How to start to invest - long distance (Chicago) vs onsite (NJ)

Question

Hello everyone!

I am fairly new to the real estate scene and have been silently educating myself through BP's forums, webinars, my own reading, podcasts, etc. I say fairly new because I own property in Chicago, currently rented, as I have recently moved to NYC. My long term goal for real estate is to buy multiple multi unit buildings so I can become a FT REI / landlord.

I have been ansty to start making moves towards my next investment. I'm thinking a 3-4 multi unit will be my sweet spot to start. However, I am torn on where to buy, Chicago or NJ. I say NJ as I cannot afford anything in the city of NYC and I have family in NJ that can help me manage the property for emergencies, large issues, etc who live in NJ. Do I stick with the area that I know and is more affordable or is the value of being on-site worth more?

I know Chicago neighborhoods, have a much better understanding of the market, have a network, and my current property is there. On the flip side, I live in NYC. I am learning the NY/NJ real estate markets, neighborhoods, and will be creating a network from scratch. I thoroughly enjoy being an active participant in maintaining my property and I learn best by doing the work. Real estate in the city of Chicago is more affordable than anything in the suburbs of NJ. However, a solid PM would be the key to this working in Chicago. Though no one will care about your property as much as you do.

What is the forum's experience with buying long distance rentals, especially for first time multi unit owners? Does living nearby hold more value than having a great PM?

Ronan Donnelly · Answer

@Sheri Prather, investing long distance gives you the flexibility of picking the markets with the best economic conditions and income/appreciation potential. You can succeed by investing locally or long distance but you must tailor your approach.

Key to long distance investing is to build a team that will support you (agents, property managers, contractors, lawyers etc.) and in order to have a successful team you will need to be very clear about what you need from them. For long distance expectation setting, communication and accountability are all critical to success. Unless you build these skills, teams and systems you will be unable to scale regardless of whether you invest locally or long distance.

You can also check out the book on Long Distance Investing by @David Greene. Good luck!

Mark Allen Kenny · Answer

I live in NYC and the first multi-family property I bought was in Philadelphia.  Philly is a great market and is only 2 hours away.  Let me know if you need help connecting with management companies, contractors, etc.

Sheri Prather · Answer

Hi @Crystal Smith, I hear you on that. Being open to both areas may give me my answer naturally. You mentioned you started local and then branched out. Did you find that starting local was a good way to find your ground and work through new investor dilemmas? Or would your first experience have been the same regardless of where you started?

Hi @Kevin P Quinn, I understand your perspective. Those are the some of the things I was also thinking by staying close to home. I do agree, people tend to work harder when they have someone regularly checking in on them who's truly invested.

Hi @Mark A. Kenny, thank you for the offer! I will take you up on that as I would like to start gradually building my network while I figure out the best location for my next investment. What made Philadelphia the best place to start with compared to other cities? Was it the specific to staying within the overall East Coast area?

Cal P. · Answer

Hi @Ronan Donnelly, I agree with you concerning long distance investing. Most issues can be solved with a smartphone and email. And the book on Long Distance Investing by @David Greene is an excellent book to use as resource for long distance investing.

Michael Ige · Answer

To answer your question. It will solely depend on what your goals are. From your post it seems you are more interested in long term gain, than immediate cashflow. As a result of that you need to study whatever market you are interested in very well, to see if it aligns with your goals, before pulling the trigger. Also are you looking for Turnkey properties? (Highly suggest this if you re just getting started) or Properties that requires some rehab ( Potential Increase in ROI, but also increase effort)

For example My first property was an out of state property in IL. I live in Houston, TX and I am more interested in passive cashflow, than long term gain and my property was giving me a 1.3% return monthly on investment after PM fees, expenses and reserves (No rehab).

Whereas, if I were to stay in Houston. It would be very difficult to find houses that would give me that kinda return on investment, without involving a significant amount of rehab.

Ricardo S. · Answer

I live in Brooklyn and also own a Multi-

Family in Philadelphia. Its way cheaper than Jersey with better cash flow.

Kevin M. · Answer

@Mark A. Kenny happy to see the love for Philly. I was surprised to see you describe the laws as "landlord friendly" but I guess it's all relative to someone in NYC!

Mark Allen Kenny · Answer

@Sheri Prather Yep, Philly is only a 2 hour drive from me.  The cap rates are great, taxes are low and the laws are very landlord friendly.

Crystal Smith · Answer

We started local because it's a natural thing to do. (Local wasn't Chicago at the time) It really wasn't about being a new investor. We branched out because we got caught in the crash with values going down with our entire portfolio in one small market. As we analyzed things we decided that we still wanted real estate in our portfolio, good market or bad, but for balance, we did not want our entire portfolio in one small market. So we branched out to other markets. For us, it's like having a balanced portfolio of stocks and bonds. We've also explored the large MSAs like NYC & LA. Markets that are large & diverse enough to potentially have your entire portfolio in one market because it's actually several markets, but we could never make the numbers work. So we stuck to the Midwest (Chicago), Southwest (DFW) & Southeast (Florida- Anywhere but Miami)

Kevin P. · Answer

I will never invest outside my area again. I have done that and I knew going in that it was just for the experience and I wanted to get started in an area I could better afford. I'm glad I have that experience but I will always invest very close to where I live. Now I only invest within 15 or 20 minutes from my area in Monmouth county New Jersey. From your comments it seems you are a Hands-On kind of person so I think that it's best to stick close to home. Even if other people are doing most of the management I think everybody involved will do a better job because you are close. In fact one of the best ways to buy properties is from out-of-state landlords.

How to start to invest - long distance (Chicago) vs onsite (NJ)

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