Investing in Popular Out-of-State Markets

OP

Rental Property Investor · San Jose, CA · Member since 2019 · 15 posts · 14 votes

@Remington Lyman

Thanks for your thoughts! Having a solid team definitely seems to make or break investing success both abroad or local. I’ll take a look at Columbus and reach out if I have any questions!

Marc Winter

Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes

@Crystal An,

Have you heard about real estate in Northeast Pennsylvania (NEPA)? The greater Scranton area, and the dozen or so smaller towns around it have great investment and cash-flow potential. The market ranges from A to C- areas and is comprised of mostly single-family to four-plex properties.

Price points are much lower than on the east or west coasts, however, rents are proportionally much higher, leading to positive cash-flow. Example: in NYC, say in Queens, an average 2-family brick house in a C+ neighborhood will cost $800K to $1M.However, the rent for a 3-bedroom apartment is about $2K to $2,500. Say $5k/mo income total.

In and around Scranton, 2-family houses in a C+ area are in the $80--$100K range. Rents for a 3-bedroom apartment are $800--$900.That’s $1,600/mo+.

To make the same rate of return, the NYC property would have to generate not $5 or 6K, but $16k/month! (Not happening any time soon!)

Keep in mind, however, here it’s not an ‘appreciation’ play like in NYC or LA—it’s a cash-flow, income-producing play.

Hope this might lead you to investigate our area.

6 Reply

Daniel Kim

Rental Property Investor · Garden Grove, CA · Member since 2012 · 100 posts · 69 votes

I went into analysis-paralysis looking at market after market. Even if you don't have family/friends in the one of the popular out-of-state markets, you just have to pull the trigger and pick the one that calls out to you the most. You can make money and lose money in any market - it's the boots on the ground and your team that will make or break you, not the market itself.

11 Reply

OP

Rental Property Investor · San Jose, CA · Member since 2019 · 15 posts · 14 votes

@Marc Winter

I really appreciate your insight -- specific zip codes of Scranton, Dickson City, and Jessup actually showed up as areas in my analysis whose median prices and rents met or surpassed the 1% rule. Glad to hear confirmation of that on your end. I hope you don't mind if I reach out after doing some investigation -- thank you again!

3 Reply

OP

Rental Property Investor · San Jose, CA · Member since 2019 · 15 posts · 14 votes

@Daniel Kim

Ha, I think I am in a bit of analysis paralysis stage. I think it makes sense to just pick one and start building the team first. Thanks for your advice!

Brian Garlington

Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes

Also,...get pre-approved with a lender first. When I started at looking OOS nobody in any market took my inquiries seriously until they knew I was pre-approved.

7 Reply

Remington LymanBusiness Member

Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes

[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals

@Brian Garlington I am the same way with my potential clients. After the initial call I have with investors, I require them to get pre-approved before I devote more time to them. I would starve if I worked with everyone that was just curious about REI in Columbus.

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3 Reply

Aseel YerunkarPro Member

Investor · CA · Member since 2019 · 63 posts · 51 votes

@Brian Garlington @Remington Lyman Second that! Get the maximum loan amount approvals from a conventional lender and an approval from a hard money lender. I noticed the second I got both of those approvals over to the realtors I were working with they started taking me seriously. It also helped me identify what price range I should realistically be looking at in my search.

@Marc Winter Since you're a local agent, can you explain a bit more about the market around the area? What's sectors does your economy consist of? And how competitive is the market around there? Definitely a new market that I haven't heard tossed around too often.

Bob Prisco

Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes

@Crystal An I do not care what anyone says about the Cleveland market it is still one of if not the best overall markets in AMERICA.. Double digit net caps 10- 14% net are still to be had if you have the proper team around you. ( NOT SOLICITING ADMIN ) Heck , 3, 4 years ago we provided 20% net caps,,,,, Still strong and I see pricing going higher.

Good Luck

4 Reply

Bob Prisco

Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes

@Brian Garlington lender ? Well that will make it nearly impossible to get a good deal. You are competing with cash close in a few days as is , vs two months. I have done 100s and 100s and 100s of deals in Cleveland all cash buyers ,that refi after,

Good Luck

4 Reply

Account Closed

Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes

@Crystal An

In my experience so far with Indianapolis is that there are plenty of deals, but only for cash buyers. If you're coming in with 25% down you can still get a cash flowing property, but it will be hard to find anything that has substantial upside. Any property that has meat on the bone will sell within days to a cash buyer. If it's on the MLS it will have multiple offers, cash.

David BarnettPro Member

Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes

@Crystal An I'm an out of state investor (I invest in the Twin Cities and am from the Boston area). The team is by far the most important aspect of success versus failure. The Twin Cities have seen big growth over the past few years, and deals are harder and harder to find. I would figure out what you are looking to do in real estate investing and find a market that is good with those types of assets. For example, if you are looking for a SFR portfolio, I wouldn't go to an area that has a whole bunch of small multifamilies. The one piece of advice that I would give is once you determine the market, book a plane ticket and travel out to the area. Become crystal clear of where you'd like to invest and meet potential team members in person. It changes the relationship exponentially, and I would also argue that taking the initiative to travel to the market (and the team members knowing that) instantly increases your credibility in their eyes.

4 Reply

Ray Johnson

Irvine, CA · Member since 2016 · 545 posts · 614 votes

@Crystal An I looked at Cleveland, Indianapolis, Canton, and Columbus.

For the better neighborhoods B+ to C+, the prices and competition were too strong to get any good deals and get a good cashflow margin. The specialty class properties C- and below, I don't invest in since that's not my in my investment criteria.

when I looked at the number of vacant 3/1 or more rentals that were on the market in the zip codes I was interested in, the vacant property numbers were higher than I like to see, and vacant for longer than I like to see. In areas where there are close to or more rentals than Owner Occupied properties that's not a good metric for me.

I'm not sure what property class in these areas you're looking at but that will be a determining factor on competition, pricing, and profit margins.

Anthony Rosa

Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes

Originally posted by @Marc Winter:

@Crystal An,

Have you heard about real estate in Northeast Pennsylvania (NEPA)? The greater Scranton area, and the dozen or so smaller towns around it have great investment and cash-flow potential. The market ranges from A to C- areas and is comprised of mostly single-family to four-plex properties.

Price points are much lower than on the east or west coasts, however, rents are proportionally much higher, leading to positive cash-flow. Example: in NYC, say in Queens, an average 2-family brick house in a C+ neighborhood will cost $800K to $1M.However, the rent for a 3-bedroom apartment is about $2K to $2,500. Say $5k/mo income total.

In and around Scranton, 2-family houses in a C+ area are in the $80--$100K range. Rents for a 3-bedroom apartment are $800--$900.That’s $1,600/mo+.

To make the same rate of return, the NYC property would have to generate not $5 or 6K, but $16k/month! (Not happening any time soon!)

Keep in mind, however, here it’s not an ‘appreciation’ play like in NYC or LA—it’s a cash-flow, income-producing play.

Hope this might lead you to investigate our area.

I understand that the Pocono area is good for a solid rental class but to only buy within a gated community. The homes will range from $75K and up and they have yearly fee for community upkeep and amenities. The yearly fee would cut into the profits but it still may be worth it considering that the rental class will be better and less likely have tenant issues. The only issue is to make sure the area allows owners to rent. Your thoughts?

Marc Winter

Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes

@Anthony Rosa, yes, I agree and have experience with Pocono investments/rentals in gated communities. PM me to discuss.

Emerald McGinnis

Rental Property Investor · Midland, TX · Member since 2019 · 9 posts · 4 votes

@Ray Johnson what tool did you use to determine the vacancy stats?

Chris Salerno

Rental Property Investor · Charlotte NC · Member since 2019 · 306 posts · 183 votes

Originally posted by @Crystal An:

Hey BiggerPockets!

I'm a newbie investor in California looking to invest out-of-state. I have done some data analysis and many signs point to the popular OOS markets such as Cleveland, Indianapolis, Kansas City, Columbus, etc. However, I've observed that there are two polarizing opinions about these markets: Some investors say that they are still finding success in these markets, and some say that these markets are too competitive / over-saturated with investors.

For those who are finding success in popular markets in 2019, what are you doing differently to continue succeeding or get ahead of the competition? What advice can you give to newbie investors who want to start in 2019 in popular markets (i.e. late to the train) and do not have a system in place yet?

For those who decided not to invest in those markets or are no longer investing in those markets, why did you decide not to invest in popular markets? What are some attractive qualities you found in other markets instead, that no longer exist in these popular markets?

Throwing a bonus question out there because I'm super curious to know -- how many markets are you currently investing in?

Looking forward to hearing from the BP community. Whether a new or seasoned investor, there is so much to learn from everyone here. Thanks!

Crystal, I hope all is well.
What type of investing are you looking to do?

I invest in large multi-family real estate with passive investors. I focus heavily on the markets I know best. I have lived in Charlotte NC 13+ years. We focus on the Carolina markets heavily because we know it like the back of our hands. Our investors like that a lot. We are fortunate that the 3 major markets in the Carolinas are very strong with growth and jobs.

If I was looking to invest in another city which we have looked to invest in multi-family. We would search for job growth, what is bring the jobs to the city, what makes the people want to move to the city, unemployment rate, average income for the area, and much more. I hope this helps and looking forward to your success!

Michael Ealy

Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes

Originally posted by @Crystal An:

Hey BiggerPockets!

I'm a newbie investor in California looking to invest out-of-state. I have done some data analysis and many signs point to the popular OOS markets such as Cleveland, Indianapolis, Kansas City, Columbus, etc. However, I've observed that there are two polarizing opinions about these markets: Some investors say that they are still finding success in these markets, and some say that these markets are too competitive / over-saturated with investors.

For those who are finding success in popular markets in 2019, what are you doing differently to continue succeeding or get ahead of the competition? What advice can you give to newbie investors who want to start in 2019 in popular markets (i.e. late to the train) and do not have a system in place yet?

For those who decided not to invest in those markets or are no longer investing in those markets, why did you decide not to invest in popular markets? What are some attractive qualities you found in other markets instead, that no longer exist in these popular markets?

Throwing a bonus question out there because I'm super curious to know -- how many markets are you currently investing in?

Looking forward to hearing from the BP community. Whether a new or seasoned investor, there is so much to learn from everyone here. Thanks!

Crystal,

Of course everyone will say invest in their market.

You need an unbiased opinion.

Here's a research done by a lender for multi family (they have offices in many parts of the country - excluding Cincinnati) and they reported that Cincinnati is a good city to invest in: (in fact, institutional investors have recently flocked to it - if you want to succeed, watch where the "big money" goes to)

https://arbor.com/blog/cincinnati-multifamily-market-expansion/

Cincinnati is where I invest and I live here, so yes I am biased but again, put more weight on the above report. Honestly, prices have gone up considerably here but there are always investment opportunities. I suggest you focus on B & Cs - for an OOS investor, that's where you get good cashflow with a little bit of appreciation but not a lot of headaches. A areas are where institutional money is focused on - so don't compete with them. Ds and Fs are where local investors make a ton of cashflow (and no appreciation) so don't fall for the high cash on cash numbers which will likely not be realized by an OOS investor.

Pete Harper

Rental Property Investor · Streetman, TX · Member since 2018 · 528 posts · 495 votes

@Crystal An Even if you are investing remotely I would highly recommend you visit the area personally. I recently saw a post from a California investor who purchased property in Texas. He purchased a property in a D class neighborhood and put in A- class upgrades like granite countertops and stainless steel appliance. When he went to rent he couldn’t fill the units. He even dropped rent below market for C class area.

Location, location, location nobody wants to live in a war zone event if the place is nice.

Trulia crime maps are helpful. Better yet visit for yourself. My wife and I have a rule, we don’t invest in a neighborhood we wouldn’t live in ourselves.

Christopher Petrillo

Member since 2018 · 264 posts · 61 votes

@Crystal An Welcome to BP! I am currently only investing in Indianapolis for right now.

OP

Rental Property Investor · San Jose, CA · Member since 2019 · 15 posts · 14 votes

Thanks everyone for your fantastic insights!

@Brian Garlington Fantastic point on getting pre-approved first -- that's my next step for this week. Was there anything else you did to build your credibility when beginning conversations with your OOS team?

@Bob Prisco Finding 10-14 cap seems difficult nowadays, but as you mentioned, having the proper team will help. Which team members do you feel like are the most important in contributing to your ability to get high returns?

@Account Closed I heard on a podcast today that 30-35% of investors are cash buyers. I'm curious - how did you change your strategy to compete in Indy where offers on the MLS will get multiple cash offers?

OP

Rental Property Investor · San Jose, CA · Member since 2019 · 15 posts · 14 votes

@Ray Johnson

Ray, thanks for your reply. I'm looking at SFRs that are 75K-100K range that can cash flow from 800-1.1K. The areas appear to be around B- to C. I didn't find many areas where median home values surpass 100K and still cash flow well. Since you look at B class properties, let me know if you saw differently than me.

Also, where do you assess vacancy and rental demand?

Account Closed

Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes

Originally posted by @Crystal An:

Thanks everyone for your fantastic insights!

@Brian Garlington Fantastic point on getting pre-approved first -- that's my next step for this week. Was there anything else you did to build your credibility when beginning conversations with your OOS team?

@Bob Prisco Finding 10-14 cap seems difficult nowadays, but as you mentioned, having the proper team will help. Which team members do you feel like are the most important in contributing to your ability to get high returns?

@Account Closed I heard on a podcast today that 30-35% of investors are cash buyers. I'm curious - how did you change your strategy to compete in Indy where offers on the MLS will get multiple cash offers?

I'm fortunate to be a cash buyer myself. We closed on my first out of state BRRRR a month ago, and are currently rehabbing it. Even as a cash buyer it was hard because other investors would outbid me.

My agent probably looked at around 20 properties and we put an offer on 6 of them. Got outbid each time. One was a four plex that was a home run. I did not have enough to offer cash on that one, so I offered full price with conventional financing. They took a cash offer that was less than my offer, even though I was pre approved. So cash definitely talks.

The deal I landed was off market. My agent has connections with a good wholesaler. Wholesaler called him up and said we could have first look at it. So I had zero competition. This was a cash only deal.

You can buy cashflowing properties all day long in Indy with 25% down. But, if you’re trying to find something that has substantial value add potential, that’s where it’s going to be hard.

Account Closed

Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes

Originally posted by @Crystal An:

@Ray Johnson

Ray, thanks for your reply. I'm looking at SFRs that are 75K-100K range that can cash flow from 800-1.1K. The areas appear to be around B- to C. I didn't find many areas where median home values surpass 100K and still cash flow well. Since you look at B class properties, let me know if you saw differently than me.

Also, where do you assess vacancy and rental demand?

Have you gotten the chance to fly out there and drive the city? Property class is subjective. One investor’s C may be a B in your eyes and vice versa. There were a few areas of Indy I was weary about, but after seeing them for myself I was comfortable making offers there. I buy in the same price point you mentioned. You really should fly out before you buy if you haven’t already.