Newb L.A. investor who can't afford L.A. Out of state anybody?

32 Replies

I'm a married father of 2 kids, currently own a rental condo in Los Angeles with close to $200K in equity that cash flows about $150/mo. While this could doubtless be a good long term hold, I feel like I could create much better cash flow with SFs or a MF out of state where I could theoretically pick up a few properties with that amount of equity, so I'm considering selling in what is currently a "condo seller's market" here in L.A. 

I like personally managing, but the property prices here in L.A. just don't allow the numbers to even come close to working if I wanted to roll into a MF here in town. I'm aware that owning out of state properties requires trust in the PM and a decent knowledge of the market being invested in.

Does anybody have any suggestions/experience in possible markets/methods/insights/educational material/warnings to consider. My goal is to eventually have a portfolio that cash flows 10K/month, and I'd like to make a purchase by the end of the year/early next year. In the meantime I'd like to try to glean as much info/experience from people as I can. I'm especially interested to hear from anybody that has actual hard experience doing out of state investing.

Thx in advance for any response, appreciate your time.

-Hish

@Matt Hish I don't know about investing from afar but I am in San Antonio and we still are able to find cash flow.  We do have higher property taxes but no state income tax.  Being from California, you may want to consider that you may be double taxed in a sense if you invest in a high property tax state because you'll get taxed again on state income tax.  I offset the high property taxes in my mind because I don't pay state income tax.  Something to consider when you pick a market.  

Good luck!

-Will

Howdy Will Prichett,

Thx for chiming in, I'm actually from San Antonio myself. I went to Taft High and St. Mary's Univ. there, lived there for about 10 years. I actually consider TX my home state. It's been a decade since I've been there, but I feel like I would understand the city and its neighborhoods better than another out of state city. Its on my list of considerations for markets.


At this point I'm not really considering investing here in California, its a very onerous tax and regulatory state unless you already have millions$. Not to mention it heavily favors tenants, especially L.A.

If I might ask, what sort of monthly cash flow do you feel is reasonable to expect relative to your cost in that market?

Hi @Matt Hish , many of the midwest markets are where people that live in very expensive markets tend to look for rentals. I know many people that have had success remotely in Indianapolis, Memphis, Kansas City, Cleveland, Columbus, and St. Louis. You might start by researching those cities and see which ones you like best. 

Originally posted by @Matt Hish :

I'm a married father of 2 kids, currently own a rental condo in Los Angeles with close to $200K in equity that cash flows about $150/mo. While this could doubtless be a good long term hold, I feel like I could create much better cash flow with SFs or a MF out of state where I could theoretically pick up a few properties with that amount of equity, so I'm considering selling in what is currently a "condo seller's market" here in L.A. 

I like personally managing, but the property prices here in L.A. just don't allow the numbers to even come close to working if I wanted to roll into a MF here in town. I'm aware that owning out of state properties requires trust in the PM and a decent knowledge of the market being invested in.

Does anybody have any suggestions/experience in possible markets/methods/insights/educational material/warnings to consider. My goal is to eventually have a portfolio that cash flows 10K/month, and I'd like to make a purchase by the end of the year/early next year. In the meantime I'd like to try to glean as much info/experience from people as I can. I'm especially interested to hear from anybody that has actual hard experience doing out of state investing.

Thx in advance for any response, appreciate your time.

-Hish

Hello and welcome! This is a great place to get started! Investing OOS when you live in CA is a great idea. You can see a much better ROI in areas like the Midwest where properties are affordable but rent is still great.

Good luck!

@Matt Hish

Hi Matt, I'm also from California, grew up in Santa Monica but lived all over.  I actually moved to Cleveland a year ago to invest to be more hands on and experience what it really is like here.  I had the same fear that you had of out of state investing so I said eff it...here I am.  

Finding a good team first might be more important the the deals themselves when deciding on your cities to invest in.  

@Matt Hish I work with a lot of out of state investors, especially CA. I invest in Indianapolis and also work for a local management company as well. There are actually several good outfits here on Bigger Pockets that do work in Indianapolis (and other cities too.) There are several reasons that Indianapolis is a common place for the Coastal cities to park their money. We see great ROI, appreciation, and very investor friendly laws (property taxes, tenant landlord laws, etc.)

I'd be happy to put you in touch with some active investors in CA so they can share some of their experiences.

Originally posted by @Matt Hish :

I'm a married father of 2 kids, currently own a rental condo in Los Angeles with close to $200K in equity that cash flows about $150/mo. While this could doubtless be a good long term hold, I feel like I could create much better cash flow with SFs or a MF out of state where I could theoretically pick up a few properties with that amount of equity, so I'm considering selling in what is currently a "condo seller's market" here in L.A. 

I like personally managing, but the property prices here in L.A. just don't allow the numbers to even come close to working if I wanted to roll into a MF here in town. I'm aware that owning out of state properties requires trust in the PM and a decent knowledge of the market being invested in.

Does anybody have any suggestions/experience in possible markets/methods/insights/educational material/warnings to consider. My goal is to eventually have a portfolio that cash flows 10K/month, and I'd like to make a purchase by the end of the year/early next year. In the meantime I'd like to try to glean as much info/experience from people as I can. I'm especially interested to hear from anybody that has actual hard experience doing out of state investing.

Thx in advance for any response, appreciate your time.

-Hish

Hi Matt, have you checked out the midwest for REI yet? Columbus is a great city to look at. There is really good population and job growth predictions over the next 5 years, tax incentives that draw in big business and OSU graduating 6000+ students a year and on top of that we are the state capitol so lots of folks that need to rent in general. Good luck with everything!

Midwest. I'm in Dayton ohio which is right smack between Columbus, Toledo, Cincinnati, Indianapolis... Hence, a great partnership covering a lot of great Midwest region. Lets connect and discuss opportunities, i am actually looking for partners this year. Look forward to it! 

@Matt Hish I am helping a number of investors from the west coast to invest in the Cincinnati market.  Cincinnati as a city is growing in population and still has some great deals in the multi-family space.

@Matt Hish

You will, if you have not already run into the Turnkey option that targets out of state investors...here is my take.

My experience with TK was not the best and I would always recommend staying away from it unless you absolutely have too.

My thought is with the internet and the ability to network and check people's backgrounds online you can set up and find your own team. The foundation to that would be a realtor...this person has contacts, can put you in touch with lenders, handymen, contractors and anyone else you would need.

The nice part is that they will want to treat you right so that you continue to invest and buy with them.

The TK companies are set up exactly for people like you though...live in CA, can't invest there but want to invest somewhere. Some cut corners and I can guarantee you that you will be buying a property with ZERO equity left in it.

The only company I dealt with was Bridge Equity out of Kansas City and I would definitely not use them.

Feel free to send me a message if you have any more questions...

Hey Matt! I'm also in LA and I've only invested out-of-state. If $10k/month in cash flow is your goal, out-of-state is definitely your only option. All that's here is appreciation potential, and even that right now (in my opinion) is squeezed. 

As far as going out-of-state, the big things will be a) figuring out which market you want to dive into, b) how you want to do it (do you want to buy rent-ready/turnkey, do rehabs and if so to what degree, etc., c) getting your teams established, and d) running due diligence and keeping an eye on things.

There's an entire spectrum of effort+difficulty+risk levels on doing out-of-state. You can go the safest routes or the hardest, and everything in between. The best starting point is figuring out where in that spectrum you want to fall, and what capital you have (or budget).

Totally vague answers, I know, but happy to answer any specific questions on any of those things or anything else you come up with if I can!

Originally posted by @Adam Widdicombe :

@Matt Hish

You will, if you have not already run into the Turnkey option that targets out of state investors...here is my take.

My experience with TK was not the best and I would always recommend staying away from it unless you absolutely have too.

My thought is with the internet and the ability to network and check people's backgrounds online you can set up and find your own team. The foundation to that would be a realtor...this person has contacts, can put you in touch with lenders, handymen, contractors and anyone else you would need.

The nice part is that they will want to treat you right so that you continue to invest and buy with them.

The TK companies are set up exactly for people like you though...live in CA, can't invest there but want to invest somewhere. Some cut corners and I can guarantee you that you will be buying a property with ZERO equity left in it.

The only company I dealt with was Bridge Equity out of Kansas City and I would definitely not use them.

Feel free to send me a message if you have any more questions...

Hey Adam. I've always bought turnkeys and loved them-- they are far from flawless but if you know what to look for and how to do due diligence and manage the managers (so to speak), they can be great. I know a lot of people who have had great experiences with them too. If you've only worked with one company, I'm not sure it's fair to make a blanket statement that turnkeys should be avoided. There are plenty of good TK companies out there that people have had great experiences with. I don't say this to start a TK debate, as there are plenty of threads that specifically do that, but wanted to throw a little defense out for the good TKs that do exist.

Thx all for the feedback, much appreciated. I'd already gathered that the midwest is where deals can still be had. If anybody has any experience with any particular market they'd like to share generalities about, I'd love to hear more. 

I'm brand new on this whole site  and wish I would've found it a long time ago, so thank you all for your responses. I look forward to learning as much as I can before jumping into something.

@Matt Hish I can give you actual numbers for the Kansas City market so that you can compare them with other midwest markets. I located 2 off market properties for 2 different investors in kansas city the past 2 months. One was a duplex that sold for 125k that is rented at 1500 per month. With a few updates that investor can easily raise rents to 1600 to 1700 per month. The other is a 4plex that was a duplex that will rent for 2100 per month. If the investor puts down 30% (45k) . The payment will be 890 per month  for piti so after paying property management and garbage/water. The net cash flow is 960 per month. If you buy four of those types of properties, a person would be netting $3840.0 per month. These properties are not in the ghetto. They are close to the baseball and football stadiums. The supply of properties for sale in the kansas city market has dropped every year since 2014 so it does take some work to find the good deals but they are still out there. good luck with the investing.

Originally posted by @Matt Hish :

I'm a married father of 2 kids, currently own a rental condo in Los Angeles with close to $200K in equity that cash flows about $150/mo. While this could doubtless be a good long term hold, I feel like I could create much better cash flow with SFs or a MF out of state where I could theoretically pick up a few properties with that amount of equity, so I'm considering selling in what is currently a "condo seller's market" here in L.A. 

I like personally managing, but the property prices here in L.A. just don't allow the numbers to even come close to working if I wanted to roll into a MF here in town. I'm aware that owning out of state properties requires trust in the PM and a decent knowledge of the market being invested in.

Does anybody have any suggestions/experience in possible markets/methods/insights/educational material/warnings to consider. My goal is to eventually have a portfolio that cash flows 10K/month, and I'd like to make a purchase by the end of the year/early next year. In the meantime I'd like to try to glean as much info/experience from people as I can. I'm especially interested to hear from anybody that has actual hard experience doing out of state investing.

Thx in advance for any response, appreciate your time.

-Hish

 Hey Matt,

Nice to hear from locals! I was in a similar boat - wife (no kids yet) primary residence in OC, but wanted to get into REI but couldnt find anything that cash flowed. I think some people who REALLY want to stay "local" or atleast in CA look at Bakersfield and other areas 1-2 hrs away to get aleast some kind of cash flow. For me, I didnt like the tenant friendly laws here in CA and the numbers just sucked. I just want cash flow and dont care about appreciation.

I researched OOS markets first, found LR, Memphis, Indy, KC and then found realtors, wholesalers, and TK providers operating in those markets with good track records. I learn by doing, so I interviewed a bunch of providers and made a decision to invest OOS and havent looked back. I might crash and burn, but I think if I take calculated risks, ill be just fine and learn a ton in the process.

These links were helpful in my research.

https://www.biggerpockets.com/renewsblog/is-out-of...

http://www.cashflowdiaries.com/why-invest-in-out-o...

Cheers!

@Matt Hish

I currently live and invest in San Antonio, however I do own a duplex in Buffalo NY. The key to out of state investing is having a reliable team to acquire and manage.  It's imperative you know what numbers you want to hit, what areas and what strategy makes them possible.

In order to achieve cash flow in residential investing in San Antonio, your best option is likely going to be purchasing a B-C class single family property in the same class area, forcing a value-add needing light repairs/updates, between 1000-1600 sq ft with an ARV between $125k-$150k and refinancing after 6 months, pulling as much of your cash out as possible.

My partner and I have an assistant that scans the market daily for a litany of data, submits auto-offers based upon set financial and property criteria. We then look through the offers and data and wholesale to investors/a large investing club in town. 

Typical financials we find on this strategy: 75% LTV Refi = 20%-23% cash on cash return, 60%-80% return on capital gain, cash flow between $325-$450 (Higher end areas have higher taxes and HOAs bringing down cash flow)

Are you planning on buying 1 or 2 properties cash, or do you plan to leverage for multiple?

@Matt Hish As someone who also lives in a fairly expensive West Coast market, I decided to start investing out of state back in 2012. When doing so you have to be very diligent about the team you work with, be that a turnkey company or a team you build from scratch. All best in your REI!

@Matt Hish   I think the Buffalo NY market is a great market for out of state investors.  Most of our clients are from city's that are too expensive to buy in NYC, Denver, Etc..

You can get great cash flow and bang for your buck here.  In the last 5-7 years we have seen some pretty good appreciation for the first time in many, many years as well.  I think the rust belt in general is a good area to invest in for people that live in large cities.  

Like a lot of people on this post mentioned, make sure you have a good team, and are getting good info.  

Let me know if I can get you any info on the Buffalo market.  The way I see it, the more investors in Buffalo the better it is for my hometown!

Im on the same boat as you, I've decided to soon move and invest Indianapolis. Tenant friendly laws here in California make it a bad choice for investing even here in Bakersfield where i live. Like @Ali Boone said, the only thing going for us here in CA is appreciation and I also think its squeezed. 

@Matt Hish I sold my two seattle properties in 2014 for 250k and 1031 to 10 turnkeys out of state. In hindsight I should have only bought a few Yo get the hang of it... the whole remote investor thing.

I’m trying to unload them all now because they are not scaleable. I mean do the math at a few hundred Per property it’s going to take a butt load of these.

Do buy a few but don’t buy to many...

A good point to consider is any state you have rentals in ..... you will need to file a return for that state.  Out of state investing in Real Estate does get complicated in this way.  You should research state tax laws and minimum income required to file in each state. I am not a CPA.....so check in with yours before you select a state.  

Lane, Karen, Jessie, and others,

Can't thank you guys enough for the tips. It's amazing how I just picked up a whole batch of information just from posting this thread. Each little idea you guys contribute helps paint a bigger picture for me. I look forward to continuing to listen to the wisdom flow. Thx!

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