Out of State Rental

21 Replies

I currently live in the DC area and unfortunately getting anything going here requires a large reserve of capital. I'm 23 so I'm still in college (last semester) and am currently gov. employed,I would like to invest but can't afford it in DC.

Would any of you recommend buying an Out of State Rental property in a place like Texas or anywhere else where the average home price is $80,000-$100,000? I have about $20,000 saved up to invest. 

If I can obtain one of these properties that rent for about $900-$1,000 with $400 mortgage payments. I should have it cash flowing buy about $100 after repairs and vacancy is accounted for.

Does this seem like a good plan?

Awesome that you have saved that much and are looking at investing at such a young age! When I was in college (in DC) at 23 I was not nearly as disciplined and now I'm trying hard to make up for it.

I don't know about Texas, I'll be interested to hear what others have to say. But I can attest that the DC metro area is very very expensive for a newbie. It's unfortunate because I am nervous about the idea of having my first rentals be so far away from me.

Don't forget to account for property management (~ 10% of gross rent) if you are investing out of state.

The best advice I have seen is to partner with a investor in the area you are interested in investing in. Then you have someone in the area who is vested in ensuring your acquisition is successful.  

@Jamal Atwell  

To find out about an area go to IREM.org search for ARM certified property managers. Call 5 ask them what parts of the city they like/dislike and why. Ask them what they see expenses running per category per unit. What do they see them selling for per unit, what is the market occupancy rate. What are the market rents? Ask them if they know anything coming up for sale. Great way to pick up some good info and possibly a deal.

As a quick rule of thumb you can expect expenses to be 35% of gross income.

Paul

That's what I've always done Jamal. I live in LA so doesn't make sense to buy here either. Texas is great, you can also get really cool properties for even cheaper and higher cash flow in places like Philly and Trenton. Either way, I love out-of-state buying.

@Jamal Atwell  

Texas was a great market to me. Some very decent areas by military bases you can buy a 3/2/2 for 35-45K, put 10K in work (most likely a little foundation repair) and get rents around $900. Because of the constant in and out soldiers, it's a very reliable with little vacancy and they're normally good tenants. 

If you're looking to get your 20K moving I would recommend hard money. With good credit and that 20k you should be able to get into a good property in that market. Feel free to private message me and I can share some good contacts for lending as well as a quality deal in the Texas market. I was a TX broker for several years and still have a TON of great contacts.

@Anthony Gonzales Why would I be using Hard Money to purchase a home? Wouldn't I want to use a conventional loan since HML aren't long term. I'm confused...

@Account Closed  Thanks! I'm trying to make this financial freedom thing work for me so I save as much as I can. I'm nervous about out of state investing as well but I guess it can work if you do it right.

Hey Jamal, no for both. Any problems I've had with the rentals were just because of the rentals themselves (typically rental property problems), not because they were long-distance from me. I've never had a problem I couldn't fix over the phone too which has been great. I actually try not to visit my properties. I'm more of a out of sight out of mind type. Reason being, I'm a total perfectionist and if I go see the house and so much as see a scuff on the garage door, I'll stress out. When in reality, a scuff on the garage door doesn't matter. I trust my property manager to handle everything correctly, so I don't go by them. I may every now and then if I happen to be in the area and do a quick drive-by, but that's it.

@Ali Boone  glad to hear they your endeavors have been successful. I have read that investment properties may be harder to get loans for and more expensive. What percent interest can I expect to pay on investment loan? And also I'm going to assume you do but when you purchase properties do you visit them first?

Interest, you'd have to check with a lender. The last I knew it's somewhere around 5%. I only visited one of my properties before I bought it. The others I bought sight unseen.

@Jamal Atwell  You'd want to use hard money for this rental because typically the homes that you'll buy at a significant discount will not be insurable by the banks standards. Typically the best deals are going to be uninsurable homes which you'd need hard money to finance. After rehab, you'll refinance out of your hard money loan into a long term conventional product (30yr, 25yr fixed rate). This is the best way to acquire rentals. 

Also, if you only have 20k than hard money will be a great way to maximize your financial reach with this amount and keep it moving. I would also recommend flipping a house or two while acquiring these rentals to keep enough cash to continue. I'd be more than happy to help you with a strategy or "plan" if you're looking to build a portfolio. I have several years experience in real estate finance.

I am too am looking at out of state  investments. I have been looking at memphisinvest.com and have seen a lot of good things about them on this site. I am not sure what the next step is in terms of financing but I will be contacting them shortly to see what my options are. Good luck!! 

Congrats on getting started so early! We also live outside of DC (Northern VA area) and have found success in buying rentals in the Winchester area. I recommend checking there, you can get great properties at way more affordable prices than DC while still having higher rents!

@Jamal Atwell    I want to give you something else to consider.  Save your money your far to undercapitalized to be buying a rental. Put the money in the bank get your re license and start by joining a good team. Like a Keller Williams team you will make far more than 100 a month. Once you have Experince and more capital you will then probably decide what a good deal is .  Last thing you want is one rental 5 states away.  

Having access to MLS you will soon realize what a deal is and what is not plus you will just do deals for yourself or others. @?jameswise. Check out what James does with investors he is a broker and buys and sells in his market

@Jamal Atwell  I am going to agree with @Jay Hinrichs  on this one.  You have everything ahead of you right now and there is no need to rush for acquiring property.  What you really need is experience and knowledge and you can get both without risking your capital...and you can let it grow.  The 20k you have put aside for investing is awesome at 23, but it is only enough to pick up one property at this time and leaves you really zero in the bank for your comfort cushion.  Plus, one property is an expensive headache when you are buying passively out of area.  

I think the goal of acquiring these assets is awesome, but my advice would be to develop a plan that lets you learn the ropes, earn income off of your time spent learning and continue building your funds for investing.  I think someone gave you advice earlier about looking for a partner.  I think you may be able to find a partner willing to work with you right her on BP especially if you are willing to provide some of your capital to the project(?).  Point is, you have options right now and just buying our of area because you think that is your only option a is not something I would advise just yet.

Either way, I hope you do well!  Best - Chris

@Jamal Atwell    PS I am writing this post from my condo in Hawaii... Living the life I deserve because of real estate...   Lol.  Seriously I started as an agent at 18 in ca. And 40 years later it was the best move I ever made.. Rentals will come. You may not even like them..   I know I personally don't care for landlord in gorgeous pm lording.. But I j

Have owned hundreds of rentals over the years.  Just looking for simpler things

Invest where you can afford to invest, it does not necessarily need to be in your back yard.   Study and know your market before you invest.  If you are at a distance too far from your home, it's very important to build relationships and form a team to be the eyes and ears in the location you choose.   Realtor, property manager, etc. and also get acquainted with the neighbors of the properties next to your own.

Welcome to bp. That is an awesome idea. I got to vote for Chris and Jay as these guys have been around the block a few million time$. You could back that idea up with about a semesters worth of work and execute and or go the Jay route. I can only wish when I was 23 I had Chris and Jay to reach out to. Think about this scenario, how would you feel if I said walk in that bank and hand me over $20,000.00 cash. And for that I might mail you $100 a month back. Let's say everything goes perfect, one renter never moves out. It takes 16 years to get your 20k back. And now we are even:) Does that sound ok? Of course, that is one in 1,000 renters so the story could be even worse. Then you say well what about my equity.? Sorry house is down 20k , neighborhood was full of renters past 16 years so yeah not looking so great in that part now. Unless of course, you checked with Jay or Chris and that hoods doubled!

thanks,

Matt

@Jamal Atwell  Congratz, you are doing much better than people your age!

I do invest out of state, and what I can offer to you is an advise for you not to do it, at least not right now. If you spend your 20k as down payment, you'd have nothing at all as reserves. Plus, it's never just the down payment you'd need to bring at closing. The closing cost can be 25% to 50% above your DP.

Don't do any hard money with a buy and hold, it's just not the right tool for the job.

Listen to the caring advise from @Jay Hinrichs  and @Chris Clothier  as they are both very successful and very experienced.

What you should probably do is to just buy an index fund and park your money there for a few years until you have more capital.

@Emily Du Plessis  Thanks for the tip! I took a look at the winchester area and the homes are priced very much lower!

@Jay Hinrichs  Thanks for the advice. The RE license has already been in my plan. I'm getting started in December when I finish my last semester. However, I don't know how much I can do joining a team as a part time agent. I have a good gov. job that I don't want to give up just yet (still have rent to pay).

Is there anything to be said of part time RE agents? My age range isn't really buying homes for obvious reasons so I don't have the prior clientele or contacts either...

@Chris Clothier  Thanks! I have been looking for a mentor but no luck thus far. No one on BP was interested in my post. I'll have to look in other places!

@Jamal Atwell Out of state investing makes perfect sense, especially for investors that live in cities like D.C with high property values. For a list of 16 U.S cities that offer investors strong rental yields in cities that have strong economies and low vacancy rates check out http://www.b2rfinance.com/realtytrac-identifies-sa.... Also, being a college student yourself, you might be interested in the Top 10 college cities for rental investing. It's a completely different list than the typical Top 10 college party schools list (except Florida shows up on both lists). http://www.b2rfinance.com/top-10-college-towns-for...

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