Out of State Turn Key... Good or Bad Idea AS FIRST PROPERTY?

Question

Hello,

I recently graduated with a degree in Finance and Real Estate which gave me a lot of experience as far as understanding the numbers, finance, and business side of real estate but I do not have much "hands on" experience as far as fixing appliances, home ownership (I've rented up until now), etc.

Would buying an out-of-state turn key property be good first investment? I'm nervous because since I wouldn't be available on site any time something goes wrong.

I'd REALLY like to buy locally, but in the Atlanta market, property values are so much higher than rent - and my investment strategy focuses on cash flow, so the numbers just don't make sense. The midwest (where I grew up) has more cash flow friendly property.

My gut says that if I can find a strong team and property manager that I can trust, I can make it work - but given my lack of experience with the "hands-on" aspect of home ownership, I'd like to get a second opinion. Thoughts?

Jason Cory · Answer

You have a degree in finance so you know in your first class you were taught to research until you found a sound investment. You were told to be able to monitor your investment in real time. You were also told every investment is a risk.

If you were buying stocks would you buy one on the NYSE or the Chinese exchange starting out?

You know the laws, regulations, & rules of American investments. Do you know the same for other exchanges?

You know the laws, rules, & regulations of Georgia & Atlanta in terms of Real Estate. You don't know them for other states.

You can monitor your investment in real time in Altanta. You can't in other states.

You should stay in your backyard starting out. When you are to the point of not missing the money or over leveraging yourself in the event something goes wrong is when you expand your portfolio, i.e., markets.

Learn while doing where you can monitor your investment in real time first then syndicate your process if it's still viable.

You're not going to blindly throw money at the stock market. You shouldn't do it in Real Estate either.

Justin Stamper · Answer

Hey,

There are a lot of great markets and locations to invest in, just make sure that whichever turnkey company you use has a trustworthy property management team! It seems like since you are wanting to do an out of state investment and are worried about not being able to be there, a company with a property management team in place would be the best for you. Let me know if you want any help or advice on investing out of state.

Chris Edwards · Answer

Do it. INVEST OUT OF STATE.

Tom Ott · Answer

Many investors start off with a Turnkey. It can be great if you work a 9-5 or are not in the same market. I wouldn't know the first thing about investing in another state! It can be complicated to find contractors, managers, invest in a decent area etc. If you want a particular market, go with the professionals who know!

Also, the provider should own, renovate, and manage the property all in-house! No third parties should be used unless it is for the inspection. Be careful of agents just showing properties off of the MLS to earn commission or companies that just want to sell you a property and then push you off on some other management company. Good luck!

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

How to Find the Right Turnkey Real Estate Investment Company for You

Trevor Lohman · Answer

@Matthew Dreiling

My first deal was an OOS turnkey, and I don't regret it at all so far.

That said, I don't think you're in that crazy of a market.

Where I live you are in some pretty rough neighborhoods if you're looking at anything under 300k, and that's true 2 hours in any direction from me.

At least in Atlanta you have surrounding areas you could look at right? Even if you have it professionally managed but it's with in driving distance. That's what I would do if I were you. I get emails from a turnkey provider in Macon all the time. Maybe you find an area like that, one that you could technically drive to, but it have it managed just to put your mind at ease on this first deal.

Ned J. · Answer

Stay local unless you really have NO choice.....

Larry Fried · Answer

If you can make your REI work locally, stick with that to start.  Atlanta is harder for out of state investors than those who live there.

Caroline C. · Answer

@Matthew Dreiling Buying TK is a shortcut, and I think best for people with zero knowledge, or for experienced investors looking to quickly expand their portfolio, but given that you have a degree in Real Estate, I would think you can do better on your own.  Vetting the TK partner is a job in itself, and it will surprise you how much it can tend to not be hands off.

It's not necessarily a bad idea to go out of state on your first investment, especially given the number of markets within easy access of Atl.  It would be a different story if you lived in California or New York, given the real estate prices nearby to those metros, but in the southeast you have many more options.  I say look at some nearby markets in SC or AL, join up with some REIA's, find a realtor you can trust, and let that person help you go from there.

James Wise · Answer

Buying out of state could be a very simple, easy & low risk strategy. It's great for beginners & those who don't have the time or want to devote the time to running a rental property portfolio. It get's dicey when the buyer gets greedy. Rental real estate investing is so incredibly simple at it's core it's insane how many people out there are screwing it up.

You buy a house with the bank's money & your tenant pays off the bank. This will provide you with a ton of wealth when you are ready to cash in your chips & retire. Buuuuuuuuuuut many investors get greedy & try to buy the cheapest possible homes in the cheapest markets in the country in an effort to get more "cash flow" I've seen investors pass up awesome opportunities to buy high risk stuff because they would "cash flow" an extra $50 per month.....................$50 per month? Who give a crap? What are you gonna do with $50 per month. It's an irrelevant amount of money.

Whenever you are buying a property out of state you should do a few things to ensure it's as smooth, easy & low risk as possible.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Clayton Mobley · Answer

@Matthew Dreiling out of state turnkey is definitely a viable option for first-timers, it's actually one of the REI strategies that new investors find to be the easiest transition since it is very hands off (after you do your due diligence and pick a property, of course). And while I would never encourage anyone to overlook Birmingham, I have heard good things about Atlanta lately. If you are nervous about not being able to see your investment, or you'd like to learn the ropes by being involved in the rehab, tenanting, and management processes (more a DIY approach than turnkey), then I agree with @Lane Kawaoka that perhaps you should look more closely at your own backyard. It takes a while for new investors to learn how to look for the right deals with any efficiency, so you may just need a bit more time and research to make your own market work.

But, if you're still not liking what you find in Atlanta, feel free to scoot on over to AL! It's an easier drive than the midwest and Birmingham is a great cash flow market.

Best of luck!

Clayton

Out of State Turn Key... Good or Bad Idea AS FIRST PROPERTY?

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