Out of state investment for first deal! Good or Bad? 🤔

9 Replies

Hey everyone! I’m new to the BP app although I’ve been following podcasts for about a year. I own a few businesses here in NJ and have built up a pretty strong cash flow and am looking to increase my cash flow and take advantage of the real estate tax benefits by investing in rental properties.

The main dilemma: NJ is crazy expensive with little room for cash flow and crazy property tax!

I am considering properties in low tax states like Florida or Carolinas but this is a new endeavor for me. Thoughts???

Originally posted by @Mike Main :

Hey everyone! I’m new to the BP app although I’ve been following podcasts for about a year. I own a few businesses here in NJ and have built up a pretty strong cash flow and am looking to increase my cash flow and take advantage of the real estate tax benefits by investing in rental properties.

The main dilemma: NJ is crazy expensive with little room for cash flow and crazy property tax!

I am considering properties in low tax states like Florida or Carolinas but this is a new endeavor for me. Thoughts???

Hello! Investing OOS can be great. I would look more into the Midwest where prices are much lower and you can get a better ROI.

@Mike Main I would say don’t do it but that’s just my opinion. I did it for 2 years and had all plenty of issues. It wasn’t all bad but I had lots of problems that probably didn’t exist had it been local to me

@Mike Main investing out of state can be done and very profitable.  The main key would be having the right team in place around you that you trust and is knowledgeable about the area you are looking to invest in.  They will be able to tell you about any blind spots you have in that market or things that are different from your local market vs the are you are investing in.  I would make sure you have a knowledgeable agent/broker, a lender that has a presence in both areas, reputable property management and reputable contractor.  Most of these you can find through networking with other local investors on BP once you pick your target market.

Once you have your team set up and an understanding of the area/what you are looking for, then make the leap.  Invest where it make sense if where you live doesn't make sense for your current goals.  Hope this helps!

John 

Originally posted by @Mike Main :

Hey everyone! I’m new to the BP app although I’ve been following podcasts for about a year. I own a few businesses here in NJ and have built up a pretty strong cash flow and am looking to increase my cash flow and take advantage of the real estate tax benefits by investing in rental properties.

The main dilemma: NJ is crazy expensive with little room for cash flow and crazy property tax!

I am considering properties in low tax states like Florida or Carolinas but this is a new endeavor for me. Thoughts???

 Hollllllllla. What's up Mike. I am not in the biz of telling people if out of state investing is a good or bad move. Not my style, and it'd be a major conflict of interest. Kinda like asking your barber if it's time to get a haircut. That said, I want to give you some info and best practice bullet points if you do decide that out of state investment is the right strategy for you. In no particular order I have listed some of the most popular markets for out of state investors

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • 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.

@Mike Main

If you want to invest out of state then why not invest right over here in the San Francisco Bay Area for an Appreciation Play!

Just kidding..,,. Sort of.

Anyway,.... for cash flow as others have said....look at the Midwest.

It's a fine strategy (I'm in LA and it's most of what I've done), but I wouldn't make low-tax as your buying criteria. Make cash flow your buying criteria. The amount of taxes don't matter if there's no cash flow.