Out-of-State vs. In-State

[Ryan Montbleau]

I am looking to invest in my first rental property. For a first time investor, is it better to purchase a home out-of-state with more cash flow or a property in closer proximity with less cash flow?

More specifically, is there a greater risk in being distant from a first-time investment property? (Assuming a property manager is hired) 

[Marcus Auerbach]

Investing out of State is definitely not easy, not long ago (think Blackberry) it was next to impossible for anything less than large multifamily. But it still comes with challenges, higher cost and management inefficiencies. You rely on other people for literally everything, fully trust their judgement and have to pay them for it. And often times you have to rely on people who you can't meet in person before you hire them. One fundamental truth is that nobody watches your money like you do.

Investing in your backyard comes with many advantages. You recognize issues and opportunities only a local would be able to identify, you can swing by on your way home to chat with the contractor or keep an eye on a new tenant. And when something needs fixing and it's not clear who and how, you can take a look yourself.

So when you compare the two options you have to decide if the favorable economics are worth the cost and inefficiencies that come with a remote operation. I live and invest in Milwaukee and I (my team) works with a lot of OOS clients and one key factor that stands out to me is the economic delta, the difference between where you make money and where you invest. 

For Chicago investors Milwaukee seems slightly more attractive (and it is) but the economic delta is not big enough to compensate for the cost and inefficiencies that come with a remote operation; it may be only two hours, but it's still OOS. One requirement we have to work with OOS clients is that they have to come to Milwaukee at least one time before we engage. We want to make sure we are on the same page when it comes to understanding different neighborhood qualities and building conditions. And that requires first hand experience in the field. After that a lot of things can be done on zoom.