Out of state buy and hold
Investor · Herriman, UT · Member since 2015 · 52 posts · 9 votes
Where do you think would be a better place to buy and hold property as an out of state investor. St. Louis, Kansas City, Dallas or Memphis?
@Brian Ewell I always recommend starting by evaluating markets at a macro level. The 3 most important things would be population growth, income growth and job growth. I am constantly evaluating potential markets. Below is a comparison matrix of some of the most popular markets, including most of the ones that you mention. I'll let you draw your own conclusions.
Living in KC I can say it's a very good buy and hold, cash flow market. That being said, I've seen a lot of out-of-state buyers get taken advantage of. It can be done right, but be very careful about who you do business with and where you're buying. I wrote a longer piece on it you might want to read; https://www.biggerpockets.com/renewsblog/2014/12/23/investing-out-of-state-essential-items-to-vet/
Below is my humble opinion. For those geeks and engineers out there as long as your in "Quadrant I" you are ok. For example Seattle/California/Hawaii is in Quadrant II - negative cashflow and positive appreciation. Detroit, yea that's in Quadrant III.
What are the numbers in front of the state mean?
Surprised to see Chicago as listed as 2nd best appreciation on this chart.
It looks like the sweet spot is ATL, PA, KC according to your chart with both appreciation and cash flow.
thanks
@Jay Hinrichs it is worth noting that the double taxation is still cheap. A $90,000 home in Memphis is about $1,500 a year. A $125,000 home in the suburbs is also about $1,500 a year. While you are right, your comment makes it sound like the taxes are high.
@Lane Kawaoka Your chart is a good starting point to evaluate a market. BTW, good to see you last weekend in San Diego.
@Brian Ewell I always recommend starting by evaluating markets at a macro level. The 3 most important things would be population growth, income growth and job growth. I am constantly evaluating potential markets. Below is a comparison matrix of some of the most popular markets, including most of the ones that you mention. I'll let you draw your own conclusions.
Hi Mike, I would love to know the software you are using to get these numbers. Thank you so much would be greatly appreciated.
@Shai Neubauer I wish there was some software that compiles all of this. It's compiled the old fashion way--extracting the data from sources like the Bureau of Labor Statistics and the Census Bureau
I vote Detroit... oh sorry wasn't on the list.
So seriously, @Brian Ewell why invest out of state at all? Someone is making money with RE in every market. Unless you're part of a hedge fund or a really big time investor why go outside of the market you live in and know the best, especially if you want to be hands on?
What's the argument for going so far afield if you're just investing for yourself and not as part of a REIT or an institution? I don't know your market at all but based on your profile goals and background I don't see the driver for leaving your market. Sounds like you have a few properties, have learned some lessons, but aren't doing horribly so far. I suggest don't learn another lesson the hard way by branching out beyond your experience level and scope of understanding. Find great deals in your town, get them on good terms, enjoy what cash flow they generate, and wait for them to double with appreciation in the next 10-20 years. That's a solid plan that can work in most any market.
John Schaub has a book on Amazon called "Building Wealth One House at a Time". I think its a very good book for someone in your situation. I've attended a few of his courses. It's really good, common sense advice without the hype or the pitch. And that would be his advice to you.
Best Wishes on your investing and feel free to reach out to me to talk shop.
Paul
@Shai Neubauer I wish there was some software that compiles all of this. It's compiled the old fashion way--extracting the data from sources like the Bureau of Labor Statistics and the Census Bureau
Maybe you should be the one who compiles all the stats and sells it as a service ;)
I find that it all depends on what your business model is for investing.
Any new area I invest in I start with my business model, (buy and hold and invest for cash flow) and find the area that fits my criteria.
If you are looking at these areas, get to know those markets thoroughly. Talk to Realtors, property managers, contractors, etc. The more you know about the area the better. If you have the ability to, fly/drive there and see the area in person.
I live in CA and invest in Ohio and Texas. Both of these markets are different and my business model adjusts as I find new areas.
Learn as much as you can about the area and if it fits your business model jump right in.
Take care!
Dustin
Hi, @Brian Ewell. We're in Columbus, OH and work with a lot of BP investors who are trying to decide where to invest. I agree with some of the other thread posters that you have to talk to people and discuss your goals and see if there's a fit when you're looking to build a team. Sure, we respond to these posts because we want to get clients, like one poster said above, but I personally spend a ton of time talking on the phone to people like you and helping them answer some questions because I want to help them learn about Columbus from my 20 years of experience here. There are cash-flowing properties here, and the numbers can be good, which is why I own my own buy and holds on the side. Wherever you invest, laser-focus your business model, meet someone on the ground who likes where they do business and can help you learn about it, and you'll be off to a good start. Best of luck!
-David Panzera
The St. Louis market (Which is my area of expertise) is a varied market. The best ROI is North City, but it is a war zone. ROI Can be as high as 50% on paper... But, with vandalism, theft, and quality of tenant, its much less in practice. Mid North County has an ROI of 20-30% on paper, with a true ROI of around 15%, 18-20% with a good management company. Far north, North County can have a stable 10-15% ROI, St. Charles can net 15% ROI and south City can net 20% ROI on the 4 family flats, as long as they are vetted properly.
I have worked the market the past 8 years, and the purchase prices are going up. A lot of our investors exit strategy is to buy and hold for the next 3-5 years, and when prices get back up, they plan to do rent to own/owner finance, and sell at retail pricing (Which, you would be purchasing at wholesale, being an investor), so on the exit, you would make money on the price of the home, and on the interest of the owner finance. Management companies here in St. Louis are starting to offer rent to own PM agreements, where the price to manage the property is much less, because they only have to collect the payment, and ensure the tenant is not getting any liens on the property.
Please feel free to PM me if this sounds like a good route for you to invest in. Would be happy to network, set you up with a Property Management Company, and help vet properties.
As always, we are here for your questions. We all specialize in our respected markets, and we are always happy to help you find the best market for your needs.
Travis Scribner
From what I have seen, there are a lot of similarities between the Cleveland and Memphis markets. I am actually working with an investor now who has a turnkey property in Memphis and is now entering the Cleveland market. You get "more bang for your buck"...
Regarding turnkey, this seems to be a love or hate situation. I can certainly appreciate the concern that some have. But as an out of state investor it is an ideal situation. Local turnkey companies know the market and profitable neighborhoods. They have already taken the research and guess work out of the equation. You can study demographics, crime statistics, rental returns, etc. all you want but physically knowing the market is priceless. That coupled with the quality rehab and tenant placement a turnkey property can offer makes your investment that much more stable.
Clearly my opinion is biased lol - but I've been in the industry for a very long time and can tell what absolutely works.
Good luck in your investment - feel free to reach out with any questions!
I vote Detroit... oh sorry wasn't on the list.
So seriously, @Brian Ewell why invest out of state at all? Someone is making money with RE in every market. Unless you're part of a hedge fund or a really big time investor why go outside of the market you live in and know the best, especially if you want to be hands on?
What's the argument for going so far afield if you're just investing for yourself and not as part of a REIT or an institution? I don't know your market at all but based on your profile goals and background I don't see the driver for leaving your market. Sounds like you have a few properties, have learned some lessons, but aren't doing horribly so far. I suggest don't learn another lesson the hard way by branching out beyond your experience level and scope of understanding. Find great deals in your town, get them on good terms, enjoy what cash flow they generate, and wait for them to double with appreciation in the next 10-20 years. That's a solid plan that can work in most any market.
John Schaub has a book on Amazon called "Building Wealth One House at a Time". I think its a very good book for someone in your situation. I've attended a few of his courses. It's really good, common sense advice without the hype or the pitch. And that would be his advice to you.
Best Wishes on your investing and feel free to reach out to me to talk shop.
Paul
Thanks for your input.
I would much rather find properties in my area. However, It is very hard to find those deals. Also there is a big difference in the prices of properties. For example I could buy a property in my area for $150k that rents for $1000/ month with moderate appreciation (maybe). I could by the same property in another market for $75k that rents for $1000/ month. Why pay more for the same return?
Brian
Turn-key is a great way to go. Even if it is out of state.
I have several buyers from CA & NY/NJ who are buying KC properties. However, we talk for hours, I provide them with the good & bad of KCMO. I give them as much literature, direct them to sights so they can see what our city has to offer. It's building trust between them & me. When I suggest a property to them, they know from dealing with me, from providing them with the numbers that this is a good investment.
In their local area they are unable to get a decent house for what we sell them....my CA buyer always teases me that he can get 3 KC houses for what 1 CA house costs...
When & if you choose to buy & hold out of state, find a company that is there for you, find an individual who you feel comfortable to work with. Sure you will have to pay a PM firm, however, they should be able to recommend you one. Take your time & if they want your business, they will be there to assist you at all times:)
Hello Valerie,
@Valerie Couch I just contacted SmartLand a few days ago (interested in obtaining information about the business).
Are you a SmartLand rep who can answer investor's questions if so please PM me at your convenience and maybe we can chat about your services and inventory.
From Nancy
Hi Nancy. I will definitely pm you, I am on mobile now and doesn't seem to be an option but will be able to shortly. Thanks!
@Brian Ewell Why pay more for the same return?
Because you don't know what you're investing in. You are only hedging your bets against the stock market. You can find similar returns in any market if you take the time to learn the business. People do it in every market. In Real Estate rarely are the deals out on the vine for you to easily pluck. You have to learn your market, farm it, find the opportunity and create a deal. This is what turn-key providers are doing. They've manufactured a deal and then look for outside investors to fund it and then take their cut, I assure you. Not to say that's a bad thing. They are providing a service. But by electing to take their offering you are outsourcing the expertise to a 3rd party. So you fundamentally don't really know what you're investing in. You could invest in a REIT for similar returns. Or ETFs or Vanguard index funds for that matter.
I only say this to caution you, and others who are considering their investments choices (myself included), that investing with a turn-key solution is not really being a real estate investor (in my opinion). You have your money in real estate, agreed, but you are treating it like a stock certificate. So only if asset class diversification is your goal then it may have merit. It's a value and risk judgement based on your situation and goals. Just don't fool yourself into thinking you know real estate because real estate is a location specific business. And it's very difficult to really know a market unless you live and/or spend a lot of time in the area.
And I suspect if you were to be really honest with yourself and really know your goals... you want to create wealth with these investments and "have enough passive rental income to be able to retire in 10 years" (that's from your profile... kind of cheating...). You don't want to just stash your cash somewhere as a small hedge over inflation or against the stock market. I suspect you want to invest in real estate to create wealth and financial freedom. If that's the case, passively investing in turn-key real estate, mutual funds, REITs, or any other actively managed asset class will take many, many years to create wealth. There's no shame in this by the way. Just make sure your actions are in line with your true goals.
If you really want to create wealth and attain financial freedom in a relatively short amount of time with real estate (5-15 years) then spend the time and energy it takes to become a real estate investor that learns the market you are in, master it, and dominate it.
Those are choice words... what do others think?
Best of luck in your investments. My goals happen to be very much in line with yours as it happens and this is as much advice to myself as it is to you. This is why a forum like bp is so valuable.
Cheers!
@Brian Ewell Why pay more for the same return?
Because you don't know what you're investing in. You are only hedging your bets against the stock market. You can find similar returns in any market if you take the time to learn the business. People do it in every market. In Real Estate rarely are the deals out on the vine for you to easily pluck. You have to learn your market, farm it, find the opportunity and create a deal. This is what turn-key providers are doing. They've manufactured a deal and then look for outside investors to fund it and then take their cut, I assure you. Not to say that's a bad thing. They are providing a service. But by electing to take their offering you are outsourcing the expertise to a 3rd party. So you fundamentally don't really know what you're investing in. You could invest in a REIT for similar returns. Or ETFs or Vanguard index funds for that matter.
I only say this to caution you, and others who are considering their investments choices (myself included), that investing with a turn-key solution is not really being a real estate investor (in my opinion). You have your money in real estate, agreed, but you are treating it like a stock certificate. So only if asset class diversification is your goal then it may have merit. It's a value and risk judgement based on your situation and goals. Just don't fool yourself into thinking you know real estate because real estate is a location specific business. And it's very difficult to really know a market unless you live and/or spend a lot of time in the area.
And I suspect if you were to be really honest with yourself and really know your goals... you want to create wealth with these investments and "have enough passive rental income to be able to retire in 10 years" (that's from your profile... kind of cheating...). You don't want to just stash your cash somewhere as a small hedge over inflation or against the stock market. I suspect you want to invest in real estate to create wealth and financial freedom. If that's the case, passively investing in turn-key real estate, mutual funds, REITs, or any other actively managed asset class will take many, many years to create wealth. There's no shame in this by the way. Just make sure your actions are in line with your true goals.
If you really want to create wealth and attain financial freedom in a relatively short amount of time with real estate (5-15 years) then spend the time and energy it takes to become a real estate investor that learns the market you are in, master it, and dominate it.
Those are choice words... what do others think?
Best of luck in your investments. My goals happen to be very much in line with yours as it happens and this is as much advice to myself as it is to you. This is why a forum like bp is so valuable.
Cheers!
Paul,
I agree with all of your above statements. This is the reason I don't like turn-key. You don't gain as much financially. My goal is to pick a market, something that is going to be economical to get to in a short flight, and learn as much as I can about the area. I expect that I will have to meet a lot of people and put a lot of trust in them to be able to get to where I want to go. Trust is what is keeping me out of the game right now.
Thanks for your comments.
Brian