How to start REI out of state??

Question

Hello,

I am a new investor looking to purchase my first rental property. I reside in California, but want to make a purchase in another state e.g. Texas, Utah, Colorado.

My concern is how to start?

Since this is my first property and I lack experience...

- Should I begin by looking for a realtor that works with investors for the chosen area? 
- Or should I look at the so called "turn key" companies, that search for cashflowing, already rehabbed properties?

I don't really trust the "turn key" companies,as they may have their own motives.. or find you properties in non-appreciating / bad areas.

If I work with a realtor, I will most likely need to purchase a property with 70% ARV and that would mean that I need to look for a reliable contractor.

This might be too stressful for me as beginner, especially from a distance.

Not to mention the other issues of finding an appraiser, property mgt company etc. All of which make it hard to gather a good team from another state.

After I get a good team together, then I don't think I would fear the involvement so much.

Any experienced people out there that have advice about how I can get started with an out of state investment?

Ben Kevan · Answer

I guess I have bucked the trends that most recommend here. I also decided to go out of state for my first property, and I too live in California (Northern). The reason I chose out of state was because of Cash Flow / Up front capital and California is still in a declining state and I think taxes may go up much higher (property).

I chose Ohio, and Cleveland at that. It's not the prettiest of places, but it was where I have networked with many local investors / realtors / inspectors / and RE professionals. I've really started to understand the area, and learned about good and bad areas.

I'm still in contract for my first house (Buy and Hold Rental), and hope that it all works out.

I really just wanted to get out there and get a house and understand how it feels to be a landlord, then decide if I want to continue doing that afterwards.

I chose conventional lending, but will look at other methods like Sub 2 leasing etc on the second or third property.

As I raise more capital I hope to be able to afford something locally, but I also want to make sure it's something I actually want to do.

Loc R. · Answer

First, you need to examine why it is you want to go out of state.

Second, you need to figure out what your model/strategy is going to be.  Rentals?  Flips to retail buyers?  Flips with seller finance?

From there you can make a better determination as to what you are going to need to make it happen.

Kelvin K. · Answer

It is very helpful to hear about what I can expect to run into, if I pursue my first investment out of state. I will keep all the suggestions in mind.

@Ben - your situation is almost identical to mine! Can you tell me how you managed to network with people across the country? I guess apart from the discussions on the BP forums.. did you need fly out to regular local REIAs, or arrange meetings etc.

Alex Craig · Answer

My suggestion is to fly out and meet the individual you are going to do business.  Don't trust #'s without doing your due diligence.  You can find local appraisers in the market you want to purchase through a google search.  I am biased, but Memphis is a good choice according to realtytrac.com.

Sam Lee · Answer

Hi Sirck,

you can find cash flowing rental properties in california. Maybe not La, but draw a 30,40,50, ect mile radius around your location and search for properties.

I highly recommend you not invest out of state until you have actually searched and searched for properties in state. On the bigger pockets website click on "properties" on the top and type in "california". You can find investment properties in state, or get a feel of where to look from there.

I inherited property out of state and it takes a lot of effort to manage it. The key to being successful out of state is properly managing the property manager of the property and ultimately keep costs down and increase cash flow. I would not suggest a beginner to start investing out of state. you need to assemble a team that you trust to help accomplish your goals (property manager, contractors, realtor, real estate attourney,ect). It's all a big headache and takes a lot of effort and time to actually find smart, competent people that you trust.

Keep looking and fully assess the risks

Good Luck!

Kelvin K. · Answer

I appreciate all of the feedback so far. I will definitely get up to speed on operating costs and general landlord issues before finding a realtor to help.

As for LA, I agree about the Inland empire being a potential cashflow area. However the high vacancy and unemployment rate does not seem appealing. Thoughts?

Also does anyone have suggestions / experience on turn key companies in Texas, Colorado or Utah?

Loc R. · Answer

As for LA County, I would say there are pockets in the SGV that can cash flow.  But just like being an REO/SS buyer, you need all cash & you need to be able to close quickly.

In terms of LA (city) itself, your best bet is fixer upper SFRs & duplexes.  They are exempt from rent-control laws.  LA rent control laws are VERY tenant friendly.

Will Barnard · Answer

Loc is right, there are some areas where you can get cash flow, but as stated, "most areas" do not.

Loc R. · Answer

You can find cash flow in the Inland Empire.

I was a partner on a 4-plex flip in Riverside.  $3400/month in gross rents that sold for $229,000.

Will Barnard · Answer

NOt a bad idea to speak with Realtors that are "in the know" for that area, however, being a newbie investor, you run the risk of not knowing the difference between which realtor is good and which is bad, which is blowing smoke up your rear and which is being honest.

make sure you educate yourself on operating costs, managing procedures, legal issues, etc and know the ins and outs of a landlording business BEFORE you start speaking to these people. This will give you a better chance at feeling them out.

Then, we some agent shows you a property in Dallas (for instance) which is listed on the MLS for $125,000 and the rent value would be $1200 and they tell you it will provide "great cash flow" because your PITI is under $900, you know they are full of it and have no clue what they are talking about.

How to start REI out of state??

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