How high of a learning curve for investing out-of-state?

Question

I currently live in Northern CA, and we paid off our mortgage a year ago. We've since saved up ~$30K in cash at this point and are interested in purchasing investment property. I'm very familiar with our city (Sacramento), but I've looked into the up and coming neighborhoods where I thought we could get good deals. Even in those areas, running all the calculations, it doesn't seem a good bet for buy and hold at the moment, which is what I'm interested in.

The conventional wisdom seems to be to buy nearby. I've been browsing other markets, and I think we could do better elsewhere as far as cash flow.

Would it be a disaster to have our first investment property be out-of-state? How far-flung is too far-flung? Is it advisable to at least fly out and have a look around a prospective city?

I have friends in various places across the states, so I could pick some of their brains, if necessary. I love both researching and real estate, and I think I could get a decent feel for a place using various resources. Is that quite enough, though?

Andrea Stewart · Answer

Thanks for the input, Account Closed I appreciate your input! It sounds like what would be in my hands is whether or not I found a good property manager, et al. If I mess that up, then I'm out of luck. I think I'm gaining a basic understanding. I have a background in economics and currently work in budgets, so I'm at least minimally financially savvy, but I know there's a lot to learn. I'm doing my best to absorb all the information I can.

I'm generally cautious and thorough when it comes to researching the people I work with--it's worked out well for me so far. But again, I wonder if it's better to accept the negative cash flow in exchange for experience and possible appreciation, and then consider the possibility of purchasing out-of-state once I have a hands-on idea of risks and challenges.

I mean, I read ALL THE BOOKS when I was considering getting a dog, but a theoretical dog is so much different than an actual dog.

Sergey Tkachev · Answer

Account Closed, what kind of numbers are you seeing in Humboldt County?

Account Closed · Answer

@Sergey Tkachev  So I am not yet well educated in the formulas needed to evaluate buy-and-holds, but I can give you some examples. A house I sold last year was close to our community college and had an ocean view. I sold it for 93k and that house would have rented for 1600.00 a month. That doesn't include the repairs that were done. (Approx 50k) It's pretty easy to get cheap properties here, and because of high rental prices throughout the county and high demand, I've heard other buy and hold investors say this is a great place to cash flow.

I know that's not very specific, and hope it helps. If you're interested in Humboldt I would suggest talking to a local property manager and getting the formulas to do your own math.

Account Closed · Answer

Buy and Hold works really well here in Humboldt County CA, high rental prices and relatively low purchase cost. We're about 5-6 hours away from you here on the Coast of NorCal.

Sam Valme · Answer

Hey @Andrea Stewart, Our Parent Brokerage (Customer Realty) focuses primarily on finding investment properties for investors in Northern VA. Many of whom are out of state. It makes for a warm hand-off to our Management Company because, as state above, there are some considerations. Here are somethings we like to see from our investors who are looking into the area:

• Have done research on the area. 
• Have some sort of connection to the area (Personal or Business Preferably).
• Financial capable of handling unknowns that come with this industry.
• They are responsive in communications.
• Realistic on ROI expectations.

Not a definitive list but key things we do look for prior to signing any type of agreement. Time is your biggest asset with any type of investment. The faster an agent/broker/property manager can see that your serious and have done some research. The faster you can expect to get some solid leads. On the flip side, you should be vetting anyone who you work with rigorously. Especially if they don't come with a referral or proven past performance.

Good Luck!

Thomas S. · Answer

In my opinion purchasing out of state is practically a flat line. You will depend 100% on your property manager, probably a string of property managers, and either succeed or fail. It will be mostly out of your hands.

This assume of course you actually have a basic understanding of how to invest in the first place.

Sergey Tkachev · Answer

@Andrea Stewart, Sacramento prices have definitely increased but it's still possible to find deals.  If you are considering out of state, that can definitely work but make sure you have a local team who can help take care of whatever needs to be done, that is usually key