Newbie questions on out-of-state investing

[Sam Mukunda]

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

[Esta Ryder]

Without knowing any of your circumstances, such as finances, etc. I am going to give you some generic thoughts.  Since you said that you were a newbie, I would either start local or househack.  If your market is too expensive for your budget or you insist in going out of state, try going in an area that you know someone.  For example, say you have a friend from high school that lives in a vacation area in Arizona.  Talk to them as they are familiar with that area and then find a Realtor and start a search there.   Nobody seems to talk about this so I will.... I have seen many  bank owned investment properties.   I'm assuming that is because people got in ouver their heads.  Buying either local initially or in an area where you know someone who can help you get to know the area is not a guarantee that things will go well but you at least have a better idea of what you are getting into until you become more experienced.  Good luck!

[Alecia Loveless]

@Sam Mukunda In the BIGGERPOCKETS bookstore there is a book on out of state investing that may be helpful.

A lot of people say to look to Detroit and the larger markets in Ohio for affordable markets.

Work on building up your team first so you can find a good neighborhood to invest within the market you choose. Also this will be your property management, realtor, lender if you need one, etc.

[Harrison Chow]

Quote from @Sam Mukunda:

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

Hi Sam! When considering OOS investing, I suggest seeking markets that experience significant population growth and offer abundant job opportunities. One state you might want to consider is Ohio, which boasts thriving cities like Columbus, Cincinnati, and Cleveland. I personally focus my investments in Columbus, which has seen a significant increase in property values and is expected to continue this trend in the future. This is due in large part to major corporations like Intel, Honda, Nationwide Children's Hospital, and Wexner Medical Center investing heavily in the region and creating numerous job opportunities.

While buying tenant pre-occupied properties can offer immediate cash flow, it's important to conduct thorough due diligence to ensure that existing tenants are reliable and have a good track record of paying rent on time.

The typical costs associated with out of state investments can vary depending on the location of the property and the level of management required. Some of the hidden costs can include property taxes, insurance, maintenance, and repairs.

Usual cost associated with hiring a property manager to manage the house can range from 8% to 10% of the monthly rent.

Expected ROI after deducting property management costs can vary depending on the property's location, purchase price, and rental income. Generally, investors aim for a 6% to 8% annual return on their investment.

I hope this information helps. If you have any further questions or would like to discuss your investment goals in more detail, please feel free to reach out!

[Jimmy Lieu]

Quote from @Sam Mukunda:

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

Hey Sam, I really like Columbus Ohio and work with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. Just a few weeks ago, I helped a client close on a deal getting them 20% cash on cash return. My biggest advice for out of state investors is finding the right team members who has your best interest at heart (and not chasing a commission check or see you as a paycheck!). If that means interviewing multiple people, you should definitely do so! As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!

Here's the other answers to your question

2) Depends on if you are looking to flip or BRRRR but it's very hard to renovate a property with a tenant in it

3) You most likely will have to pay a bit more for extra due diligence

4) My PM charges 8% but industry standard is usually 8-10

5) Depends on your deal

[Patrick Drury]

@Sam Mukunda
1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.
Columbus OH and Cleveland OH

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?
Yes if the rents are good and are market rate, but if they are half of market rent those tenants are going to need to go. Just make sure you invest somewhere that is landlord friendly 

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ?
None that I can think of

4. What is the usual cost associated if I were to hire a property manager to manage the house ?
8-10% is common in Ohio and one month's rent for leasing a unit

5. What is the expected ROI after deducting property management costs ?
Depends on where you are buying, how much value you are adding to the property, the PM you use, and the loan you use. 
6. Are roofstack /rentToRetirement reliable sources ?
They are probably great for people that have no time and want a passive investment similar to a syndication. The more hands-off the less the return you are going to get.

[Sam McCormack]

@Sam Mukunda

Hi Sam, there are many markets where 300k and under for a good rental (1-4 units). In the midwest there are many. Indianapolis, Cincinnati, Columbus, Cleveland, etc. A lot of these other questions really depend on the property itself. Like #4 is 8-12%, but depends on income/units. Let me know if you have any questions! About Greater Cincinnati or OOS investing!

[Remington Lyman]

Quote from @Sam Mukunda:

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

It does not matter where you start as long as you develop your Core 4. The core 4 is David Greene’s long-distance investing strategy and consists of a realtor, contractor, property manager, and lender. Once you have this team in place, you should be able to invest in any market confidently.

As for picking a specific market - I would go after one with an increasing job and population growth. I invest and work in Columbus, Ohio. I am also looking to invest in Cincinnati and Cleveland.

[Wyatt Seidel]

Hey Sam! 

I think if you're hoping to target under 300k your best bet will be the midwest area. It will also depend on whether you're looking for distressed properties to fix and then rent out, or if you're looking for turnkey properties with tenants already in place.

Formulate a game plan on the type of investor YOU want to be and most of these questions can be answered. Super excited for you and best of luck!

[Bob Stevens]

Keep it simple. all you need to do is connect with those that provide rental properties to out of state investors.  Allow them to handle all. It will be impossible for you to learn and do it all from the internet. Just get a team around you . 10% +_ net caps are to be had, assuming you are cash. I see it all the time. I just picked up a few, MF  SF, all with about 15% net cap. Best part I live on the beach in FL, so I do not do a darn thing :) 

Good luck

[Account Closed]

Here's a good reference list for cities that cash flow well:

https://www.biggerpockets.com/...

Midwest is also a great area if you're looking for under $300k.

[Yael Lederman]

@Sam Mukunda the biggest unexpected / hidden costs that I've seen for out of state investors are legal costs in the event something goes wrong. Make sure to familiarize yourself with the regulation in the state you'll be purchasing in because laws vary significantly state to state (especially blue vs. red states). Getting a local attorney is never a bad idea. 

[Travis Timmons]

Find an unfair advantage based on what and where you know and lean into that. Just picking a midwestern market at random bc it is cheap is a bad idea. Everyone has some sort of subject matter expertise...what is yours as it relates to a location, tenant pool, market knowledge, etc.? 

[Sherief Elbassuoni]

Checking the OOS investing book by David green would be helpful.

Having a property that is already rented is helpful since you can run actual numbers instead of pro-forma

tepical down payment is 15% for single family and 20-25% for small multifamily.

Typical cost for management company is 8-10% and a lot of them take 50%-100% of first month rent

[Anthony L Amos Jr]

Quote from @Sam Mukunda:

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

The midwest fits within the price range mentioned. As long as you build a good team they will keep you informed on any costs or concerns that you have. Find experienced out of state investors and learn from them. You may even be able to partner with someone on your first out of state investment. 

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

THE MIDWEST. CITIES LIKE COLUMBUS, CLEVELAND, DAYTON, TOLEDO, DETROIT, & INDIANAPOLIS

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

THIS ANSWER WILL ALIGN WITH YOUR GOALS. TENANT OCCUPIED PROPERTIES CAN BE MORE EXPENSIVE BUT YOU HAVE POTENTIAL TO CASHFLOW FROM DAY 1

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

A GOOD PROPERTY MANAGER WILL HELP ANSWER THIS. MY ADVICE IS FIND A LOCAL TAX LAWYER AND RESEARCH ANY ORDINANCES THAT WILL AFFECT YOUR BOTTOM LINE

4. What is the usual cost associated if I were to hire a property manager to manage the house ?

CALL A BUNCH OF LOCAL PROPERTY MANAGERS. COST AND SERVICES VARY

5. What is the expected ROI after deducting property management costs ?

CALCULATE TO MATCH YOUR GOAL ROI THEN MAKE AN OFFER

6. Are roofstack /rentToRetirement reliable sources ?

MAYBE. FIND SOMEONE WHO HAVE USED THEM BEFORE

Good Luck! 

[Vicki X.]

Quote from @Sam Mukunda:

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

 Hi Sam,

Here are the major factors in evaluating the markets:

• Your budget: are you looking to buy under $200K, $200-300K, $300-500K or higher? It can help you create a short list

• Population growth, employment growth, wage growth, composition of business types are the most important factors in the health of the market. There are many analysis, charts out there. Specifically. places where the millennials are attracted to are interesting as they are becoming the biggest renter and homebuyer group

  (Note: Be careful with 'historical' data. The top growing markets in the last 2 years are unlikely the most sound choices. Good examples are Austin and Phoenix. Try to add the futuristic lenses into your analysis whenever you can. In the ideal case, there be a "new California" emerging somewhere in the next 10 years. But to be frank, CA's trajectory is impossible to replicate as working remote has become more prevalent, companies more “decentralized”, and more people think about not just professions, but also lifestyles these days).

• Are you able to find trustworthy realtors/PMs or even service providers? Do not get into a market before you know whom to work with. Many investors interview many to find the best one. In my case, I started in the Houston area as my friend had very good recommendations for me. So use your network to get more ideas!

• Run the numbers to understand the cash flow, and pay attention to the major cost such as the effective property tax rates. It typically range from 0.5%-2%+

• Rental regulations as some States are more friendly to renters while some more friendly to investors

• Distance to you. If you find a good area 2-5 hours drive from you, it’ll be easier to meet your team and check out the properties in person

• Certain hazards or costs that you want to avoid. Drought, flooding, snowstorms, tornados, just to name a few

Some other considerations:

Form an opinion about where you'd like to live in the future, and factor that in. Even if you work with PMs, being close to your properties will still be a plus.

Also decide whether cash flow is most important for you, or good enough cash flow with less hassle, higher quality tenants, or even appreciation potential. That will determine the type of properties and the price range you want to focus on.

Your specific questions about costs, types of properties etc, I'd suggest you read a few books or listen to some podcasts. They work the same way whether it's OOS or local investments. 

Sharing some markets I've researched or contemplated on last year. It's by no means a full list or the best ideas:

• TX: San Antonio 
• OH: Columbus
• GA: Atlanta
• NC: Raleigh
• FL: Jacksonville, St. Augustine

[Steven Foster Wilson]

Hi Sam, everybody already provided the answers you need for this. On another note, you should consider investing in OOS here in Columbus. The price to rent ratio makes for great investments and your money will go very far, you'd be able to pick up a multifamily portfolio and start your cash flow. Not to mention our appreciation has been 8% higher than the US national average, because of the high demand for affordable housing and it's a landlord friendly state.

[Dave Skow]

@Sam Mukunda- thanks  - good questions ....if you will be  needing  financing for the  purchase - make sure to get formally pre approved  with a lender so you can make sure you have approval in place  ...Plus the  pre approval process  will help  answer some of your  questions ......if you  plan to use  cash and not a lender - great !...good luck

[Konstantin Ginzburg]

It is hard to answer all those questions because real estate is extremely dependent on location so a lot of the answers would vary greatly from state to state and even city to city as far as property management cost and ROI would go. But the general advice I would give is to personally go to the city's you want to invest in first and get a feel for the city itself and establish a network first before you purchase any property. The success and failure of your real estate investment will fully depend on your boots on the ground team. Make sure you select the right property management team and vet them thoroughly before you even look at any properties. It would also help to invest in a city where you know people you personally trust to look into the property from time to time as well.

[Anthony Angotti]

Quote from @Sam Mukunda:

Hi all,

I'm currently in bay area, looking into out of state rental investments. I'm a total newbie at it.

Want to understand best possible route to take in this field.

1. What are the top states/cities that are hot right now for making a purchase ? Im looking at SFH/MFH under 300K.

2. Do you recommend buying tenant pre-occupied properties whether SFH/MFH?

3. What is the typical cost associated with out of state investments ? What are some of the hidden costs ? 

4. What is the usual cost associated if I were to hire a property manager to manage the house ? 

5. What is the expected ROI after deducting property management costs ?

6. Are roofstack /rentToRetirement reliable sources ?

Appreciate your thoughts. Thanks in advance.

1. I live and invest in Pittsburgh and also work as an agent here. We have a lot of california investors buying properties here. 

2. Honestly I would almost pay more to NOT inherit tenants. You’re at the mercy of how the prior landlord did things. Sometimes it is ok. Sometimes it isn’t. That being said it’s not practical to get a vacant building when financing most of the time and it can also be more complicated as an out of state landlord to walk into a vacant building that needs a project just to get it going.  

3. Going to depend a lot on where you buy and you should expect that taxes and local services like trash and utilities are a bit different than wheee you live. That being said you’ll pay the cost of not being able to do things yourself. You’ll need to pay someone to manage a project from time to time, you’ll need to pay a property manager, you’ll pay more for simple things because you can’t really shop around, you’ll have to pay more expensive contractors because you can’t be there to baby the less expensive ones, etc. 

4. 8-12% of rents monthly. One months rent for a leasing fee. Usually a renewal fee for tenants. Sometimes a technology fee. If they handle maintenance they may up charge on the vendors or charge a dispatch fee. If they do evictions they may charge a fee, if not you’ll pay a lawyer. This is going to differ between companies but if you ask for their management agreement that will give you the answers. 

5. too broad of a question with too many factors to answer. Usually people have a “minimum”. Usually that minimum is not realistic and people aren’t calculating their total return or their total expenses correctly. 

6. No personal experience with these.

[Mackaylee Beach]

Hey Sam,

Let me know if you'd be interested in the Midwest, Kansas City to be exact. I'd be happy to connect you with and discuss our current market.