First out of state investment: Alabama or Ohio?

Question

How's it going everyone, I'm new to Bigger pockets and equally as new to investing. I'm looking for a long term rental primarily for cash flow (appreciation would be nice to). I've connected with a couple of real estate agents and lenders, some who manage properties as well. I guess my question is which market better serves a first time investor that is looking to have a property manager handle it once purchased? Also any other advice or tips would be greatly appreciated! I've also been in contact with a agent in Louisville who has been awesome. But after looking at all of the properties tirelessly they are all starting to look the same. I'm not looking to rush into anything, I just want to take the right steps to get into something that isn't a headache from the jump. Thank you!

James Wise · Answer

Both Alabama and Ohio offer good cash flow opportunities. One of the most popular cities in Ohio for cash flow is Cleveland. if you're looking at Cleveland, I recommend you read The Ultimate Guide to Grading Cleveland Neighborhoods. It's been used by investors for over 11 years now. Really helps you avoid mistakes and just buying cheap stuff off of Zillow with no context to why it's so cheap.

Nicholas L. · Answer

Hello @Travis Summers. I always get nervous when new investors say they want cash flow because... there isn't any 'cash flow' right now on long term rentals, in any market, for years and years and years. (Unless you ignore a lot of the expenses involved and just pretend there is... but I'd encourage you not to do that.) Any spreadsheet that shows you netting income in the first year (or first few years) is complete nonsense. Purchasing a rental and putting it into service is expensive, as you'll have thousands and thousands of dollars in costs and expenses - closing costs on the purchase, rent-ready costs, lease-up costs to get rented out, repairs, turnover.

I also think investing OOS below the median price point in any market is exceptionally difficult and much tougher than advertised. None of the agents or lenders you're working with, touting 'cash flow,' are going to take any responsibility if the going gets tough, or something was overlooked, or you have a $3000 tenant turnover in year 3 - that's all 100% going to be on you. If you're serious about this, my recommendation is always to travel to the market in person and do some of the tough work yourself in person setting up a network, getting to know a neighborhood, and looking at properties - and I don't mean two, I mean dozens.

Unfortunately, returns on non value add LTRs are very, very low right now. If you want easy cash flow, buy treasury bills. I know this is a real estate forum (and I am still buying), but I am encouraging new investors to think very carefully about where to allocate their cash. It's not obvious to me that a random LTR in a place you've never been to is going to do anything for you. Hope this helps - happy to dialogue further.

Here's some light reading

Turnkey Nightmare: Property Manager Ignored My Warning About a Missing A/C…

Nightmare with my property manager - advice needed!

Feedback Needed: $8.8k Turnover Quote for 2BR Duplex (Half)Out-of-State Landlord Nightmare: 4 Months No Rent, Cleveland Escrow BattleFailed BRR in Memphis TN

A Cautionary Tale About a Property Manager in Cinncinatti

Travis Summers · Answer

@Remington Lyman true, thank you

Maurizio Pisciotta · Answer

Welcome Travis!

I invested out of state in Cincinnati, Ohio, for a very similar reason. One thing I learned pretty quickly is how important the property manager is.

I changed PMs more than once before finding what worked for me, and one of my biggest personal preferences is having a PM who overcommunicates. When you’re hundreds of miles away, communication makes a huge difference..

Another tip for investing out of state: find an agent who really knows the market at the neighborhood and even pocket-by-pocket level. Two properties a few streets apart can sometimes have very different tenant demand, rents, appreciation potential, and overall risk. You can use the Find Agent here in BiggerPockets and interview the agents (ask for recommended areas, etc..)

For analyzing properties, I use Navikoo’s rental calculator. Besides running the financials, it has an AI agent that can research a specific property/location and give you pros and cons about that particular neighborhood. I find that especially useful when analyzing markets I don’t personally live in.

And I think you have the right mindset by not rushing.. Having clear criteria for cash flow, return, neighborhood, property condition, and reserves makes it much easier to eliminate deals quickly.

Good luck!

Travis Summers · Answer

@Maurizio Pisciotta thank you for giving me insight on the navikoo's I'll check that out. I appreciate your information!

Remington Lyman · Answer

Ohio is a solid market for first-time investors, but it does not really matter which market you choose as long as you can find a good Realtor, contractor, lender, and property manager.

Arman Ahmed · Answer

I’d take the time to compare the actual numbers rather than picking a market based on hype. Since you’re already looking at the Midwest, I’d keep Ohio in the mix alongside Alabama and Louisville. For a first out-of-state deal, a strong PM and a solid local team matter as much as the property itself.

Travis Summers · Answer

@Arman Ahmed definitely will take this into consideration. Thank you!

Travis Summers · Answer

@Diana Khan id love to stay connected! I appreciate your response. What area are you in?

Diana Khan · Answer

@Travis Summers, I think you’re asking the right question. For a first out of state rental, I would not focus only on whether Alabama or Ohio is the better market. I would look at where you can build a team you trust and make sure the property still works after you account for management, repairs, insurance, taxes, and the other costs that come with owning from a distance.

I’ve had investors come to me excited about a property because the numbers looked good, but once we looked more closely at the title, ownership, contracts, or the condition of the property, there were things they needed to deal with before moving forward. I’ve found that taking a little more time on the first deal can save a lot of headaches later.

I really like this topic because it connects closely to the real estate work I do with investors, especially the due diligence side. You’re right that finding people who are actually looking out for your interests can be difficult. Happy to stay connected, @Travis Summers, and I hope you find a first property that feels right instead of feeling rushed into one.

First out of state investment: Alabama or Ohio?

First out of state investment: Alabama or Ohio?

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