First Deal - OOS MF?

Question

Hello BP Forums,

I have been grinding towards my first deal for a few months now - and with all of the chaos today, my private lender backed out days before closing on a flip. Maybe that was a good thing. With the future outlook, I have been looking further into investing out of my state (Colorado). I have around 80k to put as a down payment, so I can hopefully afford up to 360k worth of real estate, hoping for 4 doors +.

I have done some research and determined the following markets to be hot, with good job growth, and possibly within budget:

-Winston-Salem, NC

-Pittsburgh, PA (and maybe Indiana, PA?)

-Indianapolis, ID

-Orlando, FL

-Greater Phoenix Region

-Irving, TX and surrounding

-Upstate NY and around Syracuse

I was hoping I could get some experienced insight on how to properly invest OOS, what areas to avoid, and what might be the most promising for my budget. I am looking to hold on to it for a year or two before upgrading to more units. Would it be worthwhile to look in cheaper markets, such as areas around Cleveland, OH, or shoot for some higher priced areas closer to the top of my budget? Thanks for any responses in advance.

Dave

Darren Smith · Answer

We are still buying in Colorado Springs and Pueblo. The investors we wholesale to are also still buying. Honestly the only thing slowing us down is lenders increasing their fees and down payments, and the trustee closing so we can record deeds. With everything done on computers these days, would have thought they would have at least processed records remotely so we could continue to do business.On a related subject as to how Coronavirus in impacting Colorado businesses, I looked into the SBA loans Colorado is offering to help with this crisis. Don't need the money, but figured it couldn't hurt. It was absolutely ridiculous the documents they were requesting to even apply. Basically every financial record for you and your entire extended family, along with every detail about where you will spend the money. Figures that would come out of our congress that says they're there to help, but only in very specific circumstances and if you allow them to track and run your business for years to come. And here I thought they were trying to get money in the economy.

Joseph Cacciapaglia · Answer

Most of the clients I work with are OOS investors. The most important thing you can do is find a strong team. I believe your first step should be identifying a property manager. They will be critical in your due diligence process. I think a lot of people wait until after they are under contract, and this is a big mistake. A good property manager will let you know what areas they like to manage, and which ones they don't particularly like. Your agent can help with this as well, but I believe that managers have better insight on the leasing side. Starting with a manager and an agent, you should be able to build out the rest of your team with their referrals.When you say you have $80K for a down payment, are you also factoring in closing costs and reserves? I would not buy into the current market without a significant level of cash reserves. I don't believe things will remain bad for an extended period, but you never know. I also don't believe you'll see big discounts in most markets where you would want to invest. If you look at most recessions, they don't come with large real estate price reductions, unless the recession was caused by a recession.You may want to think about two duplexes or a few single family homes. That way you're not using all your cash in one slug. It will give you a chance to evaluate your team and the market, before fully committing. I'm not sure about the markets you mentioned, but in San Antonio you could probably buy 2 duplexes or 3 SFR. You'd be just shy of any of the fourplexes that you'd really want to own.I'm not certain about being able to trade up to more units in a year or two. Because of transaction costs, it's rarely advantageous to hold for less than 4-5 years, unless you're doing a rehab. I would strongly recommend against doing a major rehab remotely. I know there are plenty of people talking about it on here, but I've seen a lot of investors struggle with anything more than a paint and carpet type of rehab. This is especially true if you're new to the business.

Gloria N Gear · Answer

I live in Indianapolis - so that is where I invest -- I agree, getting your team in place on the ground is the most important -- property managers, contractors, and lenders. I feel that the market here is pretty steady. It has not done a nose-dive like other areas, but is beginning to see a correction. Big diversity in types of properties. I just closed on a FLIP last week and under contract for a HOLD.

Logan Freeman · Answer

Account Closed, have you considered the KC market? Among some of the reasons to consider KC are our low cost of living, vibrant job market, low mortgage rates (4.02% for 30-year fixed), steadily growing rental rates, etc. Additionally, KC is recognized as one of the nation's top emerging tech and entrepreneurial hubs with strong economic upside. Many buyers are being scared off due to the current pandemic, but if you can stomach it and maintain a long term mindset towards investing, the prudent investor stands to capitalize on lower prices while the majority sit on the sideline. If you are interested in learning more about OOS investing in KC, I'd be happy to speak to you about your personal goals, budget, etc. Very strong passive investing opportunity. Feel free to dm me and we can connect. Best!

Account Closed · Answer

Cory,While CO Springs is a hot market, it is hard to start off in just because of how high the prices are and how competitive the market is currently.Dave

Colin Smith · Answer

I can tell you the more experienced investors I am working with in Colorado Springs are still buying right now while I do see newer investors getting gun shy. If these stimulus packages get approved, I would think about the inflation that will occur over the coming years and what that will do to real estate prices.

Cory Finniss · Answer

I invest in Syracuse. I am selling my properties to move my money else where. The state favors tenants ,and having a lease is almost obsolete at this point. High cap x and terrible contractor. Just a few of the negatives from this area. Hope that helps.Why not invest in CO. ? Thats a hot market isn't it?