Out of State Investing Advice for a newbie

[Richard Phan]

Hi everyone,

I live in LA and have started looking at OOS investing seriously and some of these homes I see in the midwest for example go for 80-100k turnkey ready. That's not even enough for a downpayment for a shack where I live. =(

Anyways, what are your thoughts on OOS investment , especially those that are turnkey ready, basically Im interested in purchasing a turnkey from one of those companies that already rehabbed the home and has a tenant/PM in place etc. Any tips or even how the process generally goes would be great. I'm really looking forward to getting my feet wet with OOS investing and hope to build from there. Looking forward to any advice.

[Bo Kim]

I got alot of info from reading the forums when I first started...just wanted to share my experience and the steps I took investing OOS:

1) Research a market that works for your goals (whether that be employers in the market, job diversity, population growth, price of homes, etc.) I liked Memphis (Near airport), Little Rock (Similar to KC/Indy - low unemployment, growing economy, population), Ohio (Cinncinati, Columbus), Kansas City (missouri side), and Indianapolis (Near downtown).

I researched them all through biggerpockets, talking to most providers in each of the markets (about 25 calls made), and also reading data on sites such as zillow, neighborhoodscout, city data, etc. My strategy I am looking for homes around 7-80K that rent for 1000-1200, so Indy and Kansas City were perfect for this strategy and it had a growing population, strong/diversified economy. (i.e. memphis also has cheaper homes but its mainly renters and population was stagnant/decreasing). Looks like you're looking at higher range homes B+ to A, at 120K+ which is totally fine, but I just wanted to scale quicker with high cash flow.

2) Determine your criteria for investing: Single vs multi family, price range, rent to value ratios, age of home, how many bed/baths, etc.

3) Find a provider in the market (if going TK) that you would like to work with. Start by doing a search on BP about the different TK providers i.e. "Memphis Turnkey providers" and create a list to call. After coming up with a list based on your strategy I would call all providers (i just took 2 months calling and interviewing all TK, PMs, realtors, etc.) so that you can form your own opinion. Feel free to use me as a sounding board (I made about 20+ calls myself)

Starting out I would say its easy to be swayed by other investors and think "oh yea, thats actually a great strategy, etc." So i would try my best to write down your goals and strategy first!

My Criteria is ever-evolving, but this is my current list:

A) When Financing: Net monthly cash flow > $200 (after PITI, PM fees 8-12% (can vary), vacancy reserve 8%, maintenance reserve 8% (can vary depending on what capex was replaced)

B) Neighborhood Rating: C+ or above (Note that each company may rate neighborhood's differently

For example, A/B/C based on renters vs owners or A/B/C based on crime, school, other statistics.

C) Property Type: Single Family 3 bedroom 1 bath (or more), ideally with a Garage in snowy areas like Indy and KC.

Note: Some markets (i.e. Memphis/Little Rock), it is common to have a carport instead of a garage

D) Year Built: Post 1940s (ideally, but for example my duplex in Indy is 1905, so its also case by case)

E) Cash on Cash: 12% or higher

F) Rehab including updates to CapEx items 5 years life or less (Water Heater, HVAC, etc.) 10 years life or less (roof)

G) Rent to Value Ratio: At least 1% or higher, ideally 1.30% or higher (this is generally a buffer to protect me when the market corrects in the near future)

I highly recommend you really invest the couple hundred bucks to fly out there cheap/stay at an airbnb couple days and check out the different providers and their quality of rehabs, as well as see the neighborhoods for yourself. A B class in indy stated by your turnkey company might seem like a C class in the Coastal Markets in your eyes, so its good to set expectations up front, etc. Hope this helps.