Out of State, Pros and Cons

[Robert Crossley]

(accidentally posted in general) 

So I would like to generate as much feedback as I can on this and I sincerely apologize if a lot of this has been covered in earlier posts. I am a newish investor in Southern California I have two Multi Family units out here and I want to expand my investments but the costs and cap rates here are prohibitive. Liquidity isn't really an issue as much as bang for my buck. I have done a lot of research into out of state markets but have held off due to some worries about management, lack of info, etc.

Could some of you with experience provide me with any feedback ranging from the best areas to look into, the best strategies (I am open to anything from more rentals to flips and beyond) and of course the possible pitfalls with out of state investing. Any insight on the best way to get started or turnkey companies you have used would also be greatly appreciated!

[David Faulkner]

Pro: It is cheaper. Is this really a pro though? Does that necessarily mean the risk is lower? Does that necessarily mean you can make more money? Why exactly is it cheaper?

Pro: Higher day one cash faux.

Con: You need to hop on a plane (or long car drive) to visit your property, which leads to ...

Con: You are less familiar with the market.

Con: You are 100% dependent on complete strangers to make or break your investment for you and keep your best financial interests at heart above their own.

Con: Can't easily verify work is being completed in a quality or timely manner.

Con: If problems do arise, it will take you longer to find out and they will grow larger in that time.

Con: If something goes wrong that your team can't fix (or in all likelyhood caused) then it is harder to for you to step in to fix it, stabilize the asset, and recover.

Con: Lower appreciation and rent growth ... if you think this is speculative and not consistent, then review the last 50 years of price trends in the market you are in now vs the out of state market you are considering.

Con: Lower tenant quality. Typical tenants in SoCal have the finances such that in any other market they would likely be home owners ... I seriously doubt that this is the case in most out of state rental markets, unless perhaps you are looking in class A neighborhoods.

Con: You can't as easily or practically as a newbie buy under market value and force appreciation.

Con: You can't obtain favorable lending terms through house hacking.

Con: You have to pay everyone to do everything for you, which not only cuts into your profits but also robs you of learning the business hands on.

Con: Lots of cons ... con men and women telling you everything that you want to hear to sell you the dream and take your money. As an out of state investor, you put a huge target on your back for these kind of operators.

In summary, investing out of state is a fantastic idea ... you should totally do it.