Investing out of state
I have been thinking about and researching out out of state rentals. Currently I own 10 single family and would like to scale my portfolio. One reason is to diversify and not have all in one state. I am also open to Airbnb as a destination location.
What are you thoughts? or experience?
Pros and cons of out of state investing?
Pros- throw a dart at a map and invest. You can pick YOUR ideal market. Figure out your budget and criteria and then find a city that works well for you. From there, develop a core 4- Lender, PM, Agent, Contractor. You'll want people who have experience working with OOS investors and know their market well. This is crucial to the long-term success of your deal.
Cons- can't be there. Can't see the paint chipping on the side of the house, or the small leak dripping into the basement, etc. However, with the right team in place this can all be handled for you.
We see a lot of OOS investors come into Ohio, and if done properly they are often successful. Cannot stress enough how important it is to have a good team on the ground for you!
@Todd Knudson, I would ask the following, how active or passive are you with your current investments? Are you self-managing or is there a PM in place? How often do you view your current rentals if problems come up? At the end of the day, out-of-state investing really boils down to having a resourceful and reliable team in place (core four/rockstar team). The biggest con with investing out of state is the amount of time and energy it'll take for you to structure your new team.
Quote from @Jonathan Aversano:
Pros- throw a dart at a map and invest. You can pick YOUR ideal market. Figure out your budget and criteria and then find a city that works well for you. From there, develop a core 4- Lender, PM, Agent, Contractor. You'll want people who have experience working with OOS investors and know their market well. This is crucial to the long-term success of your deal.
Cons- can't be there. Can't see the paint chipping on the side of the house, or the small leak dripping into the basement, etc. However, with the right team in place this can all be handled for you.
We see a lot of OOS investors come into Ohio, and if done properly they are often successful. Cannot stress enough how important it is to have a good team on the ground for you!
Jonathan, thank you your comments. very good points about putting a strong team together.
Quote from @Michael Dumler:
@Todd Knudson, I would ask the following, how active or passive are you with your current investments? Are you self-managing or is there a PM in place? How often do you view your current rentals if problems come up? At the end of the day, out-of-state investing really boils down to having a resourceful and reliable team in place (core four/rockstar team). The biggest con with investing out of state is the amount of time and energy it'll take for you to structure your new team.
Thank you for your comments Michael, I do manage my current properties myself. However, I would probably put in place a PM for starters. Time is not an issue for me.
Quote from @Todd Knudson:
I have been thinking about and researching out out of state rentals. Currently I own 10 single family and would like to scale my portfolio. One reason is to diversify and not have all in one state. I am also open to Airbnb as a destination location.
What are you thoughts? or experience?
Pros and cons of out of state investing?
I know many people who oos invest. Most have been successful
Hello @Todd Knudson,
Out of the 180+ clients we've worked with, only about 10 were local. The rest lived in other states or countries.
When it comes to successful remote investing, two requirements are crucial:
- Choosing a location where rent has kept pace with inflation and is likely to continue doing so.
- Having an experienced local investment team.
Location Selection
The selection process is based on metrics that a location must meet. Below are a few of the criteria.
- Metro area population greater than 1M. Smaller cities may be too dependent on a single employer or market segment, which can lead to instability over the long run.
- Both state and metro populations are increasing. Never invest in a city if either the state or city populations are static or declining. Your financial future is linked to the financial future of the area. If the economy and quality of life are good, the state and city populations will be increasing.
- Low crime - A rental property is no better than the jobs around it. And, non-government jobs have limited life spans. The average lifespan of a company is ten years. An S&P 500 company has an average life span of 18 years. Every job your tenants have today will vanish in the foreseeable future. Unless new companies move into the city and create replacement jobs, the only available jobs will be low-paying service sector jobs. Companies are unlikely to select a high-crime location to set up new operations. If area income declines, the city has no choice but to reduce services. As services decline, crime increases, causing more people to move away. This is a financial death spiral from which few cities have recovered. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
- Low operating cost - Every dollar lost to operating costs is a dollar you don't have to live on. The three most obvious operating costs are state income tax, property taxes, and insurance. Choose a location with low operating costs if you want to maximize your net income.
- 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.
For more details, DM me for my free guide on selecting a dependable passive income location.
Investment Team
The key success factor for successful remote investing is an experienced local investment team. The critical team member is the investment realtor. Investment realtors are not “investor-friendly” realtors.
Residential (or "investor-friendly") realtors enable people to buy or sell homes. The process is simple. Homebuyers select properties, and the residential realtor provides access. Once selected, the residential realtor facilitates the offer and the closing process. Some residential realtors occasionally sell real estate that will become rental properties. However, residential realtors provide limited value beyond supplying MLS data sheets. MLS data sheets are worthless to investors.
While there may be thousands of residential realtors in a metropolitan area, there are usually only one or two investment realtors. Investment realtors work with a team to provide a broad range of services, including property selection, evaluation, renovation, and management. There is no way you can learn from podcasts, seminars, or books the skills and experience that a team of people has learned over the years and hundreds of transactions in that location free
For a guide on how to select an investment realtor, DM me for my free guide.
Summary
Remote investing is straightforward if you choose a good location and have an experienced investment team.
Quote from @Eric Fernwood:
Hello @Todd Knudson,
Out of the 180+ clients we've worked with, only about 10 were local. The rest lived in other states or countries.
When it comes to successful remote investing, two requirements are crucial:
- Choosing a location where rent has kept pace with inflation and is likely to continue doing so.
- Having an experienced local investment team.
Location Selection
The selection process is based on metrics that a location must meet. Below are a few of the criteria.
- Metro area population greater than 1M. Smaller cities may be too dependent on a single employer or market segment, which can lead to instability over the long run.
- Both state and metro populations are increasing. Never invest in a city if either the state or city populations are static or declining. Your financial future is linked to the financial future of the area. If the economy and quality of life are good, the state and city populations will be increasing.
- Low crime - A rental property is no better than the jobs around it. And, non-government jobs have limited life spans. The average lifespan of a company is ten years. An S&P 500 company has an average life span of 18 years. Every job your tenants have today will vanish in the foreseeable future. Unless new companies move into the city and create replacement jobs, the only available jobs will be low-paying service sector jobs. Companies are unlikely to select a high-crime location to set up new operations. If area income declines, the city has no choice but to reduce services. As services decline, crime increases, causing more people to move away. This is a financial death spiral from which few cities have recovered. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
- Low operating cost - Every dollar lost to operating costs is a dollar you don't have to live on. The three most obvious operating costs are state income tax, property taxes, and insurance. Choose a location with low operating costs if you want to maximize your net income.
- 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.
For more details, DM me for my free guide on selecting a dependable passive income location.
Investment Team
The key success factor for successful remote investing is an experienced local investment team. The critical team member is the investment realtor. Investment realtors are not “investor-friendly” realtors.
Residential (or "investor-friendly") realtors enable people to buy or sell homes. The process is simple. Homebuyers select properties, and the residential realtor provides access. Once selected, the residential realtor facilitates the offer and the closing process. Some residential realtors occasionally sell real estate that will become rental properties. However, residential realtors provide limited value beyond supplying MLS data sheets. MLS data sheets are worthless to investors.
While there may be thousands of residential realtors in a metropolitan area, there are usually only one or two investment realtors. Investment realtors work with a team to provide a broad range of services, including property selection, evaluation, renovation, and management. There is no way you can learn from podcasts, seminars, or books the skills and experience that a team of people has learned over the years and hundreds of transactions in that location free
For a guide on how to select an investment realtor, DM me for my free guide.
Summary
Remote investing is straightforward if you choose a good location and have an experienced investment team.
Great insight Eric! Completely agree- I would also like to add this list of safest cities in America. I'm biased, but 3 of the top 5 are all suburbs of Dallas. https://smartasset.com/data-st...
Also my 2 cents, I have always invested within 30 minutes of my home. Just personal preference, you pay a premium to be in and around Dallas but there is constant demand here. I don't generally recommend buying for appreciation since it's the one thing you can't control, but at this point with these rates I'm happy with break even rentals because I'm confident that if any appreciation is happening anywhere, it'll be here in Dallas.
As I said there is a premium, so most of what my clients are buying here is for house hacking or rent by the room.
Eric, thank you for your kind feedback. Your insight is very helpful.
Thank you!