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.

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  • Real Estate Agent · DE · Member since 2025 · 6 posts · 6 votes
    1y

    Going through this exact thing right now. Hoping the loss isn't too bad so I can 1031 local. All these gurus tote how great OOS investing is but in practicality it can be very difficult if you aren't experienced in that market and/or know people. 

  • Eric FernwoodBusiness Member
    Realtor · Las Vegas, NV · Member since 2014 · 1k+ posts · 1k+ votes
    1y

    Hello @Marcus Auerbach,

    I agree that OOS investing is very difficult, unless you work with an experienced local investment team. So far, we have delivered over 550 properties to about 180 clients worldwide. Of the 180 clients we've worked with, only 9 or 10 were local. Our repeat business rate is over 90%, and our largest source of new business is existing clients.

    My point is that OOS investing works, but only when you partner with an experienced investment team. It simply cannot succeed if you try to do everything yourself.

    Investment City Requirements

    The location is critical because it defines all long term income performance. If your goal is financial independence, the city where you invest must meet the following:

    • Significant and sustained population growth.
    • A metro population > 1M.
    • Rapid and sustained existing home appreciation.
    • Low operating costs.
    • Low risk of natural disaster.
    • Pro-business and pro-landlord legislative environment.

    What are the odds that you happen to live in a location that meets all the city requirements listed above?

    Live where you want, but invest where you can build an income stream that enables lifelong financial freedom.

    Another Consideration

    Everything you learn from books, podcasts, seminars, and websites is general information. You will buy a specific property in a specific location and will need multiple local resources. The only source for what you need is an experienced local investment team. This is true even if you invest locally.

    Commenting on the specific issues you stated:

    • Renovation: We have long standing relationships with a number of service providers. For example, our preferred renovation company has completed over 440 renovations. So far, their prices are usually $3,000 to $10,000 less than any others. Before we established relationships with specific service providers, it was difficult for me to get any contractor interested in renovations under $25,000. With the relationships we've established, they now know they must take all our deals (large and small) to receive any of our referral business.
    • I completely agree with you on "deals in the hood." The fundamental problem is that no property ever paid rent—the tenant pays the rent. So, we focus on a highly reliable tenant segment. Our tenant's average stay is over 5 years, with only 7 evictions in 17+ years out of a tenant population exceeding 1,000. We experienced no vacancies or rent decreases during the 2008 financial crash. We achieved this by identifying the right tenant segment and buying properties similar to what they were renting.

    In summary, out-of-state investing is necessary to achieve financial independence, unless you happen to live in a city that meets all the requirements I listed above.

    FERNWOOD Team, KW VIP Realty520 Reviews
  • Investor · Houston, TX · Member since 2021 · 22 posts · 26 votes
    1y

    Hey Marcus—really appreciate your perspective here. I actually agree with a lot of what you’re saying, especially around the hidden costs and added friction that come with out-of-state investing. It's absolutely not as passive or straightforward as some people make it sound.

    That said, I’ve built a portfolio of 8 rentals across 3 states while working a demanding day job and raising a young family. It’s worked for me—but only because I treated it like a business, built strong local teams, and learned (sometimes painfully) how to vet property managers, plan for delays, and underwrite deals conservatively.

    Totally agree that remote investing falls apart fast if you’re chasing cheap deals in rough areas or leaning too hard on spreadsheets without understanding the market dynamics. For me, the only reason OOS has worked is because I focused on markets with strong fundamentals, got clear on my role as an operator, and developed a system that could be duplicated without me physically being there.

    It’s not for everyone, and it’s definitely not easy—but it’s possible if you treat it like a real business. Happy to swap notes anytime.

  • Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    1y

    I would suggest that the best way to invest out of state is simply to get a partner.  Find the best niche and area in the country and then find a partner to hammer it.  Then you'll eliminate the nuisance fee that invariably gets added to OOS investing.

    OOS investing can be absolutely ripe with issues.  Agree 100%. But there are unique niches that you can only find in certain areas of the country. And you can't replicate them just anywhere.   And when the margins are really good, that nuisance fee that you have to account for is peanuts compared to what you can do anywhere else.


    I did invest locally (about 6 towns near me) when I started about 15 years ago.  And built a sizable portfolio.  But self managing 83 houses really took a toll. And quite honestly, the ability to find homes where you could be all in at 75% or better really and truly dried up around here.    The investor meetings even stopped because noone was really doing much of anything consistently any more.

    I was doing land flipping nationally and hit on an area there in eastern tennessee where the actual build cost and retail cost had an amazing margin.  I tried having a partner out there and he just didn't want to stay put. We found a builder or two that would build for basically wholesale costs but managing them was hit or miss and the margins weren't as good. 

    I was able to partner with my ex brother in law who was a small builder here in illinois and did a bunch of my rehabs as well.  He moved out there.  We got our gc license.  And away we went.  We build to sell and build to hold some (the ones we hold we hold individually so we don't split those).

    But now I can build new construction cabins that I'm all in at 70% LTV or better so I can BRRR the heck out of these deals. And even with property management built in, I can cash flow positive with essentially no money out of pocket when its all said and done.

    I simply could not do the same thing here in illinois.  I tried every which way to even come close.  Just doesn't work. 

    So yes, when we build to sell, I'm splitting half the profits. But when we build to hold, I am holding them as 100% owner (he is doing some holds for himself as well).  To me, thats an example of where partnering OOS is one of the best ways to take advantage of the margins and specific niche areas in the country and continue to grow.

    Going on two years since we got our license, I have three cabins completed with an equity of about 700k and three more in some stage of building right now. My goal is to build 3 to 4 a year for myself as holds to where I can end up with 20 in the next 4 years. If I can pull that off, that will give me about the same equity that I was able to build in 15 years in sfh's. And probably about 4x the cash flow - and someone else is managing these things.

    To me, thats why you should never close the door on OOS.  There are simply certain markets and niches that you can't replicate where you live. But I do think one of the ways to mitigate the risks and costs is to have a partner - or at the very least keep trying to find that one special contractor or boots on the ground person that is truly dependable.  Those people are out there.

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

      I would suggest that the best way to invest out of state is simply to get a partner.  Find the best niche and area in the country and then find a partner to hammer it.  Then you'll eliminate the nuisance fee that invariably gets added to OOS investing.

      OOS investing can be absolutely ripe with issues.  Agree 100%. But there are unique niches that you can only find in certain areas of the country. And you can't replicate them just anywhere.   And when the margins are really good, that nuisance fee that you have to account for is peanuts compared to what you can do anywhere else.


      I did invest locally (about 6 towns near me) when I started about 15 years ago.  And built a sizable portfolio.  But self managing 83 houses really took a toll. And quite honestly, the ability to find homes where you could be all in at 75% or better really and truly dried up around here.    The investor meetings even stopped because noone was really doing much of anything consistently any more.

      I was doing land flipping nationally and hit on an area there in eastern tennessee where the actual build cost and retail cost had an amazing margin.  I tried having a partner out there and he just didn't want to stay put. We found a builder or two that would build for basically wholesale costs but managing them was hit or miss and the margins weren't as good. 

      I was able to partner with my ex brother in law who was a small builder here in illinois and did a bunch of my rehabs as well.  He moved out there.  We got our gc license.  And away we went.  We build to sell and build to hold some (the ones we hold we hold individually so we don't split those).

      But now I can build new construction cabins that I'm all in at 70% LTV or better so I can BRRR the heck out of these deals. And even with property management built in, I can cash flow positive with essentially no money out of pocket when its all said and done.

      I simply could not do the same thing here in illinois.  I tried every which way to even come close.  Just doesn't work. 

      So yes, when we build to sell, I'm splitting half the profits. But when we build to hold, I am holding them as 100% owner (he is doing some holds for himself as well).  To me, thats an example of where partnering OOS is one of the best ways to take advantage of the margins and specific niche areas in the country and continue to grow.

      Going on two years since we got our license, I have three cabins completed with an equity of about 700k and three more in some stage of building right now. My goal is to build 3 to 4 a year for myself as holds to where I can end up with 20 in the next 4 years. If I can pull that off, that will give me about the same equity that I was able to build in 15 years in sfh's. And probably about 4x the cash flow - and someone else is managing these things.

      To me, thats why you should never close the door on OOS.  There are simply certain markets and niches that you can't replicate where you live. But I do think one of the ways to mitigate the risks and costs is to have a partner - or at the very least keep trying to find that one special contractor or boots on the ground person that is truly dependable.  Those people are out there.


      Thanks for sharing Mike! Great example! And kind of the exception I mentioned in the Subject line: what you are doing is a stark contrast to buying a cheap rental property remote with high hopes for cash flow.

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