Investing Out of State?

[Jag Sekhon]

As someone looking to buy their first buy-and-hold investment property sometime within the next year or two, it's really disheartening analyzing properties in my area. I live in San Jose (right in the heart of the Silicon Valley in California), so my market (including the surrounding area) is full of very very very high priced real estate. Because of this, I have been considering investing outside of California. Do you think this is a good idea for a first time investor? It may be my only option to generate any kind of meaningful cash flow.

I understand that it depends on the specific deals, but any general advice would help. Any Bay Area investors who feel the same way? Anyone have experience investing oustide of their state? Any insight would help.

Thanks!

Jag

[Matt Mason]

@Jag Sekhon , as others have said this an age old topic that has been debated many times.

I am surprised your post did not attract the turnkey providers out of the water. They will make the argument that no property in CA will ever make sense, you'd never want to manage your own property and so on. Of course, this "advice" is a bit over the top and self serving.

There are others on BP who have done okay with out of state investing and that may well work for you, but I'd be skeptical for the following reasons:

1. Managing a property manager is always more difficult from a distance. Your one property will be at a disadvantage vs. a local owner that can have face to face meetings and is driving by a property on occasion and has multiple properties. Also, don't you think it will be tougher finding a new manager from so far in an unfamiliar place.

2. Doing any type of rehab will be more difficult and while you may buy a recently rehabbed property, what happens years down the line when the property gets beat up and out of date and you are thousands of miles away?

3. It is going to be much more difficult for your to evaluate neighborhoods to invest in from thousands of miles away and also trends like rental rates in those neighborhoods.

4. You'll need to add travel costs and additional state tax returns to your costs.

5. If you go the turnkey route, realize that you are you are at the end of the line after they have made their fees.

I would first go to your local real estate clubs. There you can meet people and see their strategies. If you want a cheaper property there are many inland areas of CA that you can drive to easily that have cash flowing properties that you can find with a little work. If after that you still want to go out of state go for it.