Long-distance or close to home investing?

Question

I am thinking of getting into multi-family specially 4plex to start with. I wanted to go local but the price tag too high in Dallas, TX area. If I go within 4-5 hr drive I can find better deals. Although I will be giving it out to the property management to manage but at least I can go and see the property if it closer than not being able to drive to the location if it is truly long-distance. What do you guys think which way to go, long-distance or within 3-4 hr drive?

Alecia Loveless · Answer

@Pj Arora I think you’ll be happier if you can find something within an hours drive. You just have to analyze a lot more deals and be creative searching for your property.

My first property is about 35 minutes away and I only get there about once every 3 weeks. My in town properties I drive by 3-4 times a week.

Bjorn Ahlblad · Answer

When we lived in Ca we invested two states away and relied on a PM. Today we invest max one hour away and PM it ourselves. Any more than an hour away we would hire a PM.

Eric Fernwood · Answer

Hello @Pj Arora,

I recommend selecting an investment location based on your financial goals. If your goal is to have a dependable passive income that you will not outlive, then the location is the most important investment decision, not the property.

Wherever you decide to invest, it is critical that you work with a good local investment team. The reason is the local knowledge. Everything you learn from podcasts, books, webinars, and websites is general in nature. When you buy a property, you are not buying a general property, but a specific property in a particular location that targets a specific tenant pool segment and is subject to specific local rules and regulations. The only source of the local information you need is a local investment team. Also, no matter how hard you try, you cannot replace the years of investing experience of a team of people. Furthermore, there is no additional cost to working with an investment team compared to any other realtor. Therefore, there is no reason to not work with an experienced investment team.

Does remote investing work? Yes. We've delivered over 490 investment properties and greater than 90% of our clients live in other states or countries; only about ten clients were local.

Back to selecting a good investment location.

We developed a straightforward process for selecting an investment location that is highly likely to provide a passive income where:

• Rents keep pace with inflation, ensuring that you have the sustained buying power needed to maintain your standard of living.
• The rental income will continue for a long time.

Below is an illustration of our overall methodology. It's like peeling an onion: at each decision point, there are clear metrics so you know you're making the right choice.

For the remainder of this post, I will focus solely on how to select a good investment location for dependable passive income. If you are interested in learning how to select high-performing properties, please let me know.

There are too many potential locations to investigate individually. Instead, we use a process of eliminating locations that do not meet specific investing requirements. This results in a small set of cities that require further investigation.

The process starts with metropolitan areas with a population greater than one million.

• Metro area population size greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia
• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent are income taxes, property taxes, and insurance. Do not assume that all states with no income tax are equal. Below is a comparison of average state property tax and insurance costs for Texas, Florida, and Nevada.

To show the impact of taxes and insurance, I compared the average state costs for a $400,000 property in the three states. (Remember that these are state averages, and individual cities may impose additional taxes.)

To achieve the same income as a property in Nevada, you need to generate a higher cash flow in Texas and Florida. Source: Insurance - ValuePenguin, Metro Property Taxes - LendingTree

• Low disaster risk -When a tornado or other natural disaster strikes a city, it doesn't just destroy individual properties. The entire community, including jobs, shopping, and retail, can be wiped out. Your tenants won't wait for the community to be rebuilt. They will immediately move to a location where they can work and live today. Even if your insurance company rebuilds your property, there may be no one to rent it. Areas affected by natural disasters may take many years, or even never fully recover. However, your mortgage, taxes, insurance, maintenance, and other expenses will continue without interruption. The cost of homeowners insurance is a good indicator of the likelihood of a natural disaster in an area. Therefore, it's best to choose a location with low-cost homeowners insurance, as this indicates the lowest risk of natural disasters. Insurance - ValuePenguin
• Inflation compensating - Every time you go to the store, the same basket of goods costs more and more. Therefore, it's critical to select a location where rents and prices are keeping pace with inflation. Rents tend to follow prices, so you can use the appreciation rate if you don't have historical rental data. Zillow Research
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your property manager's ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any location with rent control. The only source of this sort of information is your local investment team.

At this point, you will have a small number of potential cities.

Pj, When selecting a location, it's important to focus on your end goal. Additionally, working with a good local investment team will minimize your time, cost, and risk.

Eliott Elias · Answer

Killeen Texas.

Bruce Lynn · Answer

i'm kind of interested in where that 4-5 hour drive takes you.

DFW proper can be a bit expensive, but I don't think you have to go that far away.

Some of the cities just on the outskirts of the city should have better prices and give you the opportunity for growth.

I think in many ways it is often better to invest locally and you add a level of complexity when get outside of your home turf.

For example if at some point you want to do upgrades and renovations, you may not want a PM to manaage that and take a fee for the project.

However you might want to me with 3 contractors your self and oversee the updates/upgrades. Tough to do 4-5 hours a way...or if you need new AC units....that might be something where you pick the contractor....not impossible to do long distance, but maybe tougher and with more risk.

Pj Arora · Answer

Right @Alecia Loveless I think for me it gives more peace of mind when I can go and check on the property personally. I definitely would give it to the property manager to manage.

Lucia Rushton · Answer

You are in such a strong market. I would definitely consider DFW. of course it depends on your budget, but 4-5 hours away puts you in a variety of different areas.

As always just my opinion,

Joe S. · Answer

Each investor has unique situation. For example, if you was trying to do creative deals it’s easier to convince sellers that you are a real and local answer if you are local. Whereas we have sourced much of our own deals being local was a good thing. Couple years ago we bought a number of bank owned properties in another state. The rehabbs were harder to manage to the point that chapter is probably closed for good.
There are some investors with very high paying jobs or businesses that have lots of income to pump in the properties. Some of these investors does not necessarily need to source their own deals or buy at a steep discount therefor buying out of the area where the numbers make better sense for that particular method would come in to play.

Jordan Alexander · Answer

I think it all depends on your goals! Some people only invest in their backyard while others only invest out of state. Lay out the pros and cons to each and see which option appeals to you more.

Pj Arora · Answer

Thank you guys. @ Bruce Lynn and @Eliott Elias

As Eliott mentioned Killeen was my first choice as well because of these factors

-Growing population

-job growth

-Median household income $64,000

- meets 1% rule

@Bruce, if you have any other town in particular let me know.

Long-distance or close to home investing?

Long-distance or close to home investing?

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