Advice on an out of state investment property

Account Closed · 2022-09-14T18:59:16-07:00

I was advised to post my question here, hoping to get some advice on an out of state investment property.I currently live in Seattle where a basic SFH goes for $800k+. If I save up more than 20% as a down payment, it's still doable but I don't think it's worth it when I could get the same house elsewhere for $400k. I work fully remote so moving to a new location isn't an issue, however, I'm currently taking care of my elderly parents so I'm unable to leave for an indeterminate length of time. I'm considering buying a home in a more affordable city, like Raleigh, and renting it out until I'm ready to move there. Since I'm out of state, I would have a property management company take care of the rental. Most of the homes I like are $500k-600k and up to 3000sq ft, so rent would be on the higher end for this area. one of my concerns is whether a larger house like this, with higher rent, would still attract tenants? As a renter currently, I don't care about the size of the house or how nice it is, I only care that it's affordable. Would it be better to get something a little cheaper instead? I also wonder if a house in that price range is doable for me. I would likely put down closer to 25%-30%, my current monthly debt is $2000 and an income of about $130k annually. Obviously, as long as there’s a tenant in place the monthly mortgage would be paid, but how much would I need to have saved up in case of damages, vacancies, etc? Since this isn’t something I’m well versed in, I’m wondering if others see any problems with this plan or anything else that I need to take into consideration. I’m not necessarily trying to have immediate cash flow with this, I just have some anxiety knowing that the cities I’m considering buying in will continue to get more expensive and I already have enough for a downpayment so it feels like a waste to not buy sooner than later.

Ruchit Patel

Bay area, CA · Member since 2021 · 383 posts · 306 votes

4y

Yes, it's been a common problem in big cities that houses are too expensive and people are buying out of state. I am from California, and I spent 6 months running numbers and looking for deals, nothing made sense for me, and I started investing out of state 18 months ago.

Yes, trusting random people outside can be scary and that's why it will be a grind at the beginning.

Feel free to message me to learn my story, and I can give you my contacts.

1 Reply

William Anderson

Rental Property Investor · Mississippi Gulf Coast · Member since 2022 · 206 posts · 168 votes

4y

It's time to think out of the big city box. The larger cities and big metros are too expensive not only the cost of property but the taxes and fees required. Not to mention crime and other reasons why people are leaving those areas.

This is a big country with lots of areas where you can invest and earn a profit. Some areas offer much less risk than the big cities as well. Tax policies in some areas are favorable in the long term which means that a few years down the road you will not be taxed out of your property.

Start looking in the $175-$250k range for good returns with less down. The market that I serve is the Mississippi Gulf Coast where the median house price is just at $200k. A client just accepted an offer on a $78k fixer. You are on the right track. Time for me to plug this course:

https://keyladder-training.tea...

Everything you want to know about investing in residential real estate. It may answer some of your questions. There is a free mini-course.

One last example, I have a client from another state in the closing stage on a property that started at $240k, he bought it for $160k. This property will require about $20k in work for a new roof and upgrades. He is going to use it as an STR.

Consider buying a second home along the Mississippi Gulf Coast with 10% down if you do not already have one. You could put more down if necessary to make the numbers work but remember, leverage. This new world with interest rates in the 7-8% range is causing most of us to reassess our goals about where to buy, when to buy and what to buy. Fortunately rent rates are on the rise. Good luck

0 Reply

Chad Gray

Raleigh, NC · Member since 2019 · 58 posts · 54 votes

4y

So a couple of things regarding your post. For starters, I've lived in Raleigh my whole life and absolutely love it here. If your goal is to buy something here to rent only until the time is right for you to move here yourself, there's nothing wrong with that at all. A 3000 sqft. house would certainly have a tenant pool in this area, but it will be considerably smaller compared to something 1750-2250 sqft. You'll find a renter due to the demand and limited supply here but it may just take a little longer to find that tenant, which means that will be longer that you have to pay the monthly PITI.

Also, are you positive that the expected rental income for a house that price in this area will be enough to cover the PITI payments and property management expenses, let alone have enough left over for CAPEX and vacancies? Your property manager will probably take 8-10% of your monthly rental income. I would be very sure about your numbers before buying something.

Lastly, the market has cooled considerably since May/June. Homes are sitting longer and oftenly selling below list price with fewer offers and lower DD/EMD. I'm not saying the market is going to tank, but it is balancing out to where buyers have more leverage than they did a few months ago. Inflation numbers still aren't great and the FED will likely raise interest rates another .75-1% so I don't see the current market trend immediately changing. The long term growth for Raleigh is fantastic if this is where you're settled on moving to, but personally I think you will be okay if you're patient and buy smartly, even if it takes a few months, instead of buying a house just for the sake of buying something because you can.

1 Reply

Dave Skow

Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes

4y

@Account Closed- I recommend getting a loan pre approval in place for your idea - this will allow you to confirm you are approvable plus it will allow you to see the numbers and become familair with current rates and what payments and cash for closing look like ......based on what you get in place for this - you can then begin looking at properties to see what type of properties fit in with the rental income and your budget

0 Reply

Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes

4y

@Account Closed

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

[email protected]248-209-6824

Logical Property Management4.9465 Reviews

Website View Page

0 Reply

Aj Parikh

Rental Property Investor · Centreville, VA · Member since 2019 · 1k+ posts · 799 votes

4y

Investing in higher income cities has its own challenges. I am in Northern Virginia and housing prices were high here as well so I decided to invest in Cleveland. I worked with a couple of turnkey companies to get started and it has helped me immensely. Feel free to reach out if you want to discuss. It's one of the easiest ways to get started in Real estate and definitely recommend if you have a busy 9-5 work schedule.

1 Reply

Advice on an out of state investment property

Advice on an out of state investment property

Most Popular Reply

6 Replies