Out of State investing does not work. With very few exceptions.

Out of State investing does not work. With very few exceptions.

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

You've been sold a pipe dream. I get it. Finding deals has become a lot harder in recent years, which leaves a lot of people frustrated and looking for alternatives. And because the grass always looks greener on the other side, you are looking to invest OOS. Because the grass always looks greener on the other side.

Investors are supposed to be good at math, but nobody is talking about how the math is impacted by not being local. 

Anything you do remote is harder and costs more. There is a cost burden that comes with OOS investing. I would say that is at least 10%-20% on everything. In some cases, it's hard cost, in some cases soft cost or just inefficiencies. You will on average pay more for the same deal, you have to hire a GC instead of just subs, your contractors may charge you a little more, order too much material or make mistakes you would have caught, if you would have been on the job at least 3 times a week (like I do). Every service call is more expensive and it will take longer to rent it out. The quality of the tenants is lower, simply because nobody watches your money like you do.

The book you have probably read about OOS investing tells you to get three quotes from three contractors. Sounds easy enough. Until you find out how hard it actually is to find just one contractor who has time and is willing to spend half a day walking your property and giving you a "free" estimate. We have a contractor shortage. The good ones don't even answer their phone if they don't know the number. It's these little things that sound so easy and reasonable in that book, until you try to do it.

So when does it make sense to invest OOS? 

In my opinion, you have to find an economic delta that is large enough to make it worth while the OOS premium.  If you live in Chicago, investing in Milwaukee does not make economic sense. Milwaukee is a slightly better market and you are less than 2 hours away, but it's still remote and the small market advantage in the end not worth paying the OOS premium. Keep your home field advantage. If you work in tech in CA or in finance in NY, it might be worth it to go OOS. Your income is higher and local real estate is absurdly expensive. The economic delta is big enough to offset the additional cost. 

Elon Musk calls that first principle thinking, you could just call it common sense.

The absolute worst case scenario are OOS investors hunting for bargain deals in the hood. Because they don't understand. They buy a 100-year-old house at half the median price that has a ton of overdue capex. They hire a cheap PM and ask them to keep the rehab budget under 10k. And then they can't find a tenant. Or just a really bad tenant who trashes the place. They get in trouble with the city, because their house is so bad the city issues work orders or fines them for garbage in the front yard (like a mattress or tires - often dumped by someone else not even living there). 

Now the OOS investor finds out that reality does not match the spreadsheet. Perhaps the worst part is when they make the local news and give all investors a bad name, because the press forgets to mention that the absentee owner has not seen the property in years - and it's just bad press for landlords in general - and soon enough local politicians start calling for more regulations..

Based on my own investing experience for over 15 years in Milwaukee I feel in general that it is always best to buy the best quality real estate investment you can afford at the time. Ask me how I know! That is true if you are local, but even more important if you invest remote and every little step is harder and or more expensive.

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Investor · NV and CA · Member since 2016 · 375 posts · 229 votes
1y

@Marcus Auerbach- I have to say I don't entirely agree.  I've been investing in the Midwest from the west coast since 2017.  I have high quality tradespeople who do work at low cost.  My tenants are high quality.  When I need a contractor, I have my real estate agent bring in a contractor she's worked with before and trusts.  They can be more expensive but it's not always the best idea to get the cheapest contractor.  

Maybe I say this because I'm lucky to have partnered with an agent who is trustworthy.  There are certainly agents out there who only want to earn a transaction and do not want to build a business relationship.  My agent has brought forth several connections that have been valuable over the years.  I've bought several properties through her sight unseen.  

The advantage of investing remotely is that it creates far less of a time commitment on my part.  I can still work my W-2 and don't have to go out visiting several properties.  Rather, my agent checks out the property, provides about 40 pictures, and a rehab cost estimate.  I then make an offer based upon the data I have.  

I do agree with you that OOS investing only makes sense if you live in an expensive area and are investing in a much less expensive area.  If you buy a $1MM property in your expensive local market and something goes seriously wrong with it, that's a much bigger deal that something going wrong with a $150k property OOS.  And buying in good neighborhoods OOS is important as well.

See this reply in the discussion

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  • Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    1y

    I found it pretty easy to build an OOS portfolio in Toledo since 2019. Were a lot more deals back then and a lot of market appreciation along the way. If I was starting today don't know if I would be successful. #1 lesson avoid C or D class areas only buy B.

  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
    1y

    @Marcus Auerbach a LOT of truth in what you say, but in our opinion, the real problem is newbie investors not taking the time to do proper research! 

    So, their spreadsheet numbers aren't properly aligned with reality because too many agents, contractors and PMCs are more interested in keeping these investors ignorant to make short-term dollars,

    versus

    Being transparent and educating investors, so they plug real numbers in their spreadheets.

    That's why we keep posting the copy & paste info below, but seems like we're just swimming against the current:(

    -----------------------------------------------------------------------------------------------------------

    Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

    Why is Property Class so important for investors to understand and apply in their investing strategies?

    Because the Property Class dictates the Class of the tenant pool that the property will attract.

    The Tenant Class greatly impacts rental income stability and property maintenance/damage by tenants.

    Both Property Class and Tenant Class affect what type of contractors, handymen and property management companies will work on a property.

    If you buy & renovate a property in Class D area to Class A standards, what Tenant Class will rent it?

    Or, if you put several Class D tenants in a Class A four-plex, what do you think will happen to the property?

    So, if you fail to apply the correct assumptions to a property, your expectations won’t be met and it may even be a financial disaster.

    We use the following to rank Property Classes, in order of importance:

    • Property Tenant Pool: closely linked to location, but not always.
    • Property Location: closely linked to tenant pool, but not always.
    • Property Condition & Amenities: it’s important to, “Maintain to the Neighborhood.”

    Key metrics for each Property Class:

    Class A Properties:
    Tenant Pool: Majority of FICO scores 680+, no convictions/evictions in last 7 years.
    Tenant Default: 0-5% probability of eviction or early lease termination.
    Section 8: Class A rents are too high and won’t be approved.
    Vacancies: 5-10%, depending on market conditions.
    Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.

    Class B Properties:
    Tenant Pool: Majority of FICO scores 620-680, some blemishes, no convictions/evictions in last 5 years.
    Tenant Default
    : 5-10% probability of eviction or early lease termination.
    Vacancies
    : 10-15%, depending on market conditions.
    Cashflow vs Appreciation: Typically, 1-3 years for positive cashflow, balanced amounts of relative rent & value appreciation.
    Section 8: Class B rents are usually too high for the Section 8 program.

    Class C Properties:
    Tenant Pool: Majority of FICO scores 560-620, many blemishes, but should have no convictions/evictions in last 3 years. Verifying recent 2-years of rental history very important! Same for 2-years of job/income stability.
    Tenant Default: 10-20% probability of eviction or early lease termination.
    Section 8: Class C rents usually meet program requirements, proper screening still recommended.
    Vacancies: 10-20%, depending on market conditions and tenant screening.
    Cashflow vs Appreciation: Should cashflow immediately, at the lower end of relative rent & value appreciation.

    Class D Properties:
    Tenant Pool: Majority of FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, but should have no convictions/evictions in last 12 months. Verifying last 2-years of rental history and income/employment extremely important to find the “best of the worst”.
    Tenant Default: 20-30% probability of eviction or early lease termination.

    Section 8: Class D rents meet program requirements, often challenges to pass Section 8 inspection.
    Vacancies: 20%+, depending on market conditions and tenant screening.
    Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation.

    Where did we get our FICO credit score information from?

    Check out this chart:

    FICO Score

    Pct of Population

    Default Probability

    800 or more

    13.00%

    1.00%

    750-799

    27.00%

    1.00%

    700-749

    18.00%

    4.40%

    650-699

    15.00%

    8.90%

    600-649

    12.00%

    15.80%

    550-599

    8.00%

    22.50%

    500-549

    5.00%

    28.40%

    Less than 499

    2.00%

    41.00%

    Source: Fair Isaac Company

    Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

  • Fayetteville, AR · Member since 2025 · 20 posts · 8 votes
    1y

    I think a key takeaway is from @Marcus Auerbach he said, "When I need a contractor, I have my real estate agent bring in a contractor she's worked with before and trusts."  

    A good real estate agent has the tools and connections to help you manage a property remotely. Are there some struggles that arise because you are further away, certainly, but building your team of experts and having trusted resources where you are looking to invest should be a priority when planning for an out of state investment. 

    @Marcus Auerbach I do appreciate you bringing the controversial topic to the BP crowd, because additional costs are something that should absolutely be on investors' radars when considering OOS investing. 


  • Member since 2024 · 4 posts · 3 votes
    1y

    @Jay Hinrichs I agree with a lot of what you said. AU is not so dissimilar to the UK in terms of the type of tenants that we have. Rent payments are on a direct debit here meaning the landlord gets the rent money automatically from the tenant every month so there is no chasing tenant for the rent.

    Now, talking about OOS and OOC investors always focusing on cashflow, you can't really blame them that much because that is what is most alluring to the OOS and OOC investor in the first place. Appreciation would be a secondary consideration to most as most would want some immediate "financial freedom" to be derived from immediate good cash flow. So it's easy to see why most would fall into the bad, poor, and unsafe areas dominated by NON owners.

    Personally, when I start investing stateside, I plan to take a more balanced approach that prioritizes median cash-flow in properly appreciating areas i.e. owner occ areas.

    If I had to go for just cashflow meaning I would buy in more unsavoury areas then I would have to look at options to be present stateside and for that I am considering the E 2 investor visa though I haven’t fully decided on that yet if I want to move stateside to work for a couple of years.

  • Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    1y

    OOS investing doesn't work in "cashflow" areas with crappy tenant pools. On the flip side I have sold numerous CA buyers 3-4 units in the class A northside areas of Chicago where you have 700+ credit tenants and I have never even had to give a late notice as everyone on autopay. These work very well and many even self manage with my handyman/leasing agent. They aren't cheap though around a million for the 4 units that bring in 7-8k rents a month. If you focus on growth areas with decent but not high caps it can work very well. 

  • Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
    1y

    I think out-of-state works with a small fund, seasoned people running it and low overhead.  One that does not have to pay the managers with the fund money but makes its money based on production.  Also, one that the owner put 20% or more in and they don't charge heavy fees.   Then, it is more like a partnership.  The last fund I did is full, so I am not selling anything. My investors are happy and doing well.  1st phase was 2.7M built, 28K rent a month.  The next build will be more like 3M with 28K rent, not quite as good, but we have enough dirt to do another 5M build on it.  They just had to send money and do nothing.  If I could find a fund that produced that somewhere warm in the winter, I would put money in just to write off my winter vacation.  I would prefer a beach as well.  

  • Investor · NV and CA · Member since 2016 · 375 posts · 229 votes
    1y

    @Cindy Sawyer- Yes, I use property management.  I certainly had to go through a lot of different PM's before I found good ones.

  • Investor · USA · Member since 2015 · 168 posts · 243 votes
    1y

    Haha, it's funny. I am an investor from Houston TX and own rental properties in several states including CA,UT,ID,FL and of course TX. The only property that I regret bought and want to get rid of is the one in my hometown. The main reason is, holding cost including property tax and insurance etc. are too high, and even rents increased but costs increased even more.

    I agree that it is easy to underestimate costs (management and repair cost etc) for OOS investing.  But choosing area with low holding costs(low property tax or insurance, or capped fixed property tax like CA) can offset some of the drawbacks. So it really depends on investing strategy.  

    Even let me do it again, my hometown is still the last place that I want to invest. 

    • Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
      1y
      Quote from @Jenning Y.:

      Haha, it's funny. I am an investor from Houston TX and own rental properties in several states including CA,UT,ID,FL and of course TX. The only property that I regret bought and want to get rid of is the one in my hometown. The main reason is, holding cost including property tax and insurance etc. are too high, and even rents increased but costs increased even more.

      I agree that it is easy to underestimate costs (management and repair cost etc) for OOS investing.  But choosing area with low holding costs(low property tax or insurance, or capped fixed property tax like CA) can offset some of the drawbacks. So it really depends on investing strategy.  

      Even let me do it again, my hometown is still the last place that I want to invest. 

      Where in Idaho? I hardly hear it mentioned 

    • Investor · USA · Member since 2015 · 168 posts · 243 votes
      1y
      Quote from @Matthew Becker:
      Quote from @Jenning Y.:

      Haha, it's funny. I am an investor from Houston TX and own rental properties in several states including CA,UT,ID,FL and of course TX. The only property that I regret bought and want to get rid of is the one in my hometown. The main reason is, holding cost including property tax and insurance etc. are too high, and even rents increased but costs increased even more.

      I agree that it is easy to underestimate costs (management and repair cost etc) for OOS investing.  But choosing area with low holding costs(low property tax or insurance, or capped fixed property tax like CA) can offset some of the drawbacks. So it really depends on investing strategy.  

      Even let me do it again, my hometown is still the last place that I want to invest. 

      Where in Idaho? I hardly hear it mentioned 


      Boise area.

    • Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
      1y
      Quote from @Jenning Y.:
      Quote from @Matthew Becker:
      Quote from @Jenning Y.:

      Haha, it's funny. I am an investor from Houston TX and own rental properties in several states including CA,UT,ID,FL and of course TX. The only property that I regret bought and want to get rid of is the one in my hometown. The main reason is, holding cost including property tax and insurance etc. are too high, and even rents increased but costs increased even more.

      I agree that it is easy to underestimate costs (management and repair cost etc) for OOS investing.  But choosing area with low holding costs(low property tax or insurance, or capped fixed property tax like CA) can offset some of the drawbacks. So it really depends on investing strategy.  

      Even let me do it again, my hometown is still the last place that I want to invest. 

      Where in Idaho? I hardly hear it mentioned 


      Boise area.


       I am up north.  The numbers in Boise were good; if you bought before COVID, you probably killed it.  I prefer Moscow, CDL, and Sand Point, which have fewer people to compete with.  

  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    1y

    @Jay Hinrichs - It wasn't easy, it was a lot of drama.  I definitely lost money that I wouldn't have if I was local.  I also agree with @Henry Lazerow about the market.  I also have OOS investor clients in Chicago which is A/B class and lots of clients over the last decade that house hacked and moved out of state and most still self manage.  OOS and buying C Class is much more difficult, even though I live 90 min from Milwaukee where my portfolio was it was still a very draining experience.  

  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    1y

    Hey @Jay Hinrichs - I will send you the podcast I listened to where David Greene went into some of the details. It sounds like some super shady stuff.

    If you are going to invest out of state, you are better at finding a better who is boots on the ground - that's my opinion.  For me partnering is what really can allow you to scale, especially if you can find someone that is ahead of you in the real estate gam - just date before you marry!

  • Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    1y

    Yup, thats exactly what it comes down to good boots on the ground, someone who has the necessary knowledge and you can trust. But of course there is a cost to that.

    Partnering is an option, but I'd be very careful. Almost every biz partnership I have ever seen went sour sooner or later. Written agreement, spelled out responsibilities and a spelled out exit plan is a must!

    • Austin WolffPro Member
      Rental Property Investor · Los Angeles, CA · Member since 2024 · 139 posts · 134 votes
      1y
      Quote from @Marcus Auerbach:

      Yup, thats exactly what it comes down to good boots on the ground, someone who has the necessary knowledge and you can trust. But of course there is a cost to that.

      Partnering is an option, but I'd be very careful. Almost every biz partnership I have ever seen went sour sooner or later. Written agreement, spelled out responsibilities and a spelled out exit plan is a must!

      Good point. I have yet to see a successful partnership that didn't go up in flames sooner or later. "Don't have a partner" is the usual advice I'm given when I ask my network for their most important business lesson they've ever learned (the context is that they specially meant don't have a 50/50 partner).

      BiggerPockets
    • Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
      1y
      Quote from @Austin Wolff:
      Quote from @Marcus Auerbach:

      Yup, thats exactly what it comes down to good boots on the ground, someone who has the necessary knowledge and you can trust. But of course there is a cost to that.

      Partnering is an option, but I'd be very careful. Almost every biz partnership I have ever seen went sour sooner or later. Written agreement, spelled out responsibilities and a spelled out exit plan is a must!

      Good point. I have yet to see a successful partnership that didn't go up in flames sooner or later. "Don't have a partner" is the usual advice I'm given when I ask my network for their most important business lesson they've ever learned (the context is that they specially meant don't have a 50/50 partner).


       I have done dozens of partnerships over the last 30 years.  I have never had one blow up.  No one ever sued anyone.  We always made money.  Generally, I want to own a 25% minimum and put my own money in.  One time, a partner wanted out.  The partnership absorbed his equity and paid him with equity we had.  All the other partners were happy to increase their equity.  I have four partners from California that I have never met in my life besides over a Zoom call, and they were all referred to me by other people I have partnered with.  I think if expectations are set and people do what they say they will, you will have very few problems.  But I would not partner with a newbie who needs $100K for his first deal in Ohia.  However, I did partner with my accountant, who needed $100k to close a deal.  I think if you are a higher-income earner in CA and want to get into real estate, the only option is to find out-of-state stuff.  I find good deals monthly, but I can't turn the cash around fast enough to not have partners.  I would need 3 to 4 million liquid all the time sitting doing nothing in a bank account if I did not find a deal.  I refuse to borrow money from hard money lenders I think that is a good way to loose your ***.  

    • Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
      1y
      Quote from @Matthew Becker:
      Quote from @Austin Wolff:
      Quote from @Marcus Auerbach:

      Yup, thats exactly what it comes down to good boots on the ground, someone who has the necessary knowledge and you can trust. But of course there is a cost to that.

      Partnering is an option, but I'd be very careful. Almost every biz partnership I have ever seen went sour sooner or later. Written agreement, spelled out responsibilities and a spelled out exit plan is a must!

      Good point. I have yet to see a successful partnership that didn't go up in flames sooner or later. "Don't have a partner" is the usual advice I'm given when I ask my network for their most important business lesson they've ever learned (the context is that they specially meant don't have a 50/50 partner).


       I have done dozens of partnerships over the last 30 years.  I have never had one blow up.  No one ever sued anyone.  We always made money.  Generally, I want to own a 25% minimum and put my own money in.  One time, a partner wanted out.  The partnership absorbed his equity and paid him with equity we had.  All the other partners were happy to increase their equity.  I have four partners from California that I have never met in my life besides over a Zoom call, and they were all referred to me by other people I have partnered with.  I think if expectations are set and people do what they say they will, you will have very few problems.  But I would not partner with a newbie who needs $100K for his first deal in Ohia.  However, I did partner with my accountant, who needed $100k to close a deal.  I think if you are a higher-income earner in CA and want to get into real estate, the only option is to find out-of-state stuff.  I find good deals monthly, but I can't turn the cash around fast enough to not have partners.  I would need 3 to 4 million liquid all the time sitting doing nothing in a bank account if I did not find a deal.  I refuse to borrow money from hard money lenders I think that is a good way to loose your ***.  

      Hi Matthew, excatly, it's the newbie who is unsure what to do and partners with a friend who is equally green and then they go and buy a duplex as tenants in common. Sooner or later one wants out and the other one can not aford to pay him out, or one rents to a bad tenant and they loose a bunch of money on an eviction and now the blame game starts..

      The best partnerships are formed when 2 people complement each other, for example one has money and the other has time or skill. The odds of success of two pros partnering are much different than two noobs forming an LLC and then calling me, because they want to buy their first property and of course OOS... ;-)

    • Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
      1y
      Quote from @Marcus Auerbach:
      Quote from @Matthew Becker:
      Quote from @Austin Wolff:
      Quote from @Marcus Auerbach:

      Yup, thats exactly what it comes down to good boots on the ground, someone who has the necessary knowledge and you can trust. But of course there is a cost to that.

      Partnering is an option, but I'd be very careful. Almost every biz partnership I have ever seen went sour sooner or later. Written agreement, spelled out responsibilities and a spelled out exit plan is a must!

      Good point. I have yet to see a successful partnership that didn't go up in flames sooner or later. "Don't have a partner" is the usual advice I'm given when I ask my network for their most important business lesson they've ever learned (the context is that they specially meant don't have a 50/50 partner).


       I have done dozens of partnerships over the last 30 years.  I have never had one blow up.  No one ever sued anyone.  We always made money.  Generally, I want to own a 25% minimum and put my own money in.  One time, a partner wanted out.  The partnership absorbed his equity and paid him with equity we had.  All the other partners were happy to increase their equity.  I have four partners from California that I have never met in my life besides over a Zoom call, and they were all referred to me by other people I have partnered with.  I think if expectations are set and people do what they say they will, you will have very few problems.  But I would not partner with a newbie who needs $100K for his first deal in Ohia.  However, I did partner with my accountant, who needed $100k to close a deal.  I think if you are a higher-income earner in CA and want to get into real estate, the only option is to find out-of-state stuff.  I find good deals monthly, but I can't turn the cash around fast enough to not have partners.  I would need 3 to 4 million liquid all the time sitting doing nothing in a bank account if I did not find a deal.  I refuse to borrow money from hard money lenders I think that is a good way to loose your ***.  

      Hi Matthew, excatly, it's the newbie who is unsure what to do and partners with a friend who is equally green and then they go and buy a duplex as tenants in common. Sooner or later one wants out and the other one can not aford to pay him out, or one rents to a bad tenant and they loose a bunch of money on an eviction and now the blame game starts..

      The best partnerships are formed when 2 people complement each other, for example one has money and the other has time or skill. The odds of success of two pros partnering are much different than two noobs forming an LLC and then calling me, because they want to buy their first property and of course OOS... ;-)


       I generally have more money than my partners and also have way more experience, but I just can't turn the projects and refi them fast enough,  even with a construction company with 40 people if you find three deals in a month remodel and build a duplex on the back in 3 months.  It takes cash sitting for a little bit to make it happen.   So I bring people in who want to invest.  I think I only have two to three people out of dozens with a higher net worth than me.  I still make more money doing 10x the deals with partners.  

  • Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    1y

    I'm an exception.  I live in Ca, and have ~2,000 units in Texas.

    (though to be fair, I was living in Texas when I started building the portfolio and got to about 500 units + a solid team before I moved)

    • Don KonipolBusiness Member
      Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
      1y
      Quote from @Cody L.:

      I'm an exception.  I live in Ca, and have ~2,000 units in Texas.

      (though to be fair, I was living in Texas when I started building the portfolio and got to about 500 units + a solid team before I moved)

      I sold Cody property in Houston many years ago, and while he wasn’t LIVING in Texas at the time his knowledge of the Texas real estate market was at least as great as mine.   Maybe KNOWING your target market is more important than BEING THERE?  
      Private Mortgage Financing Partners, LLC
    • Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
      1y
      Quote from @Don Konipol:
      Quote from @Cody L.:

      I'm an exception.  I live in Ca, and have ~2,000 units in Texas.

      (though to be fair, I was living in Texas when I started building the portfolio and got to about 500 units + a solid team before I moved)

      I sold Cody property in Houston many years ago, and while he wasn’t LIVING in Texas at the time his knowledge of the Texas real estate market was at least as great as mine.   Maybe KNOWING your target market is more important than BEING THERE?  

      I still have BOTH the deals you sold me. Not sure if you remember the commercial space in midtown (Fannin) but that's had a NNN nightclub for years now. And then the old apartment complex north of downtown. It's just limping along, doing it's thing :)

  • Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    1y

    @Cody L. congratulations!! I only know a handful of people who have scaled this large! Most never went past 10 or 20 units, but even that wil chnage someones financial future. So my comments are aimed at investors who are looking at 1-4 unit deals, maybe a considering and 8 or 12 unit building. 

    Once you go 100+ units the dynamic is obviously much different, you have a much bigger rent roll to pay contractors or full-time staff. Being local is not that important anymore..

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    It depends on what's purchased out of state. 99.9% who invest out of state do so beasue they can't afford to purchas investment real estate in their hometown and purchase where real estate is inexpensive. This real estate is inherently more expensive to operate and typically requires some DIY. Very rarely are these properties sustainable when reliant entirely on contracted vendors. 

    On the other side of the spectrum are NNN leased properties to credit tenants which is the easiest asset to own in a distant markt. Somewhere in between you have real estate in markets where its easier to absorb the operational costs associated with relying on 3rd party vendors. It's typically the investors who prioritze the fundamentals of the real estate that pursue these better markets and invest there because they want to, not because its the only place they can. They are also more well versed in real estate and aren't solely chasing cash flow. On the other hand are the OOS investors seeking out the cheapest markets. These investors are usually focused solely on cash flow/BRRRR. Most who fall within this category fail to generate any meanitful profits and its only the brokers, contracts and PM's who make any money in those transactions.

  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    1y

    There’s a BIG difference between a partnership where one party is what used to be the “general partner” (now usually “manager” or “managing member”) and the other parties are what used to be “limited” partners ( now “non managing members”), and a true “partnership” with both (or more) parties ACTIVE in the management and decision making.  

    The former is, in my mind, not really a partnership - it’s more like investing in a public company where your sole voice is voting once a year for the board of directors.  The latter is what we are really referring to when we say partnership.  If you’ve been involved in both, you’ll understand the difference. 

    Private Mortgage Financing Partners, LLC
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    1y

     I'm coming to this thread late and will agree that OOS has not worked for the poster of this thread. Here's how it has worked for us in the past- It worked for us when we acted as a local- i.e. local partners, local attorneys, local realtors, local.....  And that includes budgeting for traveling into the local market.

    • Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
      1y
      Quote from @Crystal Smith:

       I'm coming to this thread late and will agree that OOS has not worked for the poster of this thread. Here's how it has worked for us in the past- It worked for us when we acted as a local- i.e. local partners, local attorneys, local realtors, local.....  And that includes budgeting for traveling into the local market.

      Yup, that's my point: there is friction involved that you don't have when you are local and you can stop by on your way home. This gives the OOS investor a built-in disadvantage over local investors. With a large enough economic delta between the market where you live and where you invest, it still does make financial sense. The benefits outweigh the friction losses. And you can mitigate those by investing in better-quality properties. The lower grade the investment is, the more interactions you will have for repairs and tenants, the more opportunities for extra friction - which materializes as a cost. If you apply first principle thinking, you want to strategically minimize the number of opportunities to interact with the property.

      That's why over the years we have tightened the radius of our investments even more to about 20 minutes, so I don't go to the south side of Milwaukee, even though I see a lot of great opportunities there. 

      And I am lucky to live in a great market; however I have to add it was not considered great when I started here in 2009 and everything was falling apart. That was really just dumb luck that my corporate job got me here. 

    • Crystal SmithPro Member
      Moderator
      Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
      1y
      Quote from @Marcus Auerbach:
      Quote from @Crystal Smith:

       I'm coming to this thread late and will agree that OOS has not worked for the poster of this thread. Here's how it has worked for us in the past- It worked for us when we acted as a local- i.e. local partners, local attorneys, local realtors, local.....  And that includes budgeting for traveling into the local market.

      Yup, that's my point: there is friction involved that you don't have when you are local and you can stop by on your way home. This gives the OOS investor a built-in disadvantage over local investors. With a large enough economic delta between the market where you live and where you invest, it still does make financial sense. The benefits outweigh the friction losses. And you can mitigate those by investing in better-quality properties. The lower grade the investment is, the more interactions you will have for repairs and tenants, the more opportunities for extra friction - which materializes as a cost. If you apply first principle thinking, you want to strategically minimize the number of opportunities to interact with the property.

      That's why over the years we have tightened the radius of our investments even more to about 20 minutes, so I don't go to the south side of Milwaukee, even though I see a lot of great opportunities there. 

      And I am lucky to live in a great market; however I have to add it was not considered great when I started here in 2009 and everything was falling apart. That was really just dumb luck that my corporate job got me here. 


       Maybe it's just our business plan, but we treat local investments just like Out-of-state investments.  We don't "stop by on our way home". Using your words.  We pay the trusted service providers that we have established relationships to do their jobs. Otherwise, for us, it would become another job, not an investment.  I'm not saying that we never physically check, but our model was to learn how to manage the service providers. 

      The model isn't for everyone, but my partner established the model when all of our investments were in one small market, and we decided that we could not grow if we only focused on that market.  He traveled extensively in a corporate job, managing operations across a few different countries.  Then, we started purchasing Out of State & treated the real estate portfolio the same as separate corporate operations, relying on locals to run the operation. 

       I forgot to mention this in my original response to your post We rarely invested alone when we went out of state- We always tried to invest with a local(s).   

  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    @Crystal Smith Of course it works for the local realtor, attorney, GC, PM. The out of state investor is entirely dependent on their services and these service providers get paid regardless of whether the property performs well for the owner. In fact, the worse the property performs the more fees are generated for these service providers. What Marcus is getting at is whether the arrangement is profitable for the actual owner given the higher amount of dependency. 

    • Crystal SmithPro Member
      Moderator
      Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
      1y
      Quote from @Stuart Udis:

      @Crystal Smith Of course it works for the local realtor, attorney, GC, PM. The out of state investor is entirely dependent on their services and these service providers get paid regardless of whether the property performs well for the owner. In fact, the worse the property performs the more fees are generated for these service providers. What Marcus is getting at is whether the arrangement is profitable for the actual owner given the higher amount of dependency. 


       My point- Being an OOS investor/owner has worked for our business.  The relationships we established at local levels to conduct due diligence and manage our projects before and after pulling the trigger so far have not been much different than investing locally.   I am just as dependent on the local team of service providers as I am on an out of state team.  The only difference, which I did not mention in my response to the poster is we usually have an Out of State partner that is local to the market.

  • Scott TrenchPro Member
    Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
    1y

    I think that "dabbling" out of state is the mistake. That's a recipe for disaster. No matter how good your guy is, if you own one property, you just won't be a meaningful part of his business. 

    But, we have heard countless success stories that seem defensible from folks that invest out of state. Typically, they go fairly big, build a team who depends on their business for a meaningful part of their livelihood, and they don't chase the most extreme yield scenarios (though they seem to find outliers anyways). 

    The other way to be "successful" is to just go with a reputable turnkey provider, and accept much more modest, lightly leveraged returns. This may not pace the S&P 500 over the long run, but it can provide diversification, and for a very high income earner, placing 5 properties in a midwestern town with average yield with a property manager with light leverage can provide a reasonable amount of diversification. 

    It's when the expectation combination of a low capital investment, very high yield, excellent service, and minimized costs come into play that investors are meaningfully disappointed. 

    If you want a shot at all or most of THAT combination, you better be plan to be on site. And it's still hard.

  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    1y

    @Scott Trench

    you absolutely nailed it on expectations. two different investors could buy the exact same property and get the exact same results, and one thinks it's a disaster, and the other thinks the first few years are a stabilization period on the way to long term wealth.

    there are so many posts by new investors on BP pursuing cash flow, and they can't even get to closing before their expectations are not met - they get their draft settlement statement and see that they're paying $9K in closing costs and their minds are blown.

  • Member since 2025 · 7 posts · 8 votes
    1y

    Great point! 

  • Member since 2020 · 38 posts · 22 votes
    1y
    Quote from @Marcus Auerbach:

    You've been sold a pipe dream. I get it. Finding deals has become a lot harder in recent years, which leaves a lot of people frustrated and looking for alternatives. And because the grass always looks greener on the other side, you are looking to invest OOS. Because the grass always looks greener on the other side.

    Investors are supposed to be good at math, but nobody is talking about how the math is impacted by not being local. 

    Anything you do remote is harder and costs more. There is a cost burden that comes with OOS investing. I would say that is at least 10%-20% on everything. In some cases, it's hard cost, in some cases soft cost or just inefficiencies. You will on average pay more for the same deal, you have to hire a GC instead of just subs, your contractors may charge you a little more, order too much material or make mistakes you would have caught, if you would have been on the job at least 3 times a week (like I do). Every service call is more expensive and it will take longer to rent it out. The quality of the tenants is lower, simply because nobody watches your money like you do.

    The book you have probably read about OOS investing tells you to get three quotes from three contractors. Sounds easy enough. Until you find out how hard it actually is to find just one contractor who has time and is willing to spend half a day walking your property and giving you a "free" estimate. We have a contractor shortage. The good ones don't even answer their phone if they don't know the number. It's these little things that sound so easy and reasonable in that book, until you try to do it.

    So when does it make sense to invest OOS? 

    In my opinion, you have to find an economic delta that is large enough to make it worth while the OOS premium.  If you live in Chicago, investing in Milwaukee does not make economic sense. Milwaukee is a slightly better market and you are less than 2 hours away, but it's still remote and the small market advantage in the end not worth paying the OOS premium. Keep your home field advantage. If you work in tech in CA or in finance in NY, it might be worth it to go OOS. Your income is higher and local real estate is absurdly expensive. The economic delta is big enough to offset the additional cost. 

    Elon Musk calls that first principle thinking, you could just call it common sense.

    The absolute worst case scenario are OOS investors hunting for bargain deals in the hood. Because they don't understand. They buy a 100-year-old house at half the median price that has a ton of overdue capex. They hire a cheap PM and ask them to keep the rehab budget under 10k. And then they can't find a tenant. Or just a really bad tenant who trashes the place. They get in trouble with the city, because their house is so bad the city issues work orders or fines them for garbage in the front yard (like a mattress or tires - often dumped by someone else not even living there). 

    Now the OOS investor finds out that reality does not match the spreadsheet. Perhaps the worst part is when they make the local news and give all investors a bad name, because the press forgets to mention that the absentee owner has not seen the property in years - and it's just bad press for landlords in general - and soon enough local politicians start calling for more regulations..

    Based on my own investing experience for over 15 years in Milwaukee I feel in general that it is always best to buy the best quality real estate investment you can afford at the time. Ask me how I know! That is true if you are local, but even more important if you invest remote and every little step is harder and or more expensive.

    I'll wade in here as someone who does the dreaded midwest to midwest OOS investing to give my perspective on how you can make it work. For background, I live in Chicago and invest both here (in the city) and 3+ hours away in Indiana. You are pretty much spot on that all in you will pay 10-20% more as an OOS investor, and I'd counter that's probably even on the low end a bit..... if you try to do this casually and don't spend the time to really dial in your systems, processes, and people you work with (i.e. run it like a good business and constantly evaluate how you can do things better/cheaper/more efficient). At the end of the day, the skills needed to be a successful rental property investor and landlord are the same in any market, but every markets trends and economics at any given point aren't always the same. Getting really good at being an investor and running a business can help you take advantage of great market specific opportunities as they present themselves. A few tips to those wanting to invest out of state:
    1.) Start investing local first. Ironic advice, I know, but you will learn more from the experience of doing it all yourself than you will from a book/blog/podcast/social media guru
    2.) Dial in your processes and learnings from your experience as a DIY landlord to define how you want to run your OOS rentals (how you screen tenants, find deals, manage marketing, what materials you use on rehabs, how you manage rehabs and turns, etc) and the characteristics/qualities you'll want from your OOS PMs, Realtors, wholesalers, lenders, tradesman, cleaners, you name it.
    3.) Pick your OOS market because it offers some sort of unique outsized growth opportunity your current market does not (don't pick it just because it's cheaper)
    4.) Travel there often to learn on the ground nuances of the areas, neighborhoods, streets, and to network with all of the folks listed in point #2 

    Personally, OOS investing has helped me scale. By putting a time barrier between me and some of my properties, it's forced me to get serious about setting up and running a successful business that doesn't allow me the crutch of my own manual labor/time to paper over corners I cut somewhere else. It's also had the additional benefit of giving me higher returns than I saw in my home market of over the period where I was investing most aggressively.
  • Real Estate Agent · Atlanta, GA · Member since 2020 · 416 posts · 233 votes
    1y

    Generally, I agree with what you have to say. If you're in an average cost of living market, you should be generally buying in your neighborhood unless you have a deep connection with a pro in another market. Reason being, investing in these areas will help you keep up and exceed your local cost of living.. there is no real need to go out of state. If you're in a growing market in the sun belt, this is particularly true. If you're in a high cost of living market, that is when it makes sense to go out of state.

    I work with a bunch of out of state investors in the Atlanta market. All of them are either from the CA/WA/OR/NY/NJ which is no surprise.

    It is tough to get a good professional's attention when you are out of state in my opinion.

    The one that have the most success either come from trusted referral sources, already own property in the Atlanta market OR other markets outside of their physical location, or take the time to come out and walk properties for a couple days / meet the PMs / Agents / Contractors.

    I think the challenge when it comes to investing out of state is not being able to build quality relationships with the right people in the market you want to invest in. I've heard of so many people take matters into their own hands, buy deals with no trusted boots on the ground, and get absolutely fleeced. It's sad.

    To those that see this that are looking out to buy out of state for the first time: go to the market, experience it, and meet the people that you will be working with!!

  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    1y

    OOS investing is really geared towards the following:

    1. The investor that is already a reasonable expert in the market - S/he lived there before, has family there and spent a lot of time on the ground, etc. Possible side note to this is someone who is already an expert in a similar market, with lots of RE experience, and has systems in place that can be transposed.

    2. The investor that has plenty of money and can afford to have some clunkers while they are learning a market and putting together a team. 

    3. The investor that only invests in high-quality, lower return properties that have a very low risk of failure in the first place and will hold and/or appreciate in value regardless of the rental situation

    4. The investor that wants to learn a market, is willing to put the time and energy into that endeavor (including actually visiting the market multiple times/decent length), is reasonably well situated with capital and doesn't expect to hit home runs from the ghetto. 

    Anyone who doesn't fall into one of those categories is likely going to just be lucky if they invest in C or below housing in a cheap market that they don't know, with money they don't have, and realize a profit. Unfortunately, most people looking out of state - at least those who post here - fit just this demographic. They're going to lose their shirt and we will never hear from them again. 

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    • V.G JasonPro Member
      Investor · Member since 2022 · 3k+ posts · 3k+ votes
      1y
      Quote from @JD Martin:

      OOS investing is really geared towards the following:

      1. The investor that is already a reasonable expert in the market - S/he lived there before, has family there and spent a lot of time on the ground, etc. Possible side note to this is someone who is already an expert in a similar market, with lots of RE experience, and has systems in place that can be transposed.

      2. The investor that has plenty of money and can afford to have some clunkers while they are learning a market and putting together a team. 

      3. The investor that only invests in high-quality, lower return properties that have a very low risk of failure in the first place and will hold and/or appreciate in value regardless of the rental situation

      4. The investor that wants to learn a market, is willing to put the time and energy into that endeavor (including actually visiting the market multiple times/decent length), is reasonably well situated with capital and doesn't expect to hit home runs from the ghetto. 

      Anyone who doesn't fall into one of those categories is likely going to just be lucky if they invest in C or below housing in a cheap market that they don't know, with money they don't have, and realize a profit. Unfortunately, most people looking out of state - at least those who post here - fit just this demographic. They're going to lose their shirt and we will never hear from them again. 

       2022 sort of became that. 

      But let's not confuse higher prices meaning higher quality, because a lot of people got, got. Especially from OOS predators that preyed on the frenzy some even bought into their own hype & are feeling  it now.

      Know of some Columbus commercial firms that are just sweating this investment environment we're in now among probably 15-18 others. 3 years ago these 15-20 firms were just preying on the average BPer/wannabe REI-er.

      And let's not confuse higher quality with less risk. 

      I think the function of what you pay defines your risk parameters. Not necessarily just location/quality. With that said, real estate is going to be inelastic in nature. Demand will be disproportionally higher and higher to supply in primo real estate. This is why you shouldn't limit yourself to local if you're doing it right. 

      The average BPer, and especially one's of the past, are no longer fit to be a REI. 97% of the investors from 2010-2017, 2020-2021 cannot invest now. The one's who got in on 2020-2021 are just relieved they got in, and aren't looking on the outside in.

  • Ryan SpathBusiness Member
    Real Estate Agent · Boise, ID · Member since 2017 · 592 posts · 381 votes
    1y

    Yes and no. Totally agree that being local does have its advantages. You can constantly check in on the deals and more than likely have stronger connections. However, a lot of us invest out of state in an area that we have boots on the ground, or possibly an area we grew up in etc. If you have the proper systems and people you can definitely make it work. Will it be more expensive because you can't drop in daily and buy your guys lunch / talk about the game etc...sure.

    In my opinion OOS is more about mindset, a majority of people have limiting beliefs and a common on is my market is to expensive. The OOS option gives people a way to exercise mental growth and take action.  

    The thing we really need to start talking about is how RE investing is like planting a tree. It is going to take 10 years for that tree to start bearing enough fruit for a meaningful harvest, and you are going to need a few of them to have any meaningful financial benefits. 

    great post, thanks for sharing!

  • Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    1y

    @Bryan F. lot's of good points! 

    Learning at home first is huge! Based on that, it is easier to learn a second market and it sounds like you spend a lot of time there. Once you have multiple properties in that market, built knowledge and relationships the lines between OOS and homefield-investing start to blur, at least you narrow the gap. 

    What you did is in stark contrast to the person who wants to buy one property and then move on to the next State for "diversification". They never reach critical mass on knowledge, relationships and revenue with service providers. 

    Or the person who tells me they don't want to spend the money on a flight to Milwaukee (have never been here) and invest "fully remote".

    It also forces you to take yourself out of the equation as a handyman and property manager, which has pros and cons. I assume you probably self-managed at first with your Chicago properties. It really helps you learn the job and saves some cash which is critical in the beginning to buy your next deal. But at some point you also become the bottle neck and you can't grow your biz any further because of your own limitations.

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