Investing Outside Your Own Market

General Real Estate Investing
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Investing Outside Your Own Market

Jeff Petsche
Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes

Hello BP Community.

I will admit that I am a NEWBIE to the real estate investing game, and sometimes I fell I'm late to the party, but then I change my mindset and say it's never too late.

Quick Back Story:

I've been in real estate since 2003, but as a retail real estate Broker, so I'm not completely foreign to the investing game. I just have not yet purchased any investment properties. I tried back in 2004-2005, but due to some "marriage issues", my credit got jacked up and I was unable to get financing. At that time I was not really educated on other finance options, so I never pulled the trigger.

Currently I've been doing everything I can to gain more knowledge about RE investing options by reading books, listening to podcast, attending local investing groups, talking to other investors, etc.

This brings me to the current subject: "Investing Outside Your Own Market".

I've decided that my focus is going to be Buy-and-Hold SFR and up to 4 plexes.

I live in the Southern California market, so it's very very hard to make buy-and-hold properties cash flow, so I'm looking outside my market. I know some say they will only invest where they can drive to their properties, but so far none of those people have been CA investors, at least none I've talked to.

As a Broker for Keller Williams Realty, I have a lot of contacts with agents across the country who could help me assemble a team on the ground in an area I'd like to invest.

I'd really like to hear from other BP community investors who invest OUTSIDE THEIR MARKET and the pros, cons, types of systems in place to make it effective, etc.

Again, always wanting to learn from those who have walked before me.

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Ritch Bonisa
Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
9y

@Jeff Petsche Definitely, remote investing can be done and it can be very effective.  You need solid boots on the ground.  You also need great technology for reporting.  It is important to not just put your remote investment on auto-pilot.  Stay involved and be thinking about it on a daily basis.  You should be hearing from your boots on the ground on a weekly basis (minimum).  

I think the scariest part is buying a property without seeing it.  This creates a difficult situation in understanding any rehab or renovations costs.  You most certainly need someone in your target market that can give you solid numbers to go on.  You also need someone that will tell you "No, don't do this deal."  If you don't have that, then your risks are considerably higher.

If work with remote investors on a daily basis.  If you have questions, feel free to PM me.  I'd be happy to help with contacts and at least give you my perspective. 

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    9y
    Jeff Petsche I'm still new but I'm starting out of my own market. I like to do it this way because it forces me to build a good team and basically automate my systems. The other major pro for me is it makes my REI location independent. So no matter where I live I can still do REI. I'm starting in two different markets (Memphis and Cleveland) because the purchase prices are low and they are fairly stable. The major downside to this is you have to have a good team and you will have to fly to reach your properties. I don't mind flying since I'm young and it's relatively easy for me. Pm me if you want to talk more
    1Reply
  • Sidney S.
    Flipper/Rehabber · Centreville, VA · Member since 2015 · 33 posts · 4 votes
    9y

    Well @Jeff Petsche, we live just outside of DC and currently hold investments in Atlanta and Chicago. Like you, we feel that our market isn't really accessible due to high capital requirements. When we decided we wanted to invest outside of our area, we tried to do as much research as possible about the Chicago market. We would travel to Chicago to get a feel for the surrounding neighborhoods. We were always talking to brokers about specific areas, figuring out ARV on for-sale homes in the area and then put out tons of bids. This was us figuring out what the market would bear. In the meantime, we also worked to find companies that offered project management for development work we wanted to have done. We have not honed in on all the members of our team and to date, we have been able to hop into several investments in the Chicagoland area. Below are some of my pros and cons.

    Pros: 

    - You can get into a diverse market, with smaller capital requirements

    - You are not limited to just one market, you can have holdings all over the place. Essentially, if there is something negative occurring in one of the regions where you have property, you don't have all your eggs in one basket.

    - You can keep your 9-5. You don't have to be present and act as a project manager. 

    Cons:

    - You're not there. Things happen (or rather they don't happen). We pay a couple individuals who are well-versed in all things real estate to look about for our interests on the ground.

    - Not learning about little intricacies of your project. You're paying people to manage a lot of the work you'd probably do if the holding were close to where you live. The learning curve can take a bit longer. 

    In general, it sounds like you're positioned well since you have some key relationships already available to tap into. You're definitely not losing anything to take a look and see if an area vibes with your investment goals!

    Good Luck!

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Caleb Heimsoth Thank you for your comment Caleb and Memphis is a market I'm considering to invest in.

    I would prefer investing in my own market, but as I indicated, being in Southern California (Orange County) the average sales price is $675,000 and with prices so high, the numbers don't work. At least not for what I want.

    My criteria is a minimum 10% ConC, but would really like to look for 12%+ ConC. Those numbers are not working here. I've been analyzing a lot of properties and CAP Rates are between 3-4% and ConC is below 8%.

    I have yet to see a 1% rule. Usually .06 to .07 is pretty accurate. I sold my primary residence for $420,000 in December and if I had kept it as a rental, the best rent would have been $2,100, so only a .05 Rent/Value ratio.

    I've talked to a few investors here who invest in Indianapolis, Jacksonville and Memphis, and they have never even visited the properties. They have connected with the right people on the ground in the those markets and so far it has worked. One person owns 26 rentals in Indianapolis over the past 2-3 years and has never set foot in Indiana.

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Sidney S. Thank you for the comment Sidney. Sounds like things are working out well for your out of state investments.

    You make a good point about being in different markets in the event there is a market shift and not all your properties are affected by it. Had not really given that much thought. I've been looking at markets with sold population growth, low poverty, high graduation percentages and in areas of good schools, so that will eliminate the D (War zone areas) and even many C- neighborhoods.

    I do feel I am making the contacts through my real estate connections, so it's just about feeling comfortable with the area, the values, etc.

    0Reply
  • Account Closed
    Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    You can easily become one of the tens of thousands of California investors in Texas.

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    REI in individual properties is all about knowledge and control. Your knowledge and control goes down exponentially with the radius your investment properties are from your own front door. If you want a totally passive RE investment, then buy yourself a REIT and be done with it. Otherwise, invest in your own backyard where you can maintain control over your financial destiny. Buying a couple of random SFH in a far off market and putting your financial future into the hands of some small time (compared to said REIT) property manager (or realtor, or contractor, or all of the above) who is a complete stranger to you, who you will be 100% reliant upon to make or break your investment, is NOT my idea of a sound investment.

    0Reply
  • Roey Marom
    Vendor · Cleveland, OH · Member since 2016 · 24 posts · 9 votes
    9y

    Hi Jeff,

    i strongly recommend you to stay focus on your goals and not with a specific market. off course you shouled see the properties, but you don't have to be there all the time.

     I'm flying to see properties every month and I've been working in 5 markets so far. i have a team on the ground and I'm working with a great management companies that deals with the day to day errands.

    it's sound like you have good connections- use them to get more info about the market. 

    doing a thoroughly research before going into the market is one of the most important things you should do. 

    if you need more tips on how to look for good deals and market research i will love to help. 

    GOOD LUCK!

    0Reply
  • Ritch Bonisa
    Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
    9y

    @Jeff Petsche Definitely, remote investing can be done and it can be very effective.  You need solid boots on the ground.  You also need great technology for reporting.  It is important to not just put your remote investment on auto-pilot.  Stay involved and be thinking about it on a daily basis.  You should be hearing from your boots on the ground on a weekly basis (minimum).  

    I think the scariest part is buying a property without seeing it.  This creates a difficult situation in understanding any rehab or renovations costs.  You most certainly need someone in your target market that can give you solid numbers to go on.  You also need someone that will tell you "No, don't do this deal."  If you don't have that, then your risks are considerably higher.

    If work with remote investors on a daily basis.  If you have questions, feel free to PM me.  I'd be happy to help with contacts and at least give you my perspective. 

    2Reply
  • Steven Gillmer
    Investor · Boerne, TX · Member since 2015 · 139 posts · 71 votes
    9y

    I started my investing when I lived in the Memphis area and I never visited my properties. I found a great full service property management firm I could trust and went on with my day. I currently have established the same process in Cleveland where I purchased a duplex while never setting foot in the city of Cleveland, let alone visiting the property. I don't want to be active as I have a career that I love so I have found people that can do it for me.

    The great thing about BP is it is much easier to find and vet potential teams, reducing your chance of working with gypsies, tramps and thieves. 

    The moral of the story is it is not your proximity to your properties that matters, it is the quality of your team.

    2Reply
  • John P.
    Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
    9y
    Originally posted by @Steven Gillmer:

    ....

    The moral of the story is it is not your proximity to your properties that matters, it is the quality of your team.

     
    I agree with this.  Also, sometimes you need to change your PM to improve things. We did that in one city and rents are up 15-40% with new PM.

    1Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Jeff Petsche:

    Hello BP Community.

    I will admit that I am a NEWBIE to the real estate investing game, and sometimes I fell I'm late to the party, but then I change my mindset and say it's never too late.

    Quick Back Story:

    I've been in real estate since 2003, but as a retail real estate Broker, so I'm not completely foreign to the investing game. I just have not yet purchased any investment properties. I tried back in 2004-2005, but due to some "marriage issues", my credit got jacked up and I was unable to get financing. At that time I was not really educated on other finance options, so I never pulled the trigger.

    Currently I've been doing everything I can to gain more knowledge about RE investing options by reading books, listening to podcast, attending local investing groups, talking to other investors, etc.

    This brings me to the current subject: "Investing Outside Your Own Market".

    I've decided that my focus is going to be Buy-and-Hold SFR and up to 4 plexes.

    I live in the Southern California market, so it's very very hard to make buy-and-hold properties cash flow, so I'm looking outside my market. I know some say they will only invest where they can drive to their properties, but so far none of those people have been CA investors, at least none I've talked to.

    As a Broker for Keller Williams Realty, I have a lot of contacts with agents across the country who could help me assemble a team on the ground in an area I'd like to invest.

    I'd really like to hear from other BP community investors who invest OUTSIDE THEIR MARKET and the pros, cons, types of systems in place to make it effective, etc.

    Again, always wanting to learn from those who have walked before me.

    There are a lot of pros to investing outside of your own market. For starters is the ROI other markets can give you! Make sure if you do not have time to do everything on your own you get in contact with a provider who will help you every step of the way.

    Best of luck to you!

    1Reply
  • Adam Widdicombe
    Investor · Farmington, MN · Member since 2017 · 57 posts · 26 votes
    9y

    @Jeff Petsche

    Welcome to BP! It is a great idea to start connecting with people on here and honestly you can make some great friends and start to build trusting relationships that will help you start building a team. 

    With that being said, I think you hit the nail on the head when you said build a team. I have 3 properties...1 I manage myself and its owned outright. The other two I am in the process of buying from a TK provider in KC. 

    Although I think the TK model might be good for some, if you are really passionate and want to be successful at building a REI business, you need to take the time to research, travel, network and decide where this is the best place to be done.

    Since you are in CA, you might want to look at place in the West...AZ, NV, or OK. My other advice would be to stay away from areas that everyone else is deeming as "hot" or where TK providers are buying and marketing homes. Find somewhere off the beaten path...Jackson MS, Fayetteville AR, Tulsa OK, Omaha NE, SE Wisconsin...

    Good Luck..if you want to PM any questions about how I vetted people and different companies or just general questions from someone new at this too, please feel free!

    Adam

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Account Closed HAHAHA Yes you are correct, and Texas was on my radar back in 2004-2005 (The Woodlands), but due to my credit being CRAPPY due to my ex-wife making some BAD financial decisions, I never bought.

    I know the DFW area is "HOT" (not because of the weather) due to large companies moving into the area. Toyota for one and I have a friend who is a KW agent in DFW, so she updates me a lot about what is going on.

    She needs to find me the off market properties or I'll miss out. Plus it may get to a point where the numbers don't work there much longer due to high property taxes and price appreciation.

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @David Faulkner Thank you for the comment. Have not really looked into REITs, but it's always an option. I don't mind be active with my investments and because I'm in the RE business here in Orange County and real estate is my full-time profession and passion, I'm okay with the idea of traveling to buy property  in other areas.

    We are both in OC and should meet up sometime. I live in Yorba Linda.

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Roey Marom Thank you for the comment Roey. I'd love to connect with you offline at some point and talk to you more about what you do when finding properties, why you chose your five markets, how you vetted the team on the ground, etc.

    Real estate is my full-time thing, so jumping on a plane once a month to other areas and spending some time in markets to purchase is something I can do and not opposed to doing.

    My girlfriend travels for business all the time, so we've had this discussion and she supports me looking for properties we can invest in as well.

    Let me know if you would be up for a phone call sometime.

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Ritch Bonisa Thank you for the comment Ritch and I'll be taking you up on reaching out to you. I see you have your contact information at the bottom of your posting, so I'll be calling you.

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Steven Gillmer Thank you for your comment. Did you use a TK provider when buying your properties? Most of the passive investors I know do exactly what you are describing, which is they are involved with a job they love and don't want to be an active investor OR they just don't want to be hands on from a distance, so they go the TK route.

    0Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Tom Ott Thank you for your comment Tom. I see you have your information at the bottom of your post, so if it's okay I'll be reaching out to you with a few questions about your TK operation if you don't mind.

    1Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Adam Widdicombe Thank you for your comment. Care to share what TK provider you have used and what part of KC did you purchase?

    I'm not sure I'll go the TK route because I am in real estate full-time and have no problem being an active investor, travel to markets, etc. This is my full-time business both with retail in my local market and the investing side.

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    In town or out of town does not matter.  I have a triplex 45 minutes from my house and I have never seen it live.  I saw it in the mls, got it under contract, had my inspectors give me a report and it is now under management. 

     The question is are you in the landlord business or the investor business?    

    2Reply
  • Jeff Petsche
    OP
    Real Estate Broker · Yorba Linda, CA · Member since 2017 · 154 posts · 114 votes
    9y

    @Lesley Resnick Thank you for your comment and I am NOT wanting to be in the landlord business. I will hire a solid PM company to manage the tenants and I will manage the PM company and the asset.

    Jacksonville is a market I'm considering, but keep getting mixed reviews about the market as a whole, the high cost of Hurricane/Flood insurance, etc.

    Maybe we can connect and you can give me your take?

    I will put your contact information in my phone and reach out to you later today or tomorrow.

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Thank Jeff

    Like any other market you just need to be smart about where you put your money.  It is the same as any other city, there are better and worse areas.  Insurance and property tax in JAX are a non issue.  The last real hurricane that did significant damage was DORA in 1967.    

    Can you send me y our email via PM.

    0Reply
  • Peter Pratti
    Rental Property Investor · Knoxville, TN · Member since 2017 · 147 posts · 65 votes
    9y

    It is harder to network outside your market but not that hard because of technology.  As a wholesaler, I have one deals with out of market buyers.  It is important to network with people and have a plan in place for another market that you dont live in

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    I always recommend starting within convenient driving distance.  

    0Reply
  • Kurt Pauley
    Realtor · Minneapolis, MN · Member since 2016 · 245 posts · 107 votes
    9y

    @Jeff Petsche Hey Jeff, I live in Minneapolis and invest in Omaha. If I were you and looking outside of your market I would start with identifying some mid-level markets around and then asking yourself if you know anyone in that market. I think it is ideal to have a strong team in whichever market you invest in and it will be much easier if you know at least 1 person.  If you don't know anyone you just have to start networking with folks and vigilantly researching the market.  This would include researching property management companies and asking around for good companies.  I think a good property management firm will be crucial. If you need any boots on the ground in Omaha or Minneapolis let me know.  Happy to help. 

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