In-State vs Out of State

17 Replies

I am currently living in Southern California. Would it be better to look out of state for rental properties or in state? I am looking to start off in real estate investing and am not sure where to go? I know a live in would be better but more expensive.

There is no simple answer to this question, Derek.  There are dozens of considerations, like do you have family or friends out of state in an area you know well?  How often do you travel anyway?  How much money do you have to work with?  There are pluses and minuses to in-state and out-of-state investing.  You have to look at your own unique circumstances and decide what the best course of action is for you.

All things considered, I recommend you try to start where you are and if you can't make it happen--then look out of state.  And if you do, pick a place you know something about or have family in the area, or may travel to / visit anyway.  I have two rentals out of state but they are where I just lived and I still have friends there I occasionally visit.

Hope that helps, if only a little

Vincent

It is a personal opinion. My husband is active duty so local is relative. We currently live in central valley california. We love investing out here. While the numbers don't work for everyone they have been great for us! The key for us has been to buy properties that allow us self-management and to keep the numbers as tight as possible. I am a huge believer in seeing your properties every year. I have also notice that I have a lot of expenses long distance that don't exist locally. I have written in depth on this subject. 

Again I think it really depends on your model. Let me know if i can help! 

I agree with the first two comments that the answer to your question depends on a lot more information and your preferences.  You can do both.  Typically investing locally where you are is easier to start but in some cases isn't the best move if deals are harder to come by.  

Grow where you are planted!       Knowledge can usually replace money, regardless of prices in a market, so  learn RE first. :)

Derek Kraack Both would be my answer if I had the funds to do it. I would diversify my strategies and invest in California for appreciation and out of state for cash flow. Although some areas of California may be reaching its peak or past its peak. We may start to see a decrease in rising prices. But I'm way to inexperienced to make this prediction. I own my primary residence in San Jose and invest in Indianapolis and Birmingham. So far I would say things are alright. I have had a few issues but I am now convinced that these are the norm in REI. I'm definitely getting better and more comfortable with every deal. It's been a fun ride so far.
I am constantly amazed that there are LA investors that will hand their money over to complete strangers to help them invest in unknown markets in rust belt towns but they won't drive to Banning or Victorville to pick out their own $50-75k pig of a first rental. It appears the #1 search term for wholesalers is absentee/out of state landlords yet we have people lining up to do just that. I am sure there are great turnkey companies out there but you are putting a lot of faith in other people with few options if things go bad.

@Derek Kraack

in my opinion you want to buy your home were you live.. and if you don't own a personal resi I would work towards that. and one way to do that is to buy a 4 plex with an FHA loan so you owner occ deal... if you qualify... in many cases you can live in one unit free or next to free.. this is good.. and now you own 4 doors... you can refi out of the loan down the road and move to another 4 plex and rinse repeat and with 4 moves you end up with 16 doors all in the area you live... this is a great strategy I think for younger investors who don't mind moving and such.

Out of state can work but you have to find bullet proof providers .. IE folks that rehab to a very good quality and have PM that specializes in the asset class your buying without these as OP said out of state can be more risk than you might understand or want.

LA basin and the LA based investors are market makers.. no doubt..

Burnt out land lord syndrome is very real..

Take your time none of these markets is so tight that you cannot always find a deal.

Originally posted by @Derek Kraack :

I am currently living in Southern California. Would it be better to look out of state for rental properties or in state? I am looking to start off in real estate investing and am not sure where to go? I know a live in would be better but more expensive.

Hi Derek,

Check out a blog I wrote for Bigger Pockets about investing out of state.

http://www.biggerpockets.com/renewsblog/2014/07/26...

I hope you find it useful.

Thanks and have a great day.

Originally posted by @Derek Kraack :
 

I am currently living in Southern California. Would it be better to look out of state for rental properties or in state? I am looking to start off in real estate investing and am not sure where to go? I know a live in would be better but more expensive.  

The answer is SIMPLE:

If it's an INVESTMENT that you truly seek, then the market and the numbers will tell you everything you need to make a logical and informed decision.

Does it make sense to invest in a market that is high priced, unaffordable (buy and rent), likely over-priced (over valued), more prone to price fluctuations, and has laws that favor tenants over landlords?

Does it make sense to invest in a market where the numbers make sense the day you buy the property?  One with affordable housing in good neighborhoods, good cash-flow, and attractive rates of return?

When you remove any emotional attachments in your decision making, the answer becomes obvious.

Continued success!

The asking price of a property, and the "potential" cash flow are NOT the only factors you need to consider. 

1. What is the local economy like? Is it broad based, or one industry? 

2. What are wages?

3. What is the demand for rental property?

4. What are properties renting for? 

5. How much land is available for new development? 

6. Is there new development planned? 

7. What is the cost of having someone manage the property for you?

8. What are the costs of the property? 

As you can see, there are many questions you need to have answers to in order to make an informed decision. For instance, if there were a developer with a large project planned that will suddenly dump a large number of units on the market, then your cheap house will suddenly be less attractive and valuable. On the other hand, if there's a huge demand, and few units available, you can get top dollar. The devil is in the details, and too often when buying in areas you don't know, you can miss the important facts. 

I would suggest that you buy in a market where you are familiar and have easy access.

CA is a pro-tenant state. Sure you can rent a 2 bedroom for $1,500 - $2,000, but when the tenant stops paying and it takes 6 months or more to evict, the numbers don't look so good anymore.

Hey Derek, it completely depends on what you want out of a rental property. If it's cash flow, then out of state is your better bet. CA is better for appreciation type plays and such. As far as where to go to invest, it depends on your interests. Different markets have different types of properties and returns and such.

Their are probably plenty of deals within a 20 mile circle of you, if you look around you will find them. 

IMHO 30 minutes is my limit. I'd only consider something out of state if the property was large enough to support a full time staff. I'd never consider a SFR by itself that far away.

Originally posted by @Derek Kraack :

I am currently living in Southern California. Would it be better to look out of state for rental properties or in state? I am looking to start off in real estate investing and am not sure where to go? I know a live in would be better but more expensive.

Could you clarify the statement? Also, why are you thinking about looking outside? Budgetary concerns? Any prior experience either with rentals or managing rentals outside where you reside?

Originally posted by Account Closed:
Originally posted by @Derek Kraack:

I am currently living in Southern California. Would it be better to look out of state for rental properties or in state? I am looking to start off in real estate investing and am not sure where to go? I know a live in would be better but more expensive.

Could you clarify the statement? Also, why are you thinking about looking outside? Budgetary concerns? Any prior experience either with rentals or managing rentals outside where you reside?

 I am new to real estate investing and am looking for the best way to get started and yes the budget is short. Im reaching out to people in my area to understand the area.

Originally posted by @Derek Kraack :
Originally posted by @Greg F.:
Originally posted by @Derek Kraack:

It is not unusual for many investors in California to look outside for investment opportunities as there isn't much discounted properties in some areas.

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