Long distance investing advice

25 Replies

I have been looking at buying buy and hold properties out of state in some more affordable markets. I am wondering what are some key things you guys look for when choosing what markets to buy in? I know schools, crime, taxes, economy are some of the big ones that are a must but what else helps you determine whether or not to buy in an out of state market? Also, do you hear of a city or an area on podcasts or from other investors and research it or how do you hear about out of state areas to potentially invest in? 

Thank you for the help!    

@Tye Foster everyone will have their own criteria. I look for B to C neighborhood and B to C building. I target 1% rent to price ratio but that would differ depending on if it’s a primary, secondary or tertiary market. I also sold my properties in WI and IL and started focusing on Atlanta as I wanted to have direct flight from SFO. It’s not bad to look at the markets in podcast but make sure to do your own research.

@Tye Foster Great question! @Alpesh Parmar has raised a good point about focusing on one market due to logistical issues. Your best strategy would be to choose a market that works with your parameters and go from there. Instead of trying to buy multiple properties across the country, focus your energies towards buying your assets in a few markets. 

The biggest focus for us is job growth and type of job growth coupled with low crime area. It's just not worth the hassle of dealing in a bad neighborhood with lower-quality tenants. You can start by looking at the city's page, Best Places and City Data to get you started. After that it's all about deciding what sub-market is the best fit for your criteria and reaching out to realtors, brokers and the like.

The article below should help you out: 

Choosing the Right Real Estate Market To Invest In: The 4-Step Guide to Success

If anyone is zoning in on the Atlanta market, I am your guy! Feel free to reach out with any questions or interest in the market. I am a licensed agent and I specialize in working with investors. I have my own investment experience in the metro area as well.

@Tye Foster

This is an often discussed topic on here. I’ve outlined the basics of what I’ve done on other threads.

Depending on how new you are (I had never bought a house or sold one when I got my first rental) I would maybe go the turnkey route for the first one or two.

From there I would diversify into multifamily or just other non turnkey properties.

As far as choosing a market I don’t think a lot of these markets are really all that different. Most cash flow is in the south east or Midwest. I focus on memphks and Cleveland.

Before you message me asking why I chose them, it’s mainly for me the price of entry, amount of renters, good purchase price to rent ratio, and diverse economy.

@Lane Kawaoka I always see those markets mentioned when this subject come up... I’ve been curious as to why Oklahoma City doesn’t usually appear in these conversations. Based on my VERY rudimentary newbie research, it has healthy population growth, it’s relatively landlord friendly, not too high property taxes, and according to House Canary-good rental yield, and the median home price is $168K. My assumption is that my research is off, since I’m new to this... but am I missing something, when it comes to OKC?

I recommend investing in Detroit, MI and Tulsa, Oklahoma. I'm originally from Detroit. The market it is booming. I just read that an outlet mall is being built here. That will bring other businesses in the near future. 

My number one criteria for buying in a location is having a reliable a trustworthy team to handle my investment for me.

Seriously, everything mentioned here is important but if my property management team is crap... read some of the comments from some of the other investors about how bad their property management teams are. Right now I’m about as ‘out of state’ as I can be, and my property manager really handles everything and just messages me for approvals or a Docusign on a new lease agreement.

You’re not there. You need someone(s) reliable to make sure your property is well maintained and occupied.

Originally posted by @Tye Foster :

I have been looking at buying buy and hold properties out of state in some more affordable markets. I am wondering what are some key things you guys look for when choosing what markets to buy in? I know schools, crime, taxes, economy are some of the big ones that are a must but what else helps you determine whether or not to buy in an out of state market? Also, do you hear of a city or an area on podcasts or from other investors and research it or how do you hear about out of state areas to potentially invest in? 

Thank you for the help!    

 Try looking for "pre-boom" cities. You do not want to be last to the party! OOS investing can be done, you just need to do it right!

@Tye Foster when you hear about a boom or expected revitalization in an area on the news a podcast etc you may often be too late. Think about a few things when considering investing in upcoming cities 1) Current or future infrastructure projects 2) population shifts over the past 3-5 years and projected population increase/decreases 3) research the area on municipal websites, blogs etc see what people are saying about the area and what local governments plans are. Lastly, look for access to mass transit, major traffic routes etc.

I have helped several out of state investors both newbies and experienced. Let me know if I can be of any assistance! I am native to Kansas City and also sell in Cincinnati/Dayton. Best!

I also look at many of the things already mentioned, as well as property taxes and properties in vast employment hubs with an endless amount of potential tenants (employees needing a house to live in).

I'm currently pending on a property in East Point, GA (Atlanta) near the airport. 

Buying below FMV ( Substantial % Equity )

High Cash Flow after expenditures.

Are big name brands in the area?

Is it somewhat close to an airport?

Not too rural ( not my specialty )

Is population increasing or deceasing?

Competent PM

Are people going to pay rent? ( who cares about the numbers on paper if people don't pay you rent ever. )

I stay away from Below C areas. 

Ask yourself; Am i going for appreciation and some cash flow or lower appreciation and potentially more cash flow? This may guide you more in the areas you look in.

Don't over leverage. Ensure you buy at a price and at terms that you will cash flow if the property drops in value. This way you increase the chances you can weather a storm if the market crashes without bleeding from the pockets or having to liquidate the property in a none desirable fashion.

Originally posted by @Tye Foster :

I have been looking at buying buy and hold properties out of state in some more affordable markets. I am wondering what are some key things you guys look for when choosing what markets to buy in? I know schools, crime, taxes, economy are some of the big ones that are a must but what else helps you determine whether or not to buy in an out of state market? Also, do you hear of a city or an area on podcasts or from other investors and research it or how do you hear about out of state areas to potentially invest in? 

Thank you for the help!    

You've got a solid list thus far. Crime, taxes, economy, schools. On top of that you have your price to rent ratio's, cash flow probability and the contacts you can make who work in those markets.

Below are some more best practices for out of state investors.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

I have a couple of properties out of State.  I have one a long distance away (that was recently listed for sale).  Here are my thoughts....

1) Find a rock solid property manager that has their own crew for repairs and maintenance.  I can't tell you how much easier this makes things on you.  It's basically turn-key without the label (and additional expense of turn-key rentals).

2) Make sure the location is not in a flood zone. Flood zones changed this year - do your homework. Go to the FEMA website and do some searching. I have one rental that went from a non-flood zone to a flood zone. I was able to get Flood insurance before the change and I am grandfathered in at the lower rate.

3) The internet is your friend.  Check news reports, check websites that provide feedback (rentfax.com is one of many) and check what rentals are going for in the area.  Also check what other houses are going for in the area and check photos.

4) If you have a chance or can afford it, do a walk through.  Being there will give you a different perspective than reviewing photos.  I've bought three properties via photos but actually being there can make a huge difference.

Good luck.

@Tye Foster - David Greene wrote a pretty good book called Long Distance Real Estate Investing. That book answers a lot of those questions. If you are thinking of investing out of state.... I highly recommend it! 

As for what area to invest in. It really depends on what you are trying to do. If you want to BRRRR, I would recommend one of the mid-western or southern cities. Cities like Cleveland, Indianapolis, Columbus, Kansas City, Jacksonville, etc.

I do not believe you are going to kick yourself for picking one of these markets. I would suggest picking one, getting your core 4 (property manager, deal finder, lender, and contractor) and finding yourself a good deal! 

I agree 100% with @Martin L. . Investing out of state is all about your team and you better have a good one. 

Pick a few markets for the reasons mentioned here, and be careful or you'll spend months analyzing cities  Then start assembling a team. You need a property manager first and foremost. And I like cities where you find a couple good ones, in case the first one doesn't work out. Then you might need a realtor, contractor, etc. But those may come from your PM if you chose wisely. I also hit up individual investors in that market and start building relationships with them - they can help with all aspects - choosing people, neighborhoods, etc. and may eventually feed you deals. 

If the team doesn't come together in one market move on to another. 

Then start assessing the properties individually. 

@Tye Foster start by defining your goals and objectives and then identify markets that best match those goals. The three most important economic and demographic trends to look at in a market are 1. Population. Obviously growing populations are better than shrinking populations. 2. Jobs. Look at number of new jobs in a given period rather than just the unemployment rate. It's also good to look at the labor participation rate in the market. Who are the major employers and do they have a diverse, modern economy? 3. Income. How does the median income stack up to the national average and are incomes growing? Also, what is the poverty rate. All of this data is easily available through the U.S. Census Bureau and the Dept of Labor Statistics. Below is a table of the metrics that I look at for several markets(click on it to enlarge it). Next look at the property tax rate, insurance rates and landlord/tenant laws in the market. 

Once you've done all that, then you can look at kinds of things that you mentioned like crime rates, schools etc. Personally, I don't think schools are that big of a factor for rentals in most areas unless you only want to invest in A class neighborhoods. B and C class neighborhoods don't have great schools, otherwise they would be A class neighborhoods. People rent where they can afford and the rental pool is going to be greater in B and C class. The most important thing is just don't invest in the hood. You can't get good tenants to live in bad neighborhoods. It's not hard to determine what the neighborhood class is. Get familiar with the rents in your markets. If you find that the average rent in your market of choice is $1000 and you're seeing rents of $600 in a particular area, it doesn't take a whole lot to know you're in a bad area. Personally, I think Kansas City and Indianapolis are the two best cash flow markets in the country right now. both cash flow well, but in addition to cash flow, they have strong economic and demographic fundamentals with vibrant economies. I'd be happy to share more details with you on why I like those markets if you want. 

@Mike D'Arrigo what program do you use to generate that list? I am using USA.com and going zip by zip within a 15 mile radius of Cleveland and finding the population, growth rate, and avg income then placing that into excel. I will then focus on crime and other things. The list below is not complete but it is a painstakingly lengthy process. Maybe I am to far into the weeds? 

I was looking at Pittsburgh as well and Indy but having to do this for each city might be overkill. Then again you can never know to much about one market.

Originally posted by @Tye Foster :

I have been looking at buying buy and hold properties out of state in some more affordable markets. I am wondering what are some key things you guys look for when choosing what markets to buy in? I know schools, crime, taxes, economy are some of the big ones that are a must but what else helps you determine whether or not to buy in an out of state market? Also, do you hear of a city or an area on podcasts or from other investors and research it or how do you hear about out of state areas to potentially invest in? 

Thank you for the help!    

 Looking at population growth and jobs is one of the fist things a lot of investors will do.  Returns, cap rates and gross rent multipliers are several ways that people begin to look at markets.  Building a team of trusted advisors: realtor, lender, attorney etc... is a very important first step and the best way to familiarize your self with any market you're considering.  Best of luck with everything!