First investment out of market??

Question

Hi All,

I have been studying markets in real estate investing for some time now. We have gotten our finances in line and currently are looking more in detail to purchase our first real estate property. We are in the north east where it’s very expensive right now and have done some research on other markets.

Also, following some suggestions from forums here, we have narrowed it down to a few.

What are your thoughts about out of market investing in rental properties? Especially with it being our first one. What would be some key recommendations from those who are experienced with it?

Samuel Diouf · Answer

I would first find a market that is showing signs of market growth. Then I would focus on growing relationships and building your core 4. Having a team in place is essential to long-distance investing. The core 4 consists of a realtor, contractor, property manager, and a lender. Once you have this team in place, you should have the foundation to invest in any market confidently while not being there physically.

There are some great opportunities in the Ohio markets. Many investors from expensive markets are choosing to invest in the Midwest because of the low barrier to entry and yearly cash returns making more sense in these lower priced markets. Ohio markets show up 3 times in Zillow’s 2024 hottest markets, with Columbus and Cincinnati taking the top 2 and 3 spots. I moved from Florida to start investing in Columbus because of the same reason.

https://www.zillow.com/learn/hottest-housing-markets-2024/

Simon Ashbaugh · Answer

Hey Matt, welcome to BP! OOS investing can be a great way to diversify your portfolio but having a solid strategy is key.  Figure out what you're aiming for.  Are you looking for steady rental income or long-term appreciation?  Once you know your goals, you can pick a market that fits the bill. Also, since you'll be managing the properties remotely, building a strong team is important. Find a local agent who's familiar with your target market and a property manager to handle the day-to-day operation. Then, find a mentor doing what you want to do. You could start your search by reaching out to lenders, brokers or other investors you meet at REI meetups. Most will be able to provide one. All the best!

Drew Sygit · Answer

@Matt Owens

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

PM us if you’d like to discuss this logical approach in greater detail!

Najma Osman · Answer

Hey @Matt Owens,

Congrats on getting your finances in order and narrowing down your market choices! Out-of-market investing can be a smart move if you're looking for more affordable opportunities. I recommend focusing on building a strong local team, including a reliable property manager, lender, contractor, and real estate agent. Start with a property that requires minimal renovations to keep things manageable. Doing thorough market research and leveraging local expertise will be key to your success!!! I invest locally so feel free to reach out if you have any questions about investing in Ohio!

Jimmy Lieu · Answer

You can definitely do out of state investing as long as you have a solid investor agent and real estate team in place - this means being connected with a good lender, general contractor, property manager, etc. I would suggest investing in Columbus Ohio for so many reasons - population growth, job growth, and companies moving here. You will still find positive cash flow and the 1% rule here and you get amazing appreciation! I personally moved from Portland Oregon to Columbus Ohio to start my full time real estate investing career here. So much opportunity and it's been one of the best decisions of my life. Happy to connect and answer any questions you may have.

Min Zhang · Answer

Hey Matt, first things first, you need to figure out your strategy. Are you looking to buy turnkey properties or do flips? If you're new to investing in a specific location, I'd suggest starting with a turnkey. It’s a great way to get a feel for the market, build connections, and set up your team. Once you’re comfortable and have a solid team, you can start exploring value-add opportunities. Market wise, Columbus is great for value-adds because of its appreciation potential, while Cleveland is awesome for cash flow.Feel free to reach out if you need any assistance!

Michael Smythe · Answer

You need to find team members you can trust.

Not so simple though;(

Jeremy Melloul · Answer

Hey Matt!

Investing in rental properties outside your local market can be a great move if your area is too pricey. Here are some quick tips you can apply to your out-of-state investing journey.

Do your research:

• Get a Local Team:
• -Hire a property manager to handle daily tasks and tenant issues.-Find a local real estate agent who knows the area well.-Have go-to contractors for repairs and inspections.
• -Hire a property manager to handle daily tasks and tenant issues.
• -Find a local real estate agent who knows the area well.
• -Have go-to contractors for repairs and inspections.
• Use Tech:-Use property management apps to keep track of rent and maintenance.-Do virtual tours and video inspections to stay updated on your property.-Keep in touch with your team and tenants online.
• -Use property management apps to keep track of rent and maintenance.
• -Do virtual tours and video inspections to stay updated on your property.
• -Keep in touch with your team and tenants online.
• Manage Risks:-Do your due diligence, like property inspections and understanding local laws.-Keep a fund for unexpected costs and vacancies (CapEx)Learn from Others:
• -Do your due diligence, like property inspections and understanding local laws.
• -Keep a fund for unexpected costs and vacancies (CapEx)
• Learn from Others:
• -Join real estate groups and forums to get tips from experienced investors.-Network at local real estate meetups.
• -Join real estate groups and forums to get tips from experienced investors.
• -Network at local real estate meetups.

• -Hire a property manager to handle daily tasks and tenant issues.
• -Find a local real estate agent who knows the area well.
• -Have go-to contractors for repairs and inspections.

• -Use property management apps to keep track of rent and maintenance.
• -Do virtual tours and video inspections to stay updated on your property.
• -Keep in touch with your team and tenants online.

• -Do your due diligence, like property inspections and understanding local laws.
• -Keep a fund for unexpected costs and vacancies (CapEx)
• Learn from Others:

• -Join real estate groups and forums to get tips from experienced investors.
• -Network at local real estate meetups.

Out-of-market investing can be really rewarding and profitable if you plan well and do your homework. I'm personally very bullish on the Columbus, OH market. It has all the key indicators you're looking for, including a low barrier to entry! Good luck with your first rental property and feel free to hit me up if you need any help!

Jeremy

Tim Casey · Answer

I think you are smart to consider out-of-market investing.  Key to your approach, as you seem to already understand, is that it requires elevated levels of planning and due diligence, but with this approach, it can be a profitable strategy.As you are in the process of narrowing down locations, start engaging with local experts to best understand market dynamics and compliance requirements with local laws.  Best of luck.

Wale Lawal · Answer

@Matt Owens

Out-of-market investment provides affordability, diversity, and greater returns, but it also involves managerial issues, a lack of local expertise, and travel expenses. To be successful, research the market, undertake neighborhood analysis, form a local team, connect with investors, budget, acquire finance, use technology, manage risk, start small, and take a hands-off attitude.Good luck!

First investment out of market??

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