What pushed me to finally Invest out of state
As I’ve been presenting our new investment package to potential capital providers, I’ve noticed that some people are hesitant when it comes to investing out-of-state for the first time. I used to also be in that camp as well and wanted to address how I overcame my own uncertainty when it came to parking my money outside of my home state of California.
In my 11 + years of real estate experience most of it has been solely in Los Angeles. My first out of state investment was in November 2019 in Kansas City. I want to explain what enabled me to take this first step into the unknown. Between 2010-2012 I purchased a few duplexes in the LA area with funds that I earned from flips in LA. During these years it was affordable to still invest in LA, unlike today. During the life of those investments the equity grew exponentially and in the last couple years, the return on that equity was about 3-4%. I got to the point where it was time to trade up into something else. I looked in LA for 2-3 years keeping my eye out for opportunities. What I saw fell into two general categories: either the property wasn’t going give much more of a return or it would require some heavy lifting such as tenant relocation in rent-controlled areas where the laws favor the tenants. I started to realize that my strategy of the past no longer made sense in the present or future. I was going to have to get creative and start thinking outside of the box, or in this case, outside of LA.
A few years ago, I traveled to Kansas City with my wife to visit family. One of the days, when we had some time to kill, I started looking at what multi-family options there were locally. I quickly recognized that I could probably buy a turnkey product and achieve similar returns as in LA without all the heavy lifting. Of course, it would not have the appreciation we’ve enjoyed in LA. However, we are currently in the stage in of cycle where depreciation could happen in LA. So, I felt like the next logical step was to invest out of state in the right markets.
To begin, I started to make contacts with brokers, property managers and other investors in the Kansas City area. I eventually made my way out there again to meet these contacts and started touring potential options. I liked what I saw in specific neighborhoods and also the macro level fundamentals of Kansas City metro seemed promising. In my mind, it was an impressive city to hang out in with all their nice restaurants, modern architecture, established greenery and entertainment. After that trip I decided I would actively try to acquire a multi-family property in Kansas City. Next, I put one of my duplexes on the market in LA. In the process of selling that duplex, I was looking for target properties in KC. I ended up pursuing a building that I had walked mid-project from one of my tours. I was able to get it under contract off market through one of my broker contacts. This is what helped me get over the initial hump of investing out of LA: partnering with knowledgeable and trustworthy brokers and property managers there on the ground. They used efficient technology to make asset management easier and brought a depth of knowledge about the area. I closed that deal in November 2019 and it has been performing well, further strengthening my strategy of investing out of state.
We are now embarking on a larger, 71-unit value add opportunity in Oklahoma City. Similar to KC, we have found established partners on the ground that help answer our questions, introduce properties and advise of key factors about the area. I continue to sell my LA properties with the intention of investing where the best deals are to be had, notably, outside of California. At the end of the day, investing in real estate anywhere comes with inherent risks. However, if you have done the deep work of due diligence, allied yourself with the right partners and go with your gut instincts, you can find yourself with a lucrative investment in new and surprising places.
If you interested in investing outside of your local area contact us here.
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