveland, Ohio
- Dayton, Ohio
- Toledo, Ohio
- Youngstown, Ohio
- Cincinnati, Ohio
- Memphis, Tennessee
- Birmingham, Alabama
- Kansas City, Missouri
- Saint Louis, Missouri
- Indianapolis, Indiana
- Detroit, Michigan
- Erie, Pennsylvania
- Louisville, Kentucky
- Milwaukee, Wisconsin
- Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
- Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
- Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
- Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
- Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
- Make sure your property manager is a licensed real estate brokerage.
- Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
- Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes7y
You've got a phenomenal feedback from @Spencer Hilligoss.
In addition, you should build a strong team in your OOS (out of state) target market. You can do it in one of two ways:
1) find the PRO's that will care after your property as their own: property managers, inspectors, attorneys, etc...
2) partner up with someone locally who will be "boots on the ground".
@James Pettinelli, when considering investing in any market outside of your own backyard, you need to have have solid boots on the ground. It may even require you to take multiple trips out to that market, so you can understand as much as you can about it. Be sure to contact the local police department and the economic development committee to gather any data as far as the jobs that may be coming into the area or leaving the area. Be sure that the market has good job diversity as far as employment. Is the population increasing yr over yr? Just some things to think about.
- The protection comes from due diligence. There's very little about a property that you can't verify. So that due diligence is about that verification--leaving no stones un-turned. As far as investing out of state, it depends on how you want to do it. Here's the basic methods:
https://www.biggerpockets.com/...
I've always gone the turnkey route. Me or any of the turnkey folks can help with that. If you want to do more of the DIY method, check out David Greene's book that a lot of people talk about on here.
Hope that helps! - Rental Property Investor · Weehawken, NJ · Member since 2014 · 1k+ posts · 704 votes7y
Buying your own properties out-of-state will require several steps of verification.
If you want to go with syndications or private lending, you can lessen the number of steps. This is not to say you should be less cautious. Instead, you can vet and meet a sponsor, go with a strong deal, and one that matches your outlook. In this way, you are investing in expertise and superior local knowledge. In some cases, you may even have syndicators in your region pursuing the out-of-state opportunities. This gives you a great chance to meet with them and learn about their business.
- Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes7y
I would recommend a turny-key property under management out of state. Otherwise, I would move to a better market. It's not like the job you have doesn't exist in better real estate markets.
- 7yDanny RandazzoPro MemberApartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
@James Pettinelli find someone local in the market that you want to buy in that will work with you and build that trust. Also, pay for thorough due diligence when you get a property under contract.
- Member since 2019 · 13 posts · 6 votes7y
Thanks for the great advice everyone! I've settled on investing in Ohio, probably in Dayton. I definitely took some nuggets away from this thread that will help me get started. @Spencer Hilligoss, thank you for the information you provided. I had no idea about the wegolook.com option; what a great service, and one I definitely intend to use during preliminary research! Regarding having local folks you can trust, such as realtors and property managers, that's great advice. I'm working on developing those currently. City-data.com is a website I happened to come across for the first time just before I saw your post. Wow, the demographic and home purchase/rental information on that site is incredible. I'll be referencing it a lot. Unfortunately, I don't have an experienced partner (your most important piece of advice) to work with me yet on my first out-of-state purchase, but I'll keep on the lookout for someone.
If anyone out there is a Dayton specialist, feel free to contact me!
Separately, @James Wise you had a lot of great advice as well. I recently had run in with a person who represented himself as a property manager, but later discovered he wasn't with a licensed brokerage. I wouldn't have known to even ask him if I hadn't been reading these BP forums. The additional information you provided about investing in a solid Class-B market, using independent inspectors, and getting an appraisal is all great advice too.
The additional comments from others about investing in turnkey properties in certain markets and picking up the BP book on long-distance investing came in handy, as well information from others in this thread I haven't mentioned, so thanks all! Much appreciated!
- 7yOzzy SmithPro MemberSpecialist · Dayton, OH · Member since 2014 · 352 posts · 265 votes
@James Pettinelli I think choosing Dayton is a smart move. I personally invest here and live here only bc of the opportunity (I’m not originally from Ohio). With that being said I have partnered with a few oos investors before and continue to work with them on a few buy and hold rentals. If you want to talk about how we structure our deals and how we handle daily operations send me a pm and we can schedule a time to chat on the phone in more detail
Ozzy
- Member since 2019 · 13 posts · 6 votes7y
@Ozzy Smith thanks very much! I just sent you a message with my phone number.
- Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes7y
Hi James,
My idea is that for the time, energy and risk of investing outside of your local area, that many investors looking for stronger growth markets, different asset classes (maybe MF, storage or manufactured home properties), you may consider partnering with experts that already know these areas better than you, have the relationships built and can stay on top of these investments. I like active local, passive outside my area. You could be an active or passive partner. One of the best ways to start in my opinion is participating passively in markets you like through investing with syndication partners. That may be a great way to learn more about the market, strategies, but with little time, expense in overseeing them directly.
- Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes7y
I second @David Thompson 's perspective. When I started my company in 2010 I was the "2nd Property Manager" to many investors who had purchased turnkey homes. It typically didn't work out for them due to the turnover cost even when the tenant was a good one. Add 1.50 to 2.50per sf in turnover costs every 1 to 3 years and the model typically falls apart.
In almost every case the only one making money was the turn key provider!
Wealth and cash flow in real estate is all about adding value. Study up on passive investing with partners who are experts in doing so. Learn about forced appreciation in larger properties.
Bottom line: keep your money in the bank and get more education and perspective. Don't be in a hurry!
All the best!
- Valley Village, CA · Member since 2017 · 34 posts · 13 votes7y
@James Pettinelli
I did it last year. I took time out, did a 1031 in a city I had never been to. I have a few suggestions.
Determine management before you buy.
Go and see the property/s, go see them at night too.
Do your numbers and don’t forget to include stuff not listed on the pro-forma, water, yard, salt, snow.
Have someone else look at your numbers.
Get an inspection or two!
Don’t be afraid to walk away!
Good luck!
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes7y
I started investing in Birmingham, Atlanta, Indianapolis but you might also look into places like Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets.
Let me know if you have any specific questions.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes7y
Originally posted by @Lane Kawaoka:
I started investing in Birmingham, Atlanta, Indianapolis but you might also look into places like Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets.
Let me know if you have any specific questions.
If you guys are looking into B-Ham I recommend giving The Ultimate Guide to Grading Birmingham Alabama Neighborhoods a read. It should help you make sense of why some neighborhoods are priced differently than others and what type of investment experience you'll likely have in each. Note I saw Indy and Memphis were also mentioned. I am currently working on Ultimate Guides for both of those markets and should have them published here on BP for you guys by the end of 2019.
- 7yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
@Lane Have you checked out Columbus, OH? It is a popular market for out-of-state investors.
- Realtor · Columbus, OH · Member since 2019 · 83 posts · 62 votes7y
@James Wise I'm originally from Dayton, if your not looking to hold for a while it's too risky right now. You can buy D level properties for $10,000 but Dayton is far behind Detroit as far as coming back. There just any jobs there. Even the best suburbs are no where near the city there like a second level of suburb.
- Member since 2019 · 13 posts · 6 votes7y
@Kevin Miller thanks kevin. Yes, i am looking to hold for a while.
- Realtor · Columbus, OH · Member since 2019 · 83 posts · 62 votes7y
@James Pettinelli I know a realtor down there if you want her info
- 7yJohn FortesPro MemberMulti-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
Great question @James Pettinelli! I started with a single family in an area where I had family. Matter fact, I never looked at the property till a year later (drove by and have yet to go inside). My father-in-law, sister-in-law and trusted broker all have been to the property and seen more of it than I have. The goal was to have an investment property and that's what was understood. As much as I wanted the BRRRR strategy, turnkey at a slight discount (sellers were moving back to their hometown) this was the safest bet. I reside in Massachusetts and the property is in Florida. I have third party management looking over it. No issues and moved onto multifamily investments. Have 2 assets (103 units) in Tennessee since. Just got to get started where you are comfortable. Best of luck!
- Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes7y
@James Pettinelli key to our of state ownership is 100% predicated on having good quality management. You can buy the best deal in the world and it will turn to dog **** if you have a poor manager. Secondly important is having 1-3 OTHER managers as warm leads in case the manager you thought was great, is actually not. Everything else is important, but not as much as this.
- Rental Property Investor · Long Beach, CA · Member since 2015 · 623 posts · 155 votes7y
@James Pettinelli Trust but verify. I live in California and invest in Indianapolis. I've gone through several PM's and too many contractors. I have a wholesaler I really like and on my next purchase I'll use his rehab team as well. He's helped several people I know BRRRR properties and I'll use him for that entire process.
Trust but verify. You can't implicitly trust anybody trying to sell you something. Real estate agents always like to show you the best comps, PM's tell you they can do a turn for a certain amount of money and then it goes up. Remember to get unbiased opinions on everything, even if you have to pay for them.
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