Buying out of state rental properties

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Buying out of state rental properties

Daniel Pierson
Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes

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. 

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Wayne Prentiss
Investor · Bellevue, WA · Member since 2013 · 22 posts · 9 votes
11y

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

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    11y

    @Daniel Pierson welcome to the site!

    For a success story, check out Podcast 73 with Mehran.  You just have to be careful and diligent investing out of state. Make sure you get a good team in place, a team that has integrity and that you can trust with your money and your properties.  You need an excellent PM.  You need to make sure you don't invest with anyone who's going to sell you D-area properties at inflated prices that are going to be money losers.

    Podcast Guest on Show #29
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  • John Slater
    Real Estate Investor · Alta Loma, CA · Member since 2015 · 25 posts · 17 votes
    11y
    Daniel Pierson any reason for thinking out of state? I get you may not want to look in LA, although there are some great deals there. The way I see it is to venture out of state means you have to have a good knowledge of the market in that state, learn laws etc pertaining to that state, and to invest in a property that isn't driving distance can cause major headaches. Out of state in Vegas, or AZ is one thing, but further a field than that would be too far for me.
    1Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    11y

    @Daniel Pierson 

    Hi and welcome to BP!  I live in Oregon and have invested solely out of state in turnkey properties.  I did my first investment with a company that flew me out, put me up and toured me around on their dime.  It was a good move, because I've invested quite a bit with them, and they manage the properties I've purchased. My advice is to visit an area that you plan to invest in at least before completing your first investment.  Once you have an established trusting relationship with the provider in that city, then I don't think additional visits are necessarily needed to see additional investments.  Make sure that you have really good property management in place (hopefully in house or closely affliated with the seller/provider), as PM is absolutely critical in the long term success of out of state investments.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Daniel Pierson 

    There are literally 50 different markets and hundreds of different purveyors that will sell you out of state investments... The key in my mind is buying first and foremost a quality asset. And of course the absolute key is PM.. after all who ever sells you the house will as Larry states wine and dine you then its up to your PM to bring home the bacon.

    IT also depends on your long term goal.. is this a property you may want to retire to one day.. or turn into a vacation home.. If so you probably want to buy in that kind of market.

    Also don't discount CA  there are many great markets and sub markets along with Oregon and Washington and Idaho.. So keep an open mind and take in all aspects.

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  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    11y

    Hi @Daniel Pierson,

    Welcome to BiggerPockets!

    Glad to hear that you want to get started in real estate investing. It's a great time to be building your real estate portfolio.

    You have come to the same conclusion that many other real estate investors come to that live in over-priced ("bubble") markets like coastal Cali -- and that is it just doesn't make sense as a buy-and-hold investor.  The rent-to-value ratios are very low and your down-payment requirement is very high.  That same down-payment can help you acquire between 2 to 5 quality properties in other markets with tenant and professional management in place.

    @Jay Hinrichs makes two very good points:

    1. 1) You must buy quality assets.  This can be broken down and defined under several criteria.
    2. 2) Property management is the key -- whether you find them on your own, or have one referred to you -- I always tell our investors that you, "Live and die by your manager".

    There is no "extra risk" if you know what you're doing and use a proven system.  I started out-of-state investing in late 2003, made a few mistakes early on, but learned quickly how to do it right.

    Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.

    Continues success!

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  • Jeremy Tillotson
    Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
    11y

    @Daniel Pierson welcome to BP! Listen to @Jay Hinrichs he is well respected for too many reasons to list, but he knows his stuff, and he tells it like it is, you should check out his website for Turn Key providers. Let me know if you need any help in the Indiana markets.

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    We buy as out of state investors. My husband is active duty military so "local" is relative. We also "actively" invest in Charleston (summervile) even though we are stationed in Lemoore, CA. That being said out of state investing has alot more costs than you expect! If it wasn't for our "transient" location. I would pay "extra" to be local. Even with a manage you should be "putting" eyes on your property once a year. California is awesome, low tax rates and insurance (out of the earth quake zone). Even self-managing there are costs for being long distance. 

    1Reply
  • Joe Moore
    Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
    11y

    Out of state is sometime is only true option that some investors because of their local market prices, the investor's income and/or the amount of investor's capital he has to work with. Trying to invest in your local area may just plain be beyond your capabilities. It is a bit harder invest out of state because the property may be at quite a distance, the property may be in an unfamiliar location, and you may know no one in that area who could help you out.  

    To invest at a distance can be done successfully, but it will require a much greater effort at the beginning.  You have to know what to expect as rent in that location,what are the good and bad areas, what type of tenant to expect.  Also it would be good know is that market landlord or tenant friendly.  Also you need reserve monies for when things go array, whether it is vacancies or repairs.  You can build a portfolio of rentals that can truly build financial independent and/or wealth.  A trip to the location of intended purchase(s) should truly be look on as part of the price of buying the property.  You can get affordable airfares if you book your ticket at two weeks or later.  The later the cheaper. There is many members on BP who can assist you in your endeavors in the targeted location.  I would definitely not depend on one person opinion about the area especially those who are professional sellers. Make sure some are just investors of the area not just sellers.  A good property manager must be factored in.  It will be about 10% of rent. Trying to cut too many corner can prove to be costly.  Cash flow is what you get in the properties and not much appreciation.  Your due diligence is a must.

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  • Brandon TurnerPro Member
    Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
    11y

    Hey @Daniel Pierson welcome to the site! Definitely start jumping into the community here! Be sure to read through The Ultimate Beginner's Guide to Real Estate Investing to help you get started.

    Also - here's a couple articles you might enjoy:

    The 21 Best Real Estate Investing Books Ever

    How to Rent Your House: The Definitive Step by Step Guide

    How to Be a Landlord: Ten Tips for Success

    Finally -be sure to setup some keyword alerts - especially for "Los Angeles" so you can jump into local conversations.

    See you around the forums!

    Podcast Guest on Show #92
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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y

    Hey Daniel! I live in LA and out-of-state was my first investment. Actually, technically, out-of-country was but I went straight from that to out-of-state. I've never had any problems. As far as what areas to look at, there's a lot of chatter about a lot of popular markets out there right now. Listen to those, I can tell you some of my faves, but the biggest thing is just always keeping in mind cash flow. Make sure it's a good strong growing market with positive cash flow and you'll already be miles ahead of most!

    Where in LA do you live? I'm in Venice.

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  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
    11y

    Hi, welcome to BP! Lots of good, inexpensive markets to choose from in the US. I think you can find good contacts on BP for most of them, from Indy to Charlotte. My market in San Antonio is quite good; we have gotten several new cash buyers from LA, San Diego and SF this year. 

    Note that rentals are not the only option. Owner finance is our specialty here. No maint costs for investors. If you do owner finance anywhere, make sure who you're working with complies with Dodd Frank.

    If you ever think about Kansas City, I met a good guy there in 2013 I can connect you to. Cheap turnkey properties nicely rehabbed. thanks.

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  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    Wow, I'm overwhelmed with how generous and welcoming everyone has been.  Thank you so much for your comments and insight. I feel truly lucky to have found this community of investors, and I'm going to do my best to seek out as much knowledge as possible, and give back as I learn more.

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  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    @Dawn Anastasi thanks for the podcast tip. I'll definitely check it out.  

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  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    @John Slater The primary reason that I want to invest out of state is because I don't have the capital to purchase a property in or near LA.  Also, my goal is to acquire as many positively cash flowing rentals as possible, while leveraging the funds that I do have.  From my research thus far, going out of state seems like the best way to meet these goals.

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  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    Hey @Brandon Turner !  It's good to hear from a fellow washingtonian--I lived in Seattle for 20+ years.  I've listened to a couple of your podcasts, and read the article on best real estate books. Great stuff, and thanks for the encouragement and ideas.

    0Reply
  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    @Joe Moore That's a good idea to travel and visit different regions before investing. I'm  planning a road trip in mid-March throughout the midwest to investigate any areas and specific properties that seem attractive. 

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  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    @Account Closed Thanks for insight, Joe. Several areas of texas including the greater dallas area and Houston have sparked my attention. I should add San Antonio to my radar as well.  I definitely need to check out Kansas city, but the overall market doesn't seem to be as attractive as Texas. I know thats a grand generalization though, and I'm sure KC has some great deals. 

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  • Daniel Pierson
    OP
    Investor · San Francisco, CA · Member since 2015 · 75 posts · 25 votes
    11y

    Thanks, @Jeremy Tillotson I hear indianapolis is creating some buzz, so I'll let you know if I decide to visit and check out some of the opportunities. 

    0Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    11y
    Originally posted by @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. 

    Hey Daniel,

    I though I would chime in even tho you got some awesome comments above :)

    Check out a few blogs I wrote for Bigger Pockets a while back on out of state/country investing.

    http://www.biggerpockets.com/renewsblog/2014/12/20/first-investment-property-important-things-consider/

    http://www.biggerpockets.com/renewsblog/2014/07/26/sight-mind-real-estate-investing-afar/

    I hope you find them useful.

    Grazie Mile ;)

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  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
    11y

    Dallas and Houston are good, most of TX is good. I'm not totally objective here :) but a lot of people skip San Antonio. The oil boom has created a massive demand for affordable homes here. There always is demand for them anyway due to our high Hispanic blue collar population. My partner has made his entire career out of cheap, distressed houses in San Antonio. It retired him at 28, can you believe that? 

    0Reply
  • Lance Borden
    Investor · Frisco, TX · Member since 2014 · 31 posts · 2 votes
    11y

    Hey Joe - if the oil boom has created a lot of demand - what affect has the oil bust had?

    0Reply
  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Daniel Pierson My advice to you is to first decide what kind of investor you want to be.  What I mean is, do you want to be entirely passive...you have no real involvement in the selection of or initial rehab (however light), etc?  Do you want full turnkey, so you can just sit back and have the rent magically appear in your account each month?  There's nothing wrong with that approach.  There are companies who provide that service and do it with excellence and integrity.  (@Engelo Rumora with Ohio Cash Flow and the Clothiers at Memphis Invest come immediately to mind.)  

    There is a more middle of the road approach, where you can still be an active investor -  involved in property selection, determining what updates/rehab to do, selecting a tenant, etc. - while still being remote.  It's very doable.  You simply have to have a team on the ground in your target area who you can trust.

    1Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    11y

    @Daniel Pierson

    To throw even more info at you, here is a podcast I actually did today titled :

    "How to select a turnkey real estate provider to work with"

    This is my take on things to consider and I put selecting the actual TK provider as the 4th thing on the list. Listen to find out why.

    Curt Davis - KAIZEN Realty538 Reviews
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  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    11y
    Originally posted by @Hattie Dizmond:

    @Daniel Pierson My advice to you is to first decide what kind of investor you want to be.  What I mean is, do you want to be entirely passive...you have no real involvement in the selection of or initial rehab (however light), etc?  Do you want full turnkey, so you can just sit back and have the rent magically appear in your account each month?  There's nothing wrong with that approach.  There are companies who provide that service and do it with excellence and integrity.  (@Engelo Rumora with Ohio Cash Flow and the Clothiers at Memphis Invest come immediately to mind.)  

    There is a more middle of the road approach, where you can still be an active investor -  involved in property selection, determining what updates/rehab to do, selecting a tenant, etc. - while still being remote.  It's very doable.  You simply have to have a team on the ground in your target area who you can trust.

    Thanks for the mention Hattie :)

    Have a great day.

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  • Jon HuberPro Member
    Rental Property Investor · Boca Raton, FL · Member since 2014 · 1k+ posts · 713 votes
    11y

    @Daniel Pierson

    Welcome to the community! Good to see another Los Angeles investor getting active BP has a tremendous amount of information to help you, but it is only available if you seek it out. Be sure to be as active and engaging as possible. Read blogs, post questions, and the podcasts are gold! The best free education you can get.

    Also, we have been setting up monthly meetings. Be sure to check out BP Events and Happenings for the next LA meetup, or you can send me a message for the info. Next meetup in LA is on Feb 28th!

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