Wanna be out of town investor but should I start local?

Question

So I am self employed with an internet eCommerce business - I averaged around 15K a month profit in 2011 and 2012 looking much stronger - I am very fortunate.

All I am doing is socking away every penny so I can realize my dream of getting a large real estate portfolio for true wealth.

For this reason - I have no interest in flipping houses and I dont need huge cash flowing properties.

I want to invest for equity build up, appreciation, and a tax shelter. My long term goal is to invest in single family homes in growing markets (Atlanta, Austin, Nashville are some of my interests), and hire a property manager.

Question part - From everything I learned from books/podcasts/forums, I should start local and manage my own properties so I learn the business. The problem is, I am located in Cleveland - where I can find cash flowing properties but you can forget about much appreciation.

If making $300/month cash flows VS $75/month makes no difference to me, should I just skip the local market and go strait to the market I like? I know a lot of people on these forums manage their own properties, but for those who use a PM - any advice is appreciate.

Sharon Vornholt · Answer

Adam - I really believe you should start in your own backyard and learn the business.  Trying to start this type of business in another city is a recipe for disaster. I buy wholesale properties all the time from folks (absentee owners) that did just that. In most cases they are losing a chunk of money when they finally throw in the towel.

Mike H. · Answer

With that kind of money, you should be looking at multifamily instead of SFH. The key benefit is that property management is built in to the costs. So you should be able to cash flow and get good appreciation.

One other thing I'd suggest if you do want to invest out of town is to find a group that does turn key investing. They're definitely out there. I listen to their podcasts all the time.

I don't see any reason that you need to invest locally to learn the business before you turn it over to someone else. I'd also say you don't want to invest for appreciation either. But I understand not wanting to invest in certain areas if you know they're not going to appreciate much.

Find a balance. A decent area with upside that has good cash flow. I'd look at Texas, Atlanta, and Las Vegas.  If you have money, you can get some real good cash flow with some real good upside for appreciation.

Not sure I'd be keen on Vegas appreciating any time soon. But when they do, the people that bought in during these times, are going to do rather well.  Cash flow is great though given their taxes are so crazy low.  I'm in Illinois and I have a couple of properties in southern cook county so I understand the comment above from JP about the property taxes (tax assessed value of 135 but taxes are over 5k - just killer).

I still say you should look to multifamily with the amount of money you have.  You can get some great deals on multifamily and you get the property management built in to your costs.  And, if you're betting that inflation will eventually kick in at some point and rents will go higher, nothing will do better for appreciation than multi family.

I don't have the cash to do it myself but would do it in a heartbeat if I could. Just my humble opinion.....

Adam Craig · Answer

Thanks for the input. Whatever market I decide to invest in, I am going to make sure I do my DD.

I have read a dozen books over the past year on real estate/property management/investing, listened to hundreds of hours of real estate podcasts while I work, and I have my old landlord and my accountant who invests in real estate to bounce ideas off of.

I would say I do too much research sometimes and need to pull the trigger - nothing like learning from doing. I will defiantly start local now

Melissa W · Answer

If I had your goals I would try and learn as much about the areas you are thinking of investing in and then narrow it down to one or two specific neighborhoods.

Concentrate on learning as much as you can about these places online and from visits.  Check out local real estate blogs, property management company web pages and more general type publications like newspapers.  Look at apartment rating sites for the area and you can see what types of things people are complaining about.

Look at Craigslist and see what types of places are available and see what management companies are renting what.  Contact the ones who manage the types of properties that you are interested in and see how they respond.  If someone like you contacted me and said they wanted to invest in properties like the ones I manage I would be happy to talk to them and explain things about the local market.   I'm also busy managing other people's properties and wouldn't be able to spend tons of time with a maybe prospect.

Property management is very local.  If you buy and manage properties in your area you wont necessarily know what will be the problems with the types of housing and tenant mix that you will be renting to.  You have to know the local conventions, like what people expect in their rentals, what is a good item to attract good renters and what is a waste of money.

For example,  in the properties I rent in Syracuse, it is good to have washer/dryer hookups, stove and fridge and have replacement windows.  But if you spend a lot of money on stuff like granite counters and fancy appliances you probably won't make your money back.  You need that info about the areas you want to rent.

There are some universal truths to property management, such as many people lie on their applications, people come up with stupid reasons not to pay rent, etc.  You can pretty much learn those from reading on this site.

If there are investment clubs or landlord meetings in your chosen areas attending meetings would be a very wise idea.

Good luck with your investments.

Geoffrey Murphy · Answer

Adam, I think you should take a few trips down to your local REIA and see if you can network with some local people in your market.

Secondly, rummage through the treasure chest here on BP, they have some great post in previous threads in blogs that relates directly to what you want to do. There are alot of people here on BP that will help you out.

Much success!

Alex H. · Answer

@Richard Martin
      What part of CA are your properties if you dont mind me asking?

Im having the same thoughts right now as to whether to look locally for a SFR. Im in a hard hit market in Northern CA so properties are still relativly inexpensive compared to what they were 5 years ago. But still nowhere near being able to come close to the 50/2 ROTs for rentals. You are gambling on appreciation here.

Richard Martin · Answer

Adam: I would look real hard at opportunities in your back yard. I bought my properties in CA. But then I moved. I found a Property Manager that is probably the best in the area but I am uneasy not being in control, not being able to due my own quarterly inspections. Is he as motivated to get the units rented as I am, no.

Adam Craig · Answer

Hi Andrew & James : Thanks for your thought.

Dont get me wrong, I dont have any aversion to cash flow - the more the better! It is just at the bottom of my list - I am set on a hiring a manager and taking less cash flow.

In other words, my acceptable CAP rate for a property is probably much less then someone who relies on rental income to live.

My time is far more valuable spent on my business then it would be finding/screening tenants/collecting rents/advertising/repairs. To me, the expertise of a good manager is WELL worth it.

James Park · Answer

Adam,

Good for you starting your own internet retail business right out of college. I started my internet retail business in 2005 and can relate.

I moved my business from Chicago to Atlanta 7 months ago due to a better business environment and to invest in SFRs locally. The Cook County property taxes rose so much in the past 5 years, it just doesn't make sense for me to own any real estate there.

I would advise to invest in your backyard if you can. I had a set back with one of my properties in Chicago with bad tenants, but now it is under control with new tenants coming in on Feb 1st, 2012. I learned a valuable lesson that i will only invest within a 30 - 45 drive radius. I would say that Atlanta, Houston, and Dallas are all good emerging markets to invest. If possible, while you are small and portable, it may not be a bad idea to move your internet retail business to one of those locations and invest locally, where the future is bright for building a portfolio of SFRs.

Andrew Jones · Answer

Hey Adam,

Nice Internet bussiness!

First, I would just say start of slow with little amounts of money. It sounds like you have a lot to invest and you don't want to lose a big chunk.

Second, this aversion to cash flow is very strange to me. It is very difficult to say which area will appreciate more and its more like gambling to me.

Lastly , don't buy any expensive courses there is tons of posts about you area on BP and lots of BP members are in your area so I would seek them out. So to answer your question on whether you should invest local or out of state I would say local.

Best wishes,

Wanna be out of town investor but should I start local?

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