First deal - out of state: Bad Idea?

Question

I'm strongly considering doing my first deal (rental) out of state (I'm in NJ, property would be in upstate NY -4 hours away).  As a first time buyer (and current renter), it is MUCH easier to get started investing in a market that is more affordable, as opposed to where I currently live.

So, I've located a whole seller and, what seems to be, a very good property management company.  BUT, after reading MikeOH's book last night (great read!), he refers to this type of deal as "financial suicide" for first timers and that has me really questioning if this is a good idea or not.  Specifically after reading the horror stories and realizing how it may be prudent to be within a car-drive away from your properties.

Any feedback, experience, stories would be GREATLY appreciated.

Account Closed · Answer

I moved to Minneapolis 1.5 years ago, from Seattle and left two rentals behind. I hired a local gal to manage them, and she had a local miantenance guy - all was well? No, she embezzeled some funds and kept my money rahter than get some work done on a few items. Nightmare! I am still looking, and in the meantime, I have to do everything long distance. I don't want to sell quite yet, but am considering it. I think if an investor had a multi-unit property it might make sense with the right PM firm, and then write off your travel to chek up on it!

Mike S · Answer

You're telling me it's worth investing in another state with all the foreclosures, people getting wiped out of their equity from destruction, and every mess possible that becomes more likely when the property is out of state is a good idea? Not to mention it's harder to judge value without knowing that neighborhood is a good idea?

I just saw 3 people today in the same position: upside down with cash-flows that are now worthless and want me to auction the properties. I took 6 contracts today on short-sales, and if you think that's where I want someone to go on their first deal tells me you haven't done many deals or realize all the ramifications that are involved.

I owned my share of cash-flows and I can tell you that more things happen when you are away from property managers not doing their jobs to things being done in violation of the terms of the lease.

Take it on if you really want, but it's a short path to suicide in the business. You have to know your area you are buying in and this is not the right time in the market to start guessing. So while people could destroy your property next to you the odds are far less and far safer. If I wanted a high risk investment I'd go to Vegas. If I wanted a solid risk I'd invest wisely and safely and work on some wholesale deals or sure fire rehabs.

If this deal is really great get it under contract and assign the contract: no risk all reward. If not pass...  Too much can go wrong and I've seen less than 5% of good property managers. Most are out to screw you for a buck and I've had many bad experiences with them, and that goes for everyone I know who hired one. It's hard to find a good one.

Dick Green · Answer

I always say fish in your own backyard.  Especially for someone just starting.
  
I've been called an extremist in my day, not above the thought of relocating to a more real estate investing friendly area.  I'll switch teams during the last few minutes of the Super Bowl to be on the winning side....lol(sarcastically)

Life is but a vapor....I say be in it to win it!

Eric Foster · Answer

Another consideration...

I didn’t see this mentioned… Are you are buying just this 1 property in that area... or more than 1 over time?

In my opinion... If you are just buying 1, then I would pass unless it is just a killer deal! If you are considering this an area to invest in and you plan on doing more soon, 3-4 hours is not too far.

I drive 3 hours (each way) every week to work an area that I invest in. But since I am so active, I have a bunch of people there that I can call for help at a moments notice, should I need it...

I go there every week since I am actively investing in that area… Not jsut because I have 1 house there.

Your short term future plans come into play here…

Tom Noonan · Answer

If you say "NO", the question becomes "what is he supposed to do? Move?"  If you live in an overpriced area (I live in California), it is simply impossible to find anything close to a cash-flow property locally, unless, of course, you move.

So for FSJR9, if he still wants to invest in real estate, he can either move or make investing out of state work for him.

Also, someone mentioned that rentals being destroyed is a huge deal.  What makes you think that your rental won't be destroyed if it is next door and you are managing it yourself?

FSJR9 - Stay positive and try to get recommendations for Property Managers and inspectors in the area.

Mike S · Answer

I would give a hardy "NO" on doing an out of state deal unless you know the property manager for many years. Property damage is the biggest issue when it comes to rentals. I can't tell you how many people have lost their family fortunes on rentals being destroyed.

I would have severe and I mean severe reservations, and if it was me I would say no automatically unless it was over 10 units and you know an unbelievable property manager. Having a small unit building for rental income is not worth it from anyone I've ever known unless it had the units and the economy of scale to justify it.

Marc NA · Answer

the person who runs the REI is from NJ originally. I think Anyways, you can join one in NYC. to get a feel for what the NYC REI are doing. Since there are several groups , you can contact me and I'll be more than happy to give you the info of the one I joined or others or just go to nearest one too. you can even go to both and observe.

Like I said the one I joined make trips to various cities and network with people . It might be the best decision you'll ever made.

bring business cards doesn't have to be fancy. It can be regular contact cards with cell phone.

KEEP in mind that a good REI deal with vendors such as mortgage brokers, handyman, agents, etc. these vendors don't want to have a bad review with a member or else they will be black listed from REI so that will give you better trust factor.

Fred Shandler · Answer

^excellent advice, I will absolutely do that.

and yes, NJ is EXTREMELY expensive.  Trying to find a deal that cash flows has been very difficult.  I have my first REIA meeting in a couple weeks, so hopefully that will be a good experience.

But it is VERY tempting to invest further away, as deals are much easier to come by.  I'd like to hear some feedback from investors in expensive markets -NJ/NY/LA/SF, etc.

Thanks
-Fred

Michael Rossi · Answer

FSJR9,

Closer is better.  However, if you do need to go 3-3.5 hours to get positive cash flow, then Marcvoi has given you great advice.  I would not only join your local REIA, but I would join the REIA that is local to where your investments will be.  Meet the successful landlords there and get the names of the handymen or contractors they use.  Then, you could manage your property from home and call the handymen or contractors when there is maintenance that you don't want to do.  Maybe one of the successful landlords would share their handyman or contractor with you.

Good Luck,

Mike

Marc NA · Answer

I hope all get to read this. this is a common question that even myself have to wrestle with. In fact I live in NY and it is difficult too. Mike Oh book is a life saver.He does not sugarcoat.He tells it like it is. I would've slip into the financial fire had it not been for MikeOh book and veterans on this board.

with their advice to join local REI has helped. Perhpas you can join local REI. The one I joined make frequen monthly trip to upstate and have connections with vendors there and other home buyers etc.. you can form your own "umbrella" of contacts there.