All Forum Posts by: Lindsay Davis

@Kyle Lam,

To expand on @Benjamin Louie's Huntsville recommendation, several towns in the metro area (but outside the city proper itself) may also be worth a closer look.

For example, you have areas like Decatur (25 miles southwest from downtown Huntsville), Athens (30 miles west of downtown), and Meridianville (10 miles north of downtown).

Homes in these suburbs are roughly 20% to 30% cheaper than in Huntsville proper, but you can potentially benefit from the same demographic and economic tailwinds as you would by buying in Huntsville itself. Just some food for thought.

@Sean Kaczmarczyk,

You’re in an interesting position. On one hand—as you mentioned yourself—the barrier to entry in the Denver metro area is high, and cash flow is difficult to come by.

On the other hand—to answer your second question about in-state vs. out-of-state—there’s definitely qualitative benefits to investing in your own backyard. For example, you’re more familiar with the market and can be present on-site if you ever need to manage a labor-intensive renovation or repair job.

That said, out-of-state investing is definitely doable, provided you get the approach right. You basically have two options:

1) Assemble a team yourself. You’ll need “boots on the ground,” including a network of local real estate agents, contractors, lenders, property managers, and legal and accounting professionals. Naturally, this is going to require a lot of effort and coordination on your end.

2) Opt for a turnkey rental. If you don’t want to deal with the hassle of managing a team remotely, you could be better served by a “done-for-you” approach to out-of-state investing. A turnkey rental is essentially a property that’s ready to go: it’s been fully renovated, has a property manager in place, and is ready to lease (or, in some cases, even has a tenant in place). This approach means you have the potential to cash flow from day one.

As for market research, I have some in-house reports on markets in Alabama, if that’s something you’re interested in. BiggerPockets doesn’t allow advertising or direct links on its public forums, but I’d be happy to send them over if you reach out!

Very good point—definitely worth keeping DSCR lenders in mind as well. You can also combine the two approaches and see if local banks offer DSCR loans!

And, as an aside, I’d avoid the online-only lenders that advertise a quick and easy underwriting process. You’ll (generally) end up paying for convenience in the form of higher interest rates or closing costs.

@Yakir Aloni,

You’ll almost certainly want to protect your flip with some kind of policy.

Instead of a standard homeowner’s insurance policy, however, you may want to look into carrying builder’s risk insurance, along with vacant property insurance and/or liability insurance.

Since you’re working with contractors, you’ll also want to get copies of their certificates of insurance (COIs) so that you can verify that they’re separately insured.

@Jennifer Johnson,

Welcome back to the arena! The industry’s evolved quite a bit over the last two decades, but the fundamentals—that is, buying cash-flowing properties below replacement cost in growing markets—have remained the same.

I’m curious to know: what mistakes, in hindsight, did you make the first time around? And how do you plan to approach things this time?

@Theresa Pisani,

There’s no need to look for a lender that caters specifically to out-of-state investors. Like some folks have said, plenty of lenders operate nationally, so you can live in one state and invest in another with no problem.

But, like @Andrew Syrios said, your best bet may be to work with local lenders—that is, lenders that are local to the area you want to invest in. For example, if you’re in California but want to invest in Tennessee, then look for local or regional lenders within TN.

Happy to share some recommendations if you’re in the market for financing.

@Avani Bhakta,

California’s definitely a tough place for cash flow, but you could potentially have better luck if you’re willing to explore some under-the-radar markets in the Sunbelt.

For example, Huntsville, AL has gotten a lot more expensive recently, but areas right outside of the city limits—like Decatur and Athens to the west and Meridianville to the north—could be interesting places to look.

Western Birmingham suburbs, like Bessemer or Adamsville, could also be potential submarkets.

@Venu Pamula,

@Drago Stanimirovic's comment has some good information about Section 8, and I want to provide you with a few more details:

1) If you want to rent to Section 8 tenants, you’ll have to undergo a certification process with your local Public Housing Agency (PHA). This process can take anywhere from several weeks to several months.

2) Every unit you lease to a Section 8 tenant will also have to undergo an annual inspection to ensure that it continues to meet Housing Quality Standards (HQS) set by the Department of Housing and Urban Development (HUD).

3) If you’re an out-of-state investor, you’ll want to find a property manager who specializes in working with Section 8 landlords, and who can help you with approvals and recertifications—often for an additional fee.

Hope this helps!

@Laurent Urich,

Seconding what @Rick Albert is saying here: looking at potential markets on a statewide level isn’t going to reveal much. That’s because there are going to be cities in each state that differ widely from one another. For example, in Tennessee, Nashville, Knoxville, Chattanooga, and Memphis are all very different.

Researching potential markets on a metro area level, in my opinion, would make more sense. Further analyzing things on a sub-market/zip code level would be even better.

@Pratik Patel,

Good question. As you probably imagine, every turnkey property will be different. Generally, larger rentals with more capex-heavy features (like larger kitchens or more bathrooms) will require larger capex budgets.

Capex needs are also going to depend on the quality of the rehab project performed by the turnkey provider and the quality of the subsequent property management services. Generally, a thorough (i.e. down to the studs) renovation and a responsive property manager who acts quickly to address maintenance issues will lead to lower capex costs.

As a rule of thumb, though, I’d ballpark a turnkey rental’s capex reserves using one of three methods: $100–$200 per month, 10% to 20% of gross monthly income per month, or 1% to 2% of the purchase price per year.

For example, if you buy a $150,000 turnkey rental in Birmingham that leases for $1,500 a month, you should very roughly budget about $1,200 and $3,600 a year for eventual capex.

As mentioned before, however, your actual capex spend is going to be “lumpy,” so some years you may spend close to $0, while in other years, a roof and flooring replacement could set you back a combined $20,000.