What Do You Wish You Knew Before Your First Out-of-State BRRRR?

Question

Hi BP community,

I’m new to real estate investing and currently exploring out-of-state opportunities in the $80K–$125K range, with a focus on BRRRR and small multi-family properties.

I’ve been doing my research, but I know there’s only so much I can learn from books and podcasts — the real lessons come from actually doing deals. Before I jump in, I’d love to hear from those of you who’ve already gone through the process:

• What’s the biggest lesson you learned from your first BRRRR out of state?
• Were there any surprises (good or bad) you didn’t see coming?
• If you could go back, what would you do differently before buying your first property?
• Any tips for building a reliable local team before pulling the trigger?

I know mistakes are part of the journey, but I’d like to learn as much as I can from others’ experiences so I can start strong and avoid the common pitfalls.

Thanks in advance for sharing your insight — I really appreciate it!

Christopher

Aaron Zimmerman · Answer

I've never personally done an out of state brrrr but at that price point you may have construction costs be higher as the margins are going to be a bit tighter. If you need to be all in for let's say $150k and you buy for $100k, then you can only put in $50k if you're trying to do a perfect brrrr assuming 25% down.

from a tax perspective, the multistate filings can get tricky. Some cities have their own tax returns too.

Ashish Acharya · Answer

Hey @Christopher Rubio,

Glad to connect with you! By the way, I love the honesty in this forum because something I frequently communicate to my clients and everyone I talk to about real estate is that you have to have a passion upfront to jump in and be successful. People still find success with this strategy, but if it doesn’t work out, there are others available. So, don’t feel discouraged.

From a tax perspective, here are some things to keep in mind as you start with out-of-state BRRRR or small multi-family investments:

• Track everything for depreciation: Your purchase price, closing costs, and rehab expenses all feed into your property’s cost basis. Accurate tracking now sets you up to maximize depreciation and reduce taxable gains later.
• Understand multi-state filings: Owning property out-of-state often triggers non-resident state tax filings. Planning ahead with a CPA familiar with multi-state real estate can save you from surprises.
• Rehab expenses can help now: Any improvement costs you incur during the rehab phase may provide deductions or impact cost basis. Keep detailed records of all materials, labor, and contractor invoices.
• Trusted Team: Even before making an offer, having a CPA who specializes in real estate investors review your numbers can help structure deals efficiently and anticipate tax implications. Have a lender who also educated you through the process and a real estate agent who knows the area you've already done your own research on as well.
• Know the passive activity rules: Early losses may be limited depending on your overall income and activity level. Understanding this ahead of time helps with planning and avoiding unexpected tax bills.

Starting strong with these basics can save you headaches later and help you maximize the tax benefits of your investments.