Invest out of Market: 5 Hour Drive or 5 Hour Flight?

15 Replies

When you go to invest out of your local market, would you choose a market that's a 5 Hour Flight away, or choose a market that you know much better but is 80% as good that's a 5 Hour Drive away?

I'm currently invested in my local market of Olympia, WA (1 hour south of Seattle) and am looking to add at least two more properties this year. Currently the Olympia market has become a little too expensive for my taste, good returns are becoming tougher to come by. I've never invested out of my market before, but have trustworthy investor contacts in Philadelphia, Phoenix and Eastern WA. My interest in OOS investing has grown exponentially over the last few months, and I'm curious if you think a drive is better than a flight for any specific reason?

@Nate Burgher That depends on the size of your investment and your investment strategy. For instance, if you're buying SFRs, then I would be within a 2-3 hour driving distance. There are a ton of investors who invest out of state in places much further than 2-3 hours of driving distance (and are very successful). Alternatively, if you invest through syndications/JVs/partnerships and bring a good chunk of capital to the deal, location is not as big of an issue (as much as the deal is). 

It is easier to justify buying a property halfway across the country when it's worth $5M as compared to buying a few properties worth $1M. 

At the end of the day, it depends on how active of an investor you'd like to be. 

@Omar Khan , thank you for the quick response! A couple answers to your questions.

I'd be bringing about $100k to the table this year with the goal to purchase 1-2 properties (MFH and/or BRRRR), with an additional $30-$50k each year to continue purchasing properties. The ultimate goal is to have an additional $6k / month in cash flow by 2025.

So not bringing a ton of capital, relatively speaking. $100k doesn't go far in Olympia (average SFH is $200k-$325k, duplexes $325k-$500k). I've researched Harrisburg (PA), Philadelphia, Cincinnati, Cleveland, Phoenix, Spokane (WA) and Kennewick (WA) quite a bit. My dollar goes further in all of those places when compared to Olympia, obviously much further in Ohio.

One of my thoughts is in Ohio, I can pick up 2-4 MFH's, and maybe at that number of properties it might make sense if I can find a decent property manager, as each property would cash flow $250-$500 after all expenses. Or I can pick up 1-2 SFH BRRRR's in Spokane / Kennewick this year (4-5 Hour Drive), and each property would cash flow $0-$150 per month, but with little to no capital in the properties.

Personally I've looked into buying in the Spokane market, but price-to-rent ratios out there have started to get a little high as well (though still much better than Olympia). I'm still looking for the oddball deal in Olympia--just landed one actually, an absolute STEAL on a 4-plex downtown--and I'm doing some marketing now because it's so dang hard to find a deal on the MLS. Even fixer-uppers are going for crazy amounts. You can definitely get more bang for your buck in Spokane, but you just have to be mindful of the neighborhood. Ohio is cheap in terms of purchase price but have you seen the taxes out there?!

@Tyler Blackwell , did you pick up that 4-plex on Quince? I saw that one a couple weeks ago but it was a tad out of my price range.

P/R ratios in Spokane aren't that great, but there's a lot of upside potential there IMO. Olympia is getting crazy, Cap Rates in the 5-6%, numbers we haven't seen since 2006 (Yikes?!?!). 

Would you be interested in grabbing a beer or lunch in the next few days and chatting in person? I live in Tumwater by Black Lake, so it's an easy drive to anywhere in Oly.

@Nate Burgher Yep, I snagged the 4-plex on Quince. I actually bought and remodeled the house right next door to it just last year. I'm a big fan of the 4-plex--it has lots of promise. 

I'd be up for getting together in person. Fair warning though: my wife is 9 months pregnant, so I'm juggling that and this property while working a full-time job, but we'll make it happen. Just PM me your info.

@Nate Burgher In markets where you are going to get capital appreciation and cash flow, you are going to be facing headwinds. If not now, then definitely in a few years because you will be unable to scale your operations. Essentially, you will be paying higher expenses because you do not have enough scale to drive expenses down. E.g. if you acquire 20 units, you can pay lower property management expenses than if you had 3 units in the same market. 

Unlike the stock market, in most real estate markets, it pays to concentrate your holdings. Obviously, diversification has its benefits but the additional costs can, at times, greatly eat into your returns. 

You are correct that your dollar goes further in the markets you've researched. But the same dollar might not appreciate at the same rate as in other, more expensive markets. There is a reason why in certain markets prices remain sideways but in other areas prices skyrocket. It's a simple demand-supply issue. Seattle has a different set of demographics than a smaller town in the Midwest or the South.

Hence, there is a trade off between capital appreciation and income. What path you take depends on your personal circumstances, investment style and personality type. 

Going off your post, I would suggest looking into rolling your capital into a 5-10 unit building or working through a syndication/partnership/JV. Either way, IMO, the first step would be for you to narrow your criteria by understanding:

  • How long you plan on holding the investment?
  • Stress-testing your finances and emotions in the case of a job loss, recession or other unpleasant stuff
  • Is your wife/partner on the same page? (This is so crucial...)

The more work you do upfront, the less work you'll have to do at the back end. 

That’s interesting you mentioned Harrisburg, PA. All my properties are in Harrisburg and 100k can get you a lot here, but you just have to be careful you’re in the right part of Harrisburg (like anywhere for that matter). I’d be happy to answer any questions you have about Harrisburg/Central PA market and if you needed any references I’d be happy to help. I personally self manage, but realize that wouldn’t be an option for you burn would be happy to recommend some folks over met at the local meetups that have a good reputation. 

717-571-8721

Most of my clients don't live locally. Most  components on real estate investing are numbers based. The only true hurdle I know of long distance investing is investing in something you don't know. Knowing value is everything. But its less a factor if you are rehabbing a distressed property. The more you fix a property, the less it matters. My thoughts anyways!

@Nate Burgher

It's seems like you're a more seasoned investor, at least locally, so you're probably fine either way. And if you invest more locally I would still fly there and you can cut the time down less than 2 hours.

I work with a lot of beginning investors on BP investing in AZ and coming from CA, and my general recommendation for them is either a 2 hour drive or a 2 hour flight. That's a lot more comfortable for them than something multiple states away they'll hardly ever have the time to go and see. (as you may know, first time investors LOVE the idea that they can go and see the property anytime)

My reasoning for the 2 hour limit is that if the crap hits the fan on the property, like a fire or something, it's much easier to spend 2 hours traveling there than 5 or 6. With 5 or 6 it's going to require either time off or the entire weekend to make it happen. But with 2 hours you can leave in the morning and be back by nightfall if you need to. Plus it's a lot less expensive on short notice emergency type situations, which is what new investors fear most.

So it really all depends on your comfort level. If you know you'll be able to find a great property manager to act as your boots on the ground and don't plan on visiting the property more than once per year, you could really invest anywhere.

If you're looking for a more hands-on approach, then obviously the closer the better. If you ever make the trip out to Phoenix, beers on me ;-) Hope this helps!

Wes Blackwell, Real Estate Agent in AZ (#SA674470000) and CA (#01991457)
(480) 482-9564

Ultimately it's really just more about where the better deal is. A 5-hour drive is doable in a day, for sure, but so is the 5-hour flight. The flight may cost a little more and take a bit of coordination, but if the returns on the flight-required deal are that much better, that easily makes up for the flight cost (which you can deduct anyways). 

Have you looked at any specific deal options in both areas- 5hr drive vs. 5hr flight? Any ideas on the numbers differences or what you could get in both places?

If you are going to be buying out of your area you have to make sure you pad in a lot of extra expenses on your analysis sheet. For example, if a market report shows you an 8% vacancy factor, pad that thing up to 13%. Same thing with rehab costs. If you know you could rehab an SFR in your town for 20,000 make sure you take a look at the market rate of a rehab in the new market and pad in an extra 5%. There is a learning curve to every market.

I spoke with a friend who runs a successful turnkey operation and this was his advice. I purchased a 3 unit in Harrisburg this year, which entails a 5 hour flight and 4 hours of driving.  I am looking to pick up more properties in the area. Hopefully @Travis Wylie can find some other deals for me. 

Wherever the more reliable ground team exist perhaps. Those investments could pan out better as you expand. I would not be too concerned if one has slightly better numbers on paper. The execution of any possible positive numbers will be primary as you already know. Generally speaking Phoenix will have larger stock of newer properties and might have much better conditioned older stock as well. Phoenix I think will also have more future growth.

Good luck with your search! 

Originally posted by @Nate Burgher :

When you go to invest out of your local market, would you choose a market that's a 5 Hour Flight away, or choose a market that you know much better but is 80% as good that's a 5 Hour Drive away?

I'm currently invested in my local market of Olympia, WA (1 hour south of Seattle) and am looking to add at least two more properties this year. Currently the Olympia market has become a little too expensive for my taste, good returns are becoming tougher to come by. I've never invested out of my market before, but have trustworthy investor contacts in Philadelphia, Phoenix and Eastern WA. My interest in OOS investing has grown exponentially over the last few months, and I'm curious if you think a drive is better than a flight for any specific reason?

 (5) Hour Flight - 

If going the distance, go the distance, (5) hour driving in each direction  - sounds like you may have some intent of self-managing - in either case, you will want a quality PM - 

Steven Gesis, Developer
440-374-8403

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