A Californian's Out of Area Buying Guide

[Darius Ogloza]

I have resisted posting my list of do's and don't for out of area investing specially tailored for Californians in the past because it seemed kind of presumptuous.  We all have different experience and lessons learned.  However, I am getting tired of cutting and pasting in response to the daily posts on this topic, so here it is.  Maybe other Californians can supplement this with what they have learned. 

As a Californian who has a 15+ year track record of investing out of area/state, here is my short list of recommendations for all Californians who inquire into out of area (out of state) investing.

(1) Focus your efforts on growth markets - some places are cheap for a good reason: no one wants to live there.

(2) Do not underestimate utility, repair and maintenance costs in places with severe winters. One failed roof or HVAC system can destroy months or years of pro forma "cash flow."

(3)(a) Understand the difference between BUYING a property and BEING SOLD a property. When I first ventured out of area in 2004, the terrain was pretty clear and deals abounded. Finding trustworthy local managers was tough. A whole industry has arisen since that time, principally to fleece Californians who are looking to get into the real estate investment market. Be very skeptical of locals who promise big returns for little effort. Most of them are just out to take your money.

(3)(b) Always ask yourself, why is this local selling me on this great investment instead of keeping it for himself/herself (if it is so great).

(4) No one will care about your investment as much as you do. Property managers may be friendly but they are not your friends.

(5) There is no substitute for research. In my principal out of area market, Rochester NY, for example, a home two lots west of Culver Road should sell at a 25%-35% discount to a home two lots east of Culver Road. When you know your market that well, you will be ready to invest. If you do not know your market at the street by street level, you will almost certainly be sold over-priced junk that will bleed you dry.