Local REI or Out of State??

Question

Shaun Reilly · Answer

Hey Kevin welcome to BP.

Always nice to see locals getting involved here.

As for you question about local vs. out of state it does really depend.  We have a great market with strong prices and appreciation and high rents.  Unfortunately the high rents don't keep pace with the high prices so cash flow can be a lot tougher.

I have some small local rentals that do okay and one that does awesome.  That being said I have been focusing my buy and hold stuff more out of state recently to get better cash flow.

There are a lot of challenges to having rentals remotely.  I also am giving up the chance for big appreciation scores by going to low end markets.  The quality of tenants also seem to be much lower even in the nice areas compared to what I see here (and most of my stuff are small condos in Lowell, so not exactly a "luxury" market here).  But my cash flow is about the same on 1/3 the total rent on that stuff vs. my local ones.

Kevin Olson · Answer

@Vala Shahabi  Thanks for the input that makes a lot of sense looking into which markets are up and coming but no too volatile. Always great to see someone that is actually doing it, practice is much better than theory :)..

Account Closed  I really appreciate the feedback! that makes a lot of sense to me and I like the idea of diversifying (like stocks) across markets. All that being said I think

my main concern is the boots on the ground factor and trustworthy. I am looking into more 3rd party management companies that are established and will research this.

Do you invest out of state as well? What is a typical property management fee/percentage for a rental property or say 5? I know this varies from market to market and the size of your portfolio being managed/ the size of the management company. But nonetheless I wanted to run some #'s to see what makes sense.

Thanks again, happy investing, look forward to being in touch.

Account Closed · Answer

@Kevin Olson

My pleasure. I have invested out of state in both Indiana and Ohio...to be open, I've done so through my company, so finding the trustworthy boots on the ground was extremely easy.

In my research, I've found property management fees to be anywhere from 7 to 10%, depending on the market, etc.

Hope that helps. Let me know if you have any other questions. I'm happy to give my $.02.

Account Closed · Answer

Kevin,

Congrats and the success you've seen thus far. Real estate investment success can definitely be addictive, especially when you receive those checks every month.

When deciding to invest remotely, there are a lot of things to consider, including:

• Home values and projected appreciation
• Rental prices
• Median incomes
• Job growth & projects
• Population growth

You also need to consider how easy it is to find a trustworthy agent and property manager. While it's possible to manage a property remotely, it's not the easiest thing in the world and you can still make great returns in markets with someone else managing all the day to day details for you.

Knowing your investment goals will also help you choosing your market...are you looking for the most monthly income possible? Or are you wanting to minimize the short term tax effects and build your wealth on the appreciation and equity growth of your property. If your goal is the former, you'll want to go to a really nice cash flow market vs. one that won't cash flow but should appreciate nicely (i.e. up and coming market).

All that being said...why not diversify yourself across multiple markets? Just like the stock market, you don't necessarily want to place all your investments in the same industry, so why place all your investments in the same market?

Good luck in your search, I'm happy to answer any questions one on one with you.

Have a great day.

-S

Vala Shahabi · Answer

Hey @Kevin Olson

That's great success! Are you staying local because you want to manage all these properties yourself?

Similar to were you are, LA is a very expensive market and lower cap rates. I've built teams in several mid west markets and that is where we invest and find properties for our clients. It's less expensive and better cap rates than anything we could find around here.

I personally invest in B class neighborhoods. So to answer your questions about up and coming you have to really know the area. If it was a C+ neighborhood but now there is significant rehab going on it would be wise to invest because soon it will be a B neighborhood. You just don't want to be the first person doing it.

If you don't know the area very well find people who do and can tell you about it. Talking to the neighbors and feeling them out is the best way to go about it.  If it's out of state or remote than you need to network with good agents and investors in that area.

Hope that helps!

Kevin Olson · Answer

UPDATE! Haha after months away (I feel guilty as I read the emails and forums all the time but haven't contributed) I wanted to send a little update as to my status and progress.

I have acquired a 4 family close to home (hometown where I grew up!) add value opportunity that needed a lot of work. However, it has been a great learning experience and I have definitely added value for the sale side, but love the rental #'s I have coming in!

This has only fueled the fire even more to get involved, particularly buy n hold passive income properties (would entertain flip to seed income for more rentals) which leads me back to my beginning question.

I found this property because of my local knowledge here, however the price of down-payments north of Boston would buy me 4 properties in other markets!I'm young, Motivated, (probably dumb), and ready to build a passive income investment portfolio, should I explore some up and coming markets? Or look for some lower priced areas that are at least an hour or so drive from me now

Kevin Olson · Answer

@Mike Hurney Thanks that's really helpful and part of my apprehension as far as having time to have my "boots on the ground". It seems like a great opportunity to generate positive cash flow and passive income which is what I'm striving for, but it seems like to even have my first property to function fully I would need systems and staff in place. Do you still invest/own in KC.

@Shaun Reilly I appreciate the feedback and think you are 100% on, if I can find an add-value opportunity close to home I would love to take that on as my 1st investment to get my feet wet. Once I'm more comfortable and have systems perhaps get into better markets for buy n hold opportunities.

Pete T. · Answer

I have thought of out of area buys for better cash flow, but it is nice to be able to deal w/ everything on your own, especially when issues or vacancies occur.  You mentioned owning/living in a MF.  That could be a good start since you have to live somewhere and can take advantage of PR benefits if it is a 2-4.

Mike Hurney · Answer

@Kevin Olson I agree with @Mike D'Arrigo you may want to check out Kansas City. We invested there in 1997 but we felt that in order continue to be effective you need to either set up an office and staff it with your own employees or spend a week per month there (Buying, Fixing and Selling or Renting), then you need Volume to justify your time...

Shaun Reilly · Answer

Actually near Boston it is the opposite.  Get closer to the city and the prices shoot up a lot and the rents to not keep pace.  In these areas you ONLY buy for appreciation since cash flow is almost impossible.  The $1.2M duplex that might get $2,500 each side doesn't really work.  :)

In Boston you can possibly find things that work since the values are lower (Though still pretty outrageous when you are often looking at $150-200K/door in the worst areas of town) and rents are not much less than the affluent burbs since they pay for the convenience of being right in the city.

If you go to the 2nd tier cities like Lowell you can get decent cash flow in the city.  The burbs again have the prices go up a lot and rents not really as much.  Like I have several condos that I rent in Lowell and I could get a similar unit in a highly regarded border town that is identical to some of mine and get maybe $100-150 more in rent, but it would cost me $30-50K more easy to buy it.

Local REI or Out of State??

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