Multi-family Properties- Invest in same state or multiple?

Question

Does it make sense to buy properties in all different states, or is it better to buy in the same state?  Even towns and counties in the same state have different rules, so the only difference with having properties in different states would be the distance and knowledge of the laws, right?  I am trying to weight the pros and cons, as I always see good deals in different states and am tempted to pursue them.

Michael Dumler · Answer

@Kyle Brown to point out the obvious, the biggest difference when buying out of state is working with a new set of vendors. New property managers, new contractors, new agents, etc. It seems counterintuitive, but broadening your net and search criteria into multiple markes will more likely then not slow your real estate investment process. Until you have a decent sized porfolio, I recommend sticking to one or two niche specific markets. Hope this helps!

Greg Scott · Answer

All else equal, I'd rather have properties in the same city or at least the same state.

Why?

• It takes a while to become familiar with all the submarkets in an area.  What may look like a great deal from afar might simply be a D-class neighborhood with higher cap rates that is, in fact, a bad deal. 
• You have zero synergies if your properties are in different states.  If you are short staffed at one property, you cannot share with the other, which I something we've had to do from time to time
• You have to develop a completely different vendor base.   If you want to be successful, just randomly picking vendors takes a lot of time and effort.  We've cultivated great relationships with our vendor base.  I can call them any time a new property comes on the market and get detailed information about the condition and how the current owners operate.  You can't do that if you are bouncing around the planet.
• Travel costs.  Enough said.
• The legal processes vary significantly from location to location.  We've honed our processes to maximize operational efficiency in our city.  When we buy another property we simply copy / paste that process into the new property.  If you tried to do that into a different city or state, it is likely something will break.
• If you use 3rd party property management, it is helpful if you use the same one across your properties because each one has different systems and processes.  When you get to know the people at your property management company, you get to learn their tendencies and blind spots and can help correct issues.  But, most property management companies have a regional focus so you may have to use a different one in a different state.