Losing my Proper(ginity): Is investing out of state for your first purchase too risky?

Question

Hi All,

When I first decided that I wanted to get involved in real estate investing I spent months researching investing techniques, financing options and locations. As I've become more comfortable and knowledgable I've come to learn that the best peice of advice is to TAKE ACTION. Thanks to BP, I've been motivate to finally take that action and step into my first deal with my business partner.

As we are now ready to take that step of faith and purchase a property, I have noticed that there is better potential opportunities to invest in Buy and Hold multi-family properties with positive cash flow out of my area (which is San Diego). I have run pro-forma's on properties in areas of Boise where my business partner has some connections and find that the return would be greater, not to say the purchase price lower, but I have concerns about pulling the trigger on a first deal not in my area. So the questions has to be asked, is investing out of state for the first purchase too risky or is it a moot point if a good opportunity presents itself?

Cheers,

Aaron

Dawn Anastasi · Answer

There seem to be more and more posts lately about people looking to invest out of state.  Maybe there needs to be more people who ARE posting out of state either post success or failure stories on the forums so people can read what went right, and what went wrong.

Account Closed · Answer

@Aaron Mack I am still only working with props in the Boise area because I live here. I would consider out of state if the numbers were good and I had a proven property manager. I used to self manage but finally found a small PM company that understands investors. Let me know if you need their information.

Tom A. · Answer

I have a keyword alert set to "Detroit" and half the time it pings it's because someone 2000 miles away needed to share their blanket assessment of investment in the city and region based on a personal anecdote or something they read once.

It'd be great if those kinds of comments spelled it "Detriot".  It wouldn't trigger my keyword alert and it would probably get a grin out of the anti-Detroit poster. Win-win.

Brian P. · Answer

I would always keep a toe in my own front yard but always open to other yards. If I lived in Detroit I wouldn't hesitate to invest out of state, and it would only be days before I left to check out of state properties never to return.

San Diego is a great town, loved it, even opened a real estate office there in a prime spot by the Shadow Ridge Country Club area in Vista ( It was ground floor time) and another in a little one room setup in La Mesa, and lived near Bird Rock. Wanted to try the area called the worlds most perfect weather. Quickly released the spaces and moved back to the S.F.Bay Area because my wife was very very homesick. Still did a few Commercial deals and upscale homes there just after we had left to clear the leads off my desk.

I still think there are deals there but they aren't likely to fall into your lap so keeping your toe in the water is good. Boise, I have a ton of relatives there that I never see and it is sort of stable but if your looking try looking at the Salt Lake City area if your going the buy and hold route. I have lived here now for several years after moving here to get a heart transplant, the only real drawback for me is the snow, I'm a sun and surf guy.

For those of you that say the opportunities are are limited in SoCal I can tell you there is 500 million to be made in L.A.County right now and if I could get my wife to move there and find the right doctors I would be there tomorrow but I can't do it long distance. No partner offers please. The only people I would partner with on this kind of action are all dead, It is the old story the gods take the good people and leave the garbage. Maybe some one will figure it out but it has been hanging like a carrot in front of me for over ten years now. But I know there are some LA investors saying there isn't any fruit on the trees here, lets try somewhere else.

Account Closed · Answer

Properties are more expensive in CA.  Properties have better returns in CA.  Properties have better cash flow in CA.  Rents increase more in CA.  Appreciation rates are higher in CA.  Prop 13 benefits CA investors.  Expenses per sf are lower in CA.  Rent per sf is higher in CA. Vacancy is lower in CA.

There are fewer people paid to get people to invest in CA.

Elizabeth Colegrove · Answer

Our first "pure rentals" were in Charleston South Carolina 6 hours away by car. They worked out really well. I liked being within driving distance. I am a huge  self management fan! I bought houses that worked within the model. No we buy them half way across the country!

If you have a will, there is a way :)

Jonna Weber · Answer

@Aaron Mack

-It is important to know where you are buying in Boise, as neighborhoods vary drastically.  (as I am sure they do most places). Example:   I just run comps for two neighboring areas - but one averaged $70 more per sq. foot than the other.  My two cents would be to build your team of trusted people in an area first - then find the deals.

Enjoy the journey!

Jonna

Joshua Woolls · Answer

Oak Park, Redford, Dearborn Heights, Westland, Wyandotte, Allen Park. The good opportunities are less and less all the time, but they are still there if you look. There are some areas on the east side of the city that aren't too bad as well, but that is farther than I travel right now.

Account Closed · Answer

@Joshua Woolls those are great returns. Do you have a zip code or two to suggest as I have been contemplating a few states in your region for cash flow.

Justin R. · Answer

@Aaron Mack Same market as you, same challenges - San Diego's definitely not an easy market to start in.

That said, it's where I started and have been able to put together a profitable base.  Depending on their investment goals, I wouldn't suggest to a friend that they start out-of-state unless they have some pre-existing relationship there.  The more scars you can get from your first couple properties, the better you're setup for long-term success - in your local market or outside of it.

BTW: Always fun to talk shop about the San Diego market if you'd like to PM me.

Losing my Proper(ginity): Is investing out of state for your first purchase too risky?

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