Should I choose to invest out of state?

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Should I choose to invest out of state?

Michael Schaper
Phoenix, AZ · Member since 2018 · 9 posts · 10 votes
I’m from Arizona and I’d like to invest in properties here, although from what I’ve read on BP, it seems like the best place to invest your money is the Midwest, specifically Texas. I am new and I have only spent the last few days analyzing properties although I don’t plan on purchasing anything until next year. All the properties I have seemed to analyze have been from Nextdoor and even when I price them at 20-30% less than the asking price they still don’t seem to even pass the 1% test, and CoC is very low. Now there are two things that could be the problem, either I’m looking at the wrong properties and analyzing them incorrectly, or most places in PHX just aren’t very good investments(too expensive for the rent) I’ve also calculated homes based on their mortgages and what the homeowner’s are renting them for and there is no way they aren’t losing money ($230-260k properties being rented for 1300-1400/ month) So my next thought was “where would be a better place to invest my money? I started reading and everyone raves about Texas. So I guess my question is, Would I be better off just waiting for an amazing deal in PHX(which would most likely be a BRRR sort of property, or investing somewhere like Texas where renting makes much more sense by the numbers. Or are there any PHX investors here that could tell me that there are real deals here in AZ and that I just haven’t taken enough time to know the market?
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Matthew John
Rental Property Investor · Metro Detroit, MI · Member since 2016 · 277 posts · 269 votes
7y

@Michael Schaper The Midwest is not Texas. As a general rule of thumb, the more expensive a market is, the more likely it won't cash flow. 

In the Midwest states, Michigan, Ohio, Indiana, Illinois, Wisconsin, Missouri, etc, there are houses you can find for under 100k and they will rent for ~$1000/month. These are the perfect opportunity for BRRRRs because you can acquire them for 30-50k, put 15-20k into them, and they're worth 85k-110k (at least in my market). 

If you're considering investing out of State and have money, I would find some experienced players in the market you're interested in and connect with them. Maybe become a Lender for them on a few deals and you will learn a TON about their market all while passively collecting interest checks. 

Texas is hot (literally), but it's not the Midwest. If you really like that State, then find a city where your ideal strategy works and connect with someone more experienced if you want to get your foot in the door.  

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  • Vincent Pollitto
    Colts Neck, NJ · Member since 2018 · 10 posts · 4 votes
    7y

    Wherever real estate exists there are successful investors and those losing money on their investments. If you network with other real estate professionals in Phoenix, you'll hear stories of success and failure. There are absolutely  good deals to be made out there in Phoenix. 

    If you ultimetely do decided to invest out of state be sure to know your desired market. Uderstand the change in demographics over the past few years and past months. i.e. population growth, population diversity, job growth, job diversity. Understand the market trend as well. Buy low and sell high and understand that everyone is trying to get into an up and coming market so you'll face more competition. Best. Vince Pollitto.  

    1Reply
  • Matthew John
    Rental Property Investor · Metro Detroit, MI · Member since 2016 · 277 posts · 269 votes
    7y

    @Michael Schaper The Midwest is not Texas. As a general rule of thumb, the more expensive a market is, the more likely it won't cash flow. 

    In the Midwest states, Michigan, Ohio, Indiana, Illinois, Wisconsin, Missouri, etc, there are houses you can find for under 100k and they will rent for ~$1000/month. These are the perfect opportunity for BRRRRs because you can acquire them for 30-50k, put 15-20k into them, and they're worth 85k-110k (at least in my market). 

    If you're considering investing out of State and have money, I would find some experienced players in the market you're interested in and connect with them. Maybe become a Lender for them on a few deals and you will learn a TON about their market all while passively collecting interest checks. 

    Texas is hot (literally), but it's not the Midwest. If you really like that State, then find a city where your ideal strategy works and connect with someone more experienced if you want to get your foot in the door.  

    2Reply
  • Grayson Wester
    Lender · San Antonio, TX · Member since 2018 · 109 posts · 108 votes
    7y

    @Michael Schaper Texas is a very active market for out of state investors. I used to wholesale a lot and the amount of out of state money flooding into Texas is incredible. Investors from states like California can buy 3 or 4 houses here for the price of one in California. That's great, but it has increased the competition and has driven up prices as these out of state investors are hungry to get into a low cost and low tax state. Any major metro market in Texas still has opportunity of course. I would encourage you to get connected to some wholesalers in whatever your target market is and start getting deals emailed to you. I have several lending clients who invest in San Antonio from out of state and do very well. Make sure you take time to develop a 'boots on the ground' team in your target market who can help you succeed (wholesalers, agents, etc.). 

    2Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    7y

    @Michael Schaper a lot of the SFR investors in Phoenix bought during the downturn and are either just holding or 1031 exchanging so the cashflow is awesome for them. For people just starting out, the Phoenix market will be hard to cashflow. The lease option people will tell you differently but that's a whole different business model.

    We made a transition this year to start buying in the Midwest (OHIO) and so far it's been okay.  There is definitely a change in expectations when building a new team.  My systems and processes in Phoenix are very different than what I get out of state, mostly because I'm not on site.  So viewing houses, rehab, management all of it is done through other people.  I can only tell you that I'm still making offers and moving forward.  I still see decent returns and hopefully I can capitalize on that for the next 2 years.

    0Reply
  • Drew Brown
    Property Manager · Lansing, MI · Member since 2015 · 170 posts · 59 votes
    7y

    The Midwest is a great market to invest in if you want to cash flow. It’s great for both cash flow and for steady income because it fluctuation rate is little in comparison due to its relative diverse income and lower GDP. If you have any questions about Midwest investing please let me known I would be happy to share my learned info.

    1Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    7y
    Originally posted by @Michael Schaper:
    I’m from Arizona and I’d like to invest in properties here, although from what I’ve read on BP, it seems like the best place to invest your money is the Midwest, specifically Texas. I am new and I have only spent the last few days analyzing properties although I don’t plan on purchasing anything until next year. All the properties I have seemed to analyze have been from Nextdoor and even when I price them at 20-30% less than the asking price they still don’t seem to even pass the 1% test, and CoC is very low. Now there are two things that could be the problem, either I’m looking at the wrong properties and analyzing them incorrectly, or most places in PHX just aren’t very good investments(too expensive for the rent) I’ve also calculated homes based on their mortgages and what the homeowner’s are renting them for and there is no way they aren’t losing money ($230-260k properties being rented for 1300-1400/ month) So my next thought was “where would be a better place to invest my money? I started reading and everyone raves about Texas. So I guess my question is, Would I be better off just waiting for an amazing deal in PHX(which would most likely be a BRRR sort of property, or investing somewhere like Texas where renting makes much more sense by the numbers.

    Or are there any PHX investors here that could tell me that there are real deals here in AZ and that I just haven’t taken enough time to know the market?

    Investing OOS for a Turnkey or Buy and Hold is a great way to invest in other markets where you can get a better ROI. Places like Cleveland or other mid-sized markets can be great. They are not flooded with investors yet and the prices are still so affordable the numbers look great. just make sure to know what neighborhood you are investing in! Do some research! Good luck!

    1Reply
  • Ike Ekeh
    Rental Property Investor · San Diego, CA · Member since 2017 · 33 posts · 13 votes
    7y

    @Michael Schaper 

    Underwriting potential investment opportunities is a numbers game. You mentioned that you've only been looking for the last couple of days so unless you've literally spent every waking hour of those two days analyzing deals, you most likely have not looked at enough to form a finalized opinion on the PHX area. 

    Also, it may help to reach out to local agents/brokers, explain what you are looking for and have them set you up with an MLS account to better streamline your search. This will help you in two way: 1. It will force you to explain exactly what you are looking for as well as your long-term investment goals. 2. It will help to screen out all the properties that are not within your investment criteria.

    Another tip: Try your best to stay away from underwriting deals at a discounted asking price. Yes, you may be able to negotiate the finalize price down, but chances are (especially in today's sellers market) the seller will not be willing to reduce the asking price a meaningful amount unless you make an all cash offer, an offer with minimal contingencies or both

    Lastly, if you do ultimately decide to go OOS for your investment, make sure you underwrite your team just as much (if not more) than you underwrite your deal. Find experienced, honest, high integrity individuals to help you along the way.

    Good Luck!

    1Reply
  • Grant Rothenburger
    Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
    7y

    @Michael Schaper Idk about AZ. But I do know that almost anywhere in the Midwest is pretty decent for cash flow right now. The issue is everyone else knows that too. A lot of competition.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    7y
    Originally posted by @Michael Schaper:
    I’m from Arizona and I’d like to invest in properties here, although from what I’ve read on BP, it seems like the best place to invest your money is the Midwest, specifically Texas. I am new and I have only spent the last few days analyzing properties although I don’t plan on purchasing anything until next year. All the properties I have seemed to analyze have been from Nextdoor and even when I price them at 20-30% less than the asking price they still don’t seem to even pass the 1% test, and CoC is very low. Now there are two things that could be the problem, either I’m looking at the wrong properties and analyzing them incorrectly, or most places in PHX just aren’t very good investments(too expensive for the rent) I’ve also calculated homes based on their mortgages and what the homeowner’s are renting them for and there is no way they aren’t losing money ($230-260k properties being rented for 1300-1400/ month) So my next thought was “where would be a better place to invest my money? I started reading and everyone raves about Texas. So I guess my question is, Would I be better off just waiting for an amazing deal in PHX(which would most likely be a BRRR sort of property, or investing somewhere like Texas where renting makes much more sense by the numbers.

    Or are there any PHX investors here that could tell me that there are real deals here in AZ and that I just haven’t taken enough time to know the market?

     You can make or loose money in any market. From my understanding Phoenix is a pretty solid market for investment but don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth 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.
    0Reply
  • Garrick Oconnell
    Rental Property Investor · Phoenix Tempe Scottsdale, AZ · Member since 2014 · 184 posts · 55 votes
    7y

    I actively invest in AZ and nothing they sell on open door will make sense for cashflow. I have only purchased 1 property off the MLS to hold in 2018 a duplex in Tempe it closed because we had cash and to ability to take on the problems of the landlord selling the property, and we knew what the potential was.

    If you plan on purchasing off the retail market you will need to watch it like a hawk, even then you will find few and far between deals that make sense for buy and hold. If you have never owned a rental property before I would suggest investing somewhere nearby vs. out of state that way you can learn from the process of being a landlord and dealing with tenants. 

    0Reply
  • Javonte Hardiman
    Real Estate Investor · Milwaukee, WI · Member since 2015 · 39 posts · 68 votes
    7y

    As @Matthew John stated, there are properties here in the Midwest that provide great cash flow.  Actually, some of the best damn cash flow in the country which is why out of state investors love our market.  We just got a duplex property under contract yesterday for 134k, already long-term, tenant occupied, bringing in $1450 total a month. That's $17,400 annually not including small operating expenses. On top of the that, tenants told us over the phone they didn't need any repairs in their home and we went over to the place to confirm it. The place is Beautiful! We run across similar deals to this one often in our market. If anyone is interested in this deal we just got under contract, PM me for more details. 

    Thanks. 

    0Reply
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