Out of state investing
Saint Peters, MO · Member since 2013 · 6 posts · 2 votes
Hello, I am new to the group and just starting my road to real estate investment education. My question is,
Does anyone know the Danville, IL market. It is where my husband was from originally but now we are in the STL area. We know the area is depressed and there are alot of cheap houses to be bought, we are just now sure if this is the right move for us. Our goal is to buy and hold for passive income. we would like to have around 20 properties total by 2018. any thoughts on buying out of state distressed SFH's for the first time out?
OK, I don't think most of this chain is answering Jennifer's question. Even the arguments for or against out-of-state investing aren't helping her (in my opinion).
Jennifer, you are asking about two things: buy locally or don't, and buy distressed or don't. Whether you should buy locally or not depends on your personal preferences. I agree that Missouri should have quite a bit of properties not too far from you that you could hit up, but if you want to buy out-of-state or out of your local area, there are plenty of ways to do that safely and with minimal risk. Those ways can be explained and/or taught outside of this post. Then, for buying distressed or not, again it depends on how much risk you want to take. To be honest, taking on a distressed property in further away from you is extremely risky. With everything else, there are ways to be smart about it, but that combo of investing (distressed and far away) is going to be the hardest combo you can do, and if you are new, it's a huge risk.
I'm an advanced investor and I won't buy distressed properties simply because I don't want that risk or workload. But if I were to buy one out of my local area, I would only do so assuming I had a no-joke insanely awesome team in place to deal with it. Huuuuge risk.
For a first-time investment, I would say try to go for the least distressed property you can, but if you are going to have to work on a property, keep it closer by. Or buy a property out of your local area that doesn't need work.
Hope that helps!
Welcome to BP @Jennifer Severado , it seems like your area has some real opportunities, but if you prefer investing somewhere else it can also have pluses. You need to decide what kind of rental you have and figure out how handy you are at fixing property up, or finding a good contractor, or if you want a ready to go rental. The decision needs to be based on your strengths and needs. Have criteria set for income ratios, neighborhood criteria, condition of property, etc.
@Marco Santarelli - I totally agree that real estate gives you total control of your risk and there is no reason to go high risk. This being said, based on my reviews of potential deals so far it seems as if higher returns are available in what I would considering higher risk areas such as Detroit and Atlanta. I call these areas higher risk because compared to where I have invested thus far, they offer much higher cash on cash returns with less up front cost. This being said I found the Detroit homes were in zip codes with crime rates 3.5 to 4 times the national average and the Atlanta homes would not appraise out if something happened that forced the investor to sell, neither of which would happen in my market. So this is what I was trying to communicate, thanks for calling me on this!
@Jennifer Severado I have done this and had close family members in that state to kind of help look out for the property for me, it still was and still is a big headache for me. I definitely would not do it again, and for a first timer, I would really not do it.
The solution to everything you just said is to invest in good markets (job and population growth, etc.) and in desirable neighborhoods with decent schools and relatively low crime rates. Then cherry pick the properties within those areas. Of course, the selection of the markets, neighborhoods and properties must meet certain criteria in order to cash-flow and generate favorable returns. That is some of the research our company does throughout the year as part of our "top down" approach to investing and it's the 6th rule of my 10 Rules of Successful Real Estate Investing.
Continued success!
I only invest out of state because the returns are better than in CA. But if you invest in an area that is more than a round trip car ride in one day plan on buying at least 5 in that area to achieve some economies of scale. Managing a rehab crew that you can only direct every couple weeks can prove disastrous as well. Too much unsupervised work for extended periods can lead to a lot of tear out and start overs. Managing one or two rentals more than 200 miles away can prove to be a huge headache, your travel time and expense will eliminate any potential profits. But as I first mentioned.. I only invest out of state.
@Jennifer Severado I am hoping this discussion provides you with important information before you commit capital. Which ever you choose feel confident that you went in fully informed.
You are absolutely right, most people don't have the time, expertise, or interest on learning how to find solid investments in their own backyard. Most people want fish right now & don't want to take the time to learn how to fish.
This is not a knock on your company or anyone else who genuinely provides the best service they can to provide what buyers want.
@Joe Landstrom you make an excellent point in economies of scale.
The potential disasters I see with smaller investors buying out of state is when they purchase one or maybe a few "inexpensive" houses 1 or 2 time zones away because they were "affordable". When their one house or mini portfolio has problems, the expense needed to take care of it personally (flight, time away from work, hotel, travel expenses etc) can easily cost them a year or more of cash flow.
Management companies are run by human beings who in my opinion aren't paid enough to take care of your problems. What are you paying them 10% of gross rent? So your $1000.00/month rent (if that) you are paying them $100/month to watch over your investment, save you money where they can, screen your tenant properly, jump on a middle of the night move out to prevent vandalism & damage to your asset? If you own 50 units & you are paying them $5,000 a month & you are one their top 3 clients, you can expect more.
The other danger in markets where many new "turn key" buyers are drawn to like sheep are what I call rental farms. Houses for rent as far as the eye can see. Who is your competition for rentals?... Other turn key investors who will potentially squeeze margins to keep their units/houses rented. Population growth & job growth are just a few of the factors. What about restrictive supply of homes? Why is that important? Think about the supply side of the equation. If the only real buyers market are "investors" your only viable exit strategy is to sell to another investor.
The best markets to own property long term are in strong retail homebuyer neighborhoods. Why? Because there are very few rentals available in the area & the best tenants know how hard it is to find housing in that neighborhood. Basic economics again, supply & demand.
Additional food for thought...Why do you think out of state, absentee owners mailing lists are great to market to?
Hi Jennifer, I live in Covington, IN which is only 15 min from Danville, IL. I am a Deputy Sheriff in Fountain County and invest in rentals and flips in the Covington area. Danville like you said is currently depressed, you can pick up houses for 5-10k that rent but with many headaches and problems. A lot of people are moving from Danville over to Covington area because of the crime. Covington has very low crime rate, good schools, great rental market ( shortage as of now), and steady appreciation. If you would like any info give me a shout.