The Video You NEED to Watch Before Buying Out-of-State Multifamilies

by | BiggerPockets.com

There appears to be a “grass is greener on the other side” mentality going in in the real estate investing circles these days. What I mean by that is investors are looking for opportunities outside of their own local markets, looking across the country and even into other countries for the “best” market to get themselves in.

I am a big fan of the “acres of diamonds” mentality for new investors, meaning there are plenty of deals to get started on, right in your own backyard. But once you have established yourself as a viable real estate professional with a few deals under your belt, it may be time to expand your network. Investors do this for many reasons—diversification, expanding their brand, tapping into networks they may have, and capitalizing on areas with high potential for growth in the future.

What to Do When It’s Time to Expand to New Markets

We invested in our own area for years, building a portfolio that we were able to manage with our in-house team. Our investments were no more than 30 minutes from my office in downtown Trenton, New Jersey, and we did fine with that. We fund most of our projects through syndications with equity investors. Some of them weren’t comfortable with the greater Trenton MSA, and the deal size we could do here was only so large. For those reasons and others, we decided to expand our coverage and get into deals outside of our 30-minute radius.

Related: Looking to Invest Out-of-State? Here’s How to Pick and Analyze a City

In today’s video, I talk about what I’ve learned in our expansion outside of our local area into more regional investments. It’s imperative to do the right homework on these deals, especially if they are more than a drive away from your base of operations. There are certain factors that need to be considered that will make or break you, as well as work you need to do up front before you even start looking at deals. Watch the video to find out what those factors are and get some more detail on how to make an out-of-state multifamily investment successful!

I hope to get in some chatter with you in the comments down below, so please leave me some thoughts. Have you done an out-of-state deal already? How did it go and what homework did you do first?

Thanks for watching and have a great and profitable week!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

13 Comments

  1. Carl Patten

    Thank you for this. I am looking to purchase multi families in Luther areas, and this is helpful. I am also looking for a diversity of industries/employers as well. I grew up in a small oil town, and I know how volatile things can be when one industry dominates heavily.

    • Matt Faircloth

      Hey Carl,
      I assume you meant “other” areas, lol. I agree on the diversity of employers. Lots of people are betting on Texas and even the Dakotas right now because of the oil boom. Those areas are seeing growth but if oil takes a dive it will affect the local job market. I think the same thing plays for NYC with it’s dependence on the financial sector but to a much lesser degree.

      What other areas do you see as “one trick ponies” for employment sectors? Anyone else can chime in on this one also.

      Thanks Carl!
      Matt

  2. Michael Steven Harris

    I have found when investing a ways from home can be profitable because I am in a high cost area and make 30 grand a year. I save about a grand a month and pay cash for rentals. Having the big cushion reduces risk I have found even if out of state.

  3. Jacob Elbaum

    Fantastic video and post. Really useful information. One of my biggest difficulties is the decision of whether or not to look at deals within a market I’m familiar with since I grew up nearby, OR to do this neighborhood research first, and then only after knowing the economics of that market, look at the deals within them.

  4. Alina T.

    Matt,
    Great article! Very detailed and right to the point! Thanks for posting!

    Question/idea: if you have enough apartment buildings in the area to have your own property management company, and as you stated ask the property manager to invest in the deals with you as well, then the local ownership becomes unnecessary. Is that a true statement?

    Thanks,
    Alina

    • Matt Faircloth

      Hey Alina,

      You are correct. The numbers I have calculated show that with 150 units or above you could swing the payroll to manage with an in-house team. You could, as you said, give or sell ownership to the lead manager of that team to create a local owner. That being said, make sure they are approaching it from an “owner” mindset. Managers look at things differently than managers.

      Matt

  5. Elena Moffatt

    My investment portfolio consist of single residential properties however I’ve been contemplating buying multi-family. The problem I’m having is that the population in our state is decreasing. I did find your information helpful as it is somewhat related to the research I am currently doing. Thank you.

  6. nathan diones

    Matt – Great post. Market data that makes sense with am upward trend is key. Making sure an out of state manager is approaching it from an “owner” mindset is also key.

    I am shopping out of state right now because cap rates are compressed so low in CA it’s almost embarrassing. Ideally I’d like to obtain a management co that would like to participate within the deal with a preferred position. Things run much more efficient when they have a stake in owning versus just passing the expenses along. Thank you.

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