Out of State Investing
Hello, I am based in the metropolitan DC area and looking to invest out of state as this market is very expensive and it's hard to find a good deal. Does anyone have any experience investing in the Midwestern states? Was considering looking into markets such as Detroit, MI, Cleveland, Oh, St. Louis, MO, etc as from my understanding cash flow tends to be higher in those markets. I am primarily focused on cash flow vs appreciation at this point in time. Any thoughts on investing in those markets would be greatly appreciated.
Also, by chance does any have any contacts of real estate agents they can share in any of those markets?
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#1 Real Estate Technology Contributor
- Flipper/Rehabber
- Pittsburgh
I hear you as I used to live there... but if you're new I'd strongly encourage you to pick a market or submarket where you can be hands-on.
So this might be a DC exurb 1.5 hours away where prices are lower but demand is still strong.
Cash flow even in the markets you listed has come under pressure because of the increase in interest rates. I'm in Pittsburgh, a "low cost" market, and most deals here don't work anymore if you use standard mortgage debt.
Hi @Justin Carter, I'm a local agent in Pittsburgh and I can send you some rental properties if you'd like to see what the numbers are like here. Pittsburgh real estate is still very cheap. Check out rentometer.com to search the market rents in an area that you're considering investing in.
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And that's not to mention any value add opportunities. That's just because rents are currently so high in this market. It just depends on the type of neighborhood you're looking to invest in. The ones with the higher cash flow, generally have more risk. But an expert agent in the area can help you identify which neighborhoods you're looking to invest in and which ones you want to stay away from.
It always helps when the properties are in your backyard, but these Midwest cities aren't that far away if you needed to visit for an emergency. The best thing you can do is to find an expert Realtor/ Broker in the area that can help cut your learning curve in that market and can help you identify the best type of neighborhoods and areas you want to identify to maximize your cashflow gains!
We think the Midwest is a GREAT place for OOS investors to consider!
YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods:
https://www.biggerpockets.com/...
(BP search feature can be problematic, so we’ve also added links @ our website under View Cities & Neighborhoods We Service)
Your biggest question shouldn't be WHERE to invest, but HOW you will invest!
Many OOS investors set themselves up for failure because they don't invest the time to ACTUALLY understand:
1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.
2) The Class of the PROPERTY they are buying - which is relative to the overall area.
3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.
4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.
5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.
6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.
7) That OOS property Class rankings are often different than the Class ranking of the local market they live.
8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.
9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.
10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.
11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.
Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?
Let us know if we can help in any other way.😊
Are you looking to do the work yourself? Find distressed properties and hire out the work? That is pretty tough at a distance unless you know what you are doing and have a good team. I did over 50 renovations the last 5 years in another state and got taken advantage of plenty- even from a contractor that I trusted and had already done several of my houses. Its because I wasn't there... and they took advantage and skipped a lot and lied. Even took photos of another roof and just painted my metal roof- so the photos looked good.
My point is if you do the whole rehab thing be prepared to visit the property often and don't trust anyone 100%. Or buy a house turnkey with everything in place already - so you don't have to be there.
Best of luck! Melissa
Have you ever considered KY? I have worked with a lot of investors in NY and Utah, who have pretty substantial portfolios out here in Central KY and I would be happy to talk with you if you are open to this market as well.