Buying out of state rental properties

[Daniel Pierson]

Hi Everyone, I'm just getting started on my investing path, and I've decided to seriously consider looking at single family rental properties out of state.  I know there's some extra risk involved with this route, but as a resident of Los Angeles, I've decided it's the only way to go. I'm wondering if anyone has purchased an out of state property as their first investment and 1)how they identified the right location and 2) any other general advice, success or pitfalls they encountered. 

[Wayne Prentiss]

Great topic, with a lot of great responses already. If I could add one thing, I'd recommend you focus on picking the right market first. Some suggestions based on our experience:

• Step 1: Focus on picking, then investigating 3-5 markets (it is really difficult to go deep enough on more than that and you'll likely just be in analysis paralysis). I'd recommend your first pass is based on ability to find units with rent-to-value ratios that are solid.
• Step 2: Use jobs and economic growth to narrow down to 2 markets. Use sites like http://www.city-data.com/ to look at detail...
• Step 3: Build some contacts in those 2 markets. Start with finding 2-3 property managers that are a) interested, b) have good references, b) have an opinion on what you should do. Many turnkey providers have in-house property management, I wouldn't just rely on that (based on experience they can be fantastic or below-average).
• Step 4: Go visit! Use your contacts in Step #3 to get some properties/neighborhoods lined up. Spend time with at least 2 groups to get different opinions. Rent your own car so you can go by areas at different times of the day/night and can get an independent view.
• Step 5: Make a decision and get funds invested. Don't go to the markets and then sit back for 2-3 months. Make a call and go for it unless there is a major concern. Don't let the perfect be the enemy of the good!

Best of luck in your search. As a lifetime west-coaster and ex-pat Californian, I think you are headed in the right direction!

Cheers,

Wayne Prentiss