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Updated over 4 years ago, 07/14/2020
successful RE investors told me to not invest out of state
Recently I had the opportunity to speak with two investors, they are both in their 60’s and both of them have managed to create a great financial freedom for themselves and their families. I was really happy to have this moment to learn from them and to educate my self.
Because the market here is at the top of the k wave it doesn't make sense for me to buy my first real estate investment here (BRRR), so I asked both of them what they thought about investing in other states, in markets with lots of opportunity right now. The answer from both of them was
"I never invest out of state,” and one of them even told me that "it’s a really bad idea.” That was very discouraging for me because in my eyes they are both very successful and they have created exactly what my vision is, as far as the real estate. Because of this it was strong for me to hear that while I’m creating new relationships in other markets in other states and looking for my first deal.
l already read the book "Long Distance Real Estate Investing" by David M. Green (really important one). At the beginning of the book he explains exactly this about the older generation, that some them have a “paradigm" of not investing out of state.
Of course there is a risk in every investment and there are a few additional parts in the puzzle of long distance investing that need to be mastered in order to lower the risk.
I would love to hear your opinions and experiences with investing in other states. If this is my first deal is the consideration different when thinking about investing out of state?
Do you also prefer to invest only in your local market like many people or do you work wherever the opportunity is?
Thank you in advance!
Roee
Edward: I do not believe that anyone on this thread is advancing the position that out-of-area investing is inherently too risky an enterprise. What I hear people saying is that it is not prudent for inexperienced, under-capitalized newbie investors to shrug off what opportunities are available locally and concluding, using often faulty logic, that their market is "too expensive" and throwing their hard earned dollars into highly speculative ventures - whose risks they are too inexperienced to properly assess - promoted by promises of the "clear, blue sky."
@Darius Ogloza I completely agree with you. I think @Justin Thorpe's analogy to stocks highlights this. There is a difference between being an investor and gambling/speculating.
This is an obvious advice, but do your research!
My mom and I bought an investment property in Houston, TX and we're currently renting it out and it's doing great! We found an amazing PM and she takes care of EVERYTHING. She even shopped around for an insurance company for us (idk if that's normal or not). the House is a SFH with 3bds/2bths and rent is 1350/month which we bought for 155k. honestly, the cash flow is good and the risk is very low (minus the covid shenanigan that's been going on)
I own and live in a house in Minneapolis, MN that's also 3bds/2bths and if I were to rent it out, I'd say rent would be around 1350/month too, but the house was 50k more expensive than the one in Houston. and my house is considered to be in a bad area.
it's all up to you & your method of investment. for example, if I want to continue buying and renting out then I would focus in TX but if I want to flip/BRRRR then I would focus locally in MN.
long story short, focus on your method, check your budget, then choose you market/location.
@Roee Hazut as many people have said in this thread, investing out of state is doable if you know what you're doing. You can lose money investing in your own backyard if you don't do it properly. The key is education and building a solid team, whether it be in-state or out-of-state. Continue reaching out to people here on BiggerPockets or join some virtual meetups in states that you're interested in investing in.
IMO, the low price points of properties in some cities allow you to start investing with less capital and less risk. Yes, you may have headaches, but losing a few hundred isn't as bad as losing tens of thousands of dollars on an expensive piece of real estate that you can't sell if things go bad. Dip your toes in the water with something cheap and learn from those properties.
We invest only OOS. We wanted condos at the beach and there "Ain't no beach in PA" So we bought in DE where we vacation and are there every week (one of the 4 of us). We know the market and the developments intimately and manage the units ourselves (Both are Short-term Vacation rentals). We have a cleaner, a handyman, a plumber / HVAC contractor, a flooring company and local sources for all our necessary supplies. We met and interviewed every one of them personally and know them by voice now. Would we do the same in an area that's not a 3 hour drive one-way? Probably, since we've done it now for almost 3 years and it's really not that big and scary anymore.
@Russell Brazil said it well. Really, it’s all about risk adjusted return, and while as folks often talk about better returns OOS, they tend to undervalue the risk. At the same time, I like the adage of “Live where you want and invest where it makes sense” and that’s what I’ve done: I live in Seattle but my rental portfolio is in Ottawa, Canada. I liked it better than my local market and know it because I lived there for most of my life, plus I have trusted local contacts for real estate agent and property manager. In that sense my risk was lower investing OOS because of my knowledge of the market and trusted team. All the properties I bought site unseen. You need that level of confidence and trust with your team to buy OOS.
@Roee Hazut you fail to say what city and state you live in. Hard to advise without this basic info!
Keeping it simple...you can read every book and listen to every podcast, but nothing prepares you for this business except BEING in this business. If your role is an investor, and you have no other experience here, as @Russell Brazil so eloquently puts it -- you're missing the big picture on risk aversion. What sounds riskier to you?
- Investing within an hour of your house, meeting your contractors/GC, having eyes on the property, utilizing local real estate values you might be familiar with...
OR
- Investing in an unreachable (by plane or significant transportation distance), not regularly meeting your contractors/GC, not having your eyes on the property, not having knowledge of the market...
When you compare the two, its a no-brainer. Guys like Russell are smart, experienced people who know what to look for, can identify markets, have the bandwidth (think money and experience) to "set up shop" in a locale and make sure to line up the right people, with protocols in place for the good and the bad, to have a high chance of success.
You, me, and most other investors -- we're relative nobodies. We don't have endless amounts of money, net worth, knowledge, experience, and bandwidth to take on that type of investment. It's TOO risky. Too many things can go wrong with an investment 5 minutes from you, why take on the risk of not being physically present for any of it on top of it/
I'm 34 years old, and fully realize my investment path is so conservative, its almost restricting. I won't reach 100 doors unless my mindset or investing goals change...and I'm OK with that (right now). I'm happy with 3 doors and picking up another door or two every year at as safe as possible pickups I can manage. Others may have a different view than I do, but back to the central point of my post -- I'm taking every possible step to mitigate risk. Long distance investing carries all of your standard investing risks PLUS the lack of eyes/knowledge/experience in the market you're investing in, as a new investor. No thanks.
There are 49 other states outside the one you live in, why would you limit yourself to ~2% of the opportunities that exist out there??
From what I'm understanding from the experts - it is highly inadvisable for newbies to invest OOS, which I find very discouraging unfortunately.
We live in 2020 not 1940. The technology and accessibility to doing business nationally as well as globally is evident. I can attest to investing out of state as I have been doing it for close to 13 years now. You need to speak to SUCCESSFUL out of state real estate owners. In regards to the gentlemen you spoke to, older generations tend to be stuck on their ways because it worked well for them during that time period. Well guess what, markets and trends change do they not? What was once a buyer friendly market in an area can very much turn the other way through local government actions, economic change, etc. I always tell people who are looking to succeed in this industry to research and surround yourself around those who have successfully invested.
There are losers and winners for both local and OOS investors. The most important thing is to know what you are doing.
I am an OOS investor who have properties across several states, and majority of them I have never seen them personally; including ones had already been sold. The only property that I bought locally last year I am a little bit of regretting bought it.
Real estate is just a number game. I do not love any property but I DO love money (numbers). When my realtors sent me lots of pictures of the potential properties, I said I do not care, please just let the contractor give me the rehab cost. I only care about the numbers. Of course we should conservatively take those numbers like rehab cost, vacancy rate, rent rate etc.
I invested in OOS mostly for appreciation, because I am living in a non-appreciated place and I hate it.
Personality is also a factor. I do not like to manage the properties by myself, even if it is sitting in my next door. If I do not manage them by myself, what’s the difference between invest locally and remotely?
Still, know what you are doing!
@David Song 64014, 64015, 64055
OOS investing is riskier, but the risk can be managed to a reasonable level. You have to put some effort into it and know what you are doing.
Not everyone has $250k for a down payment (+ more for reserves), as would be required here in San Jose. OOS you can build your portfolio, with a reasonable financial barrier to entry.
@Roee Hazut Hi! So I invested out of state because I live in San Diego, and it would be impossible for me to get my foot in the game here.
I own one property in South Bend, Indiana. So far, it has gone smoothly. But I know there will be hard lessons to learn, so I’ve made sure to have a huge cushion of resources.
I also have a fully remote job. So if I need to go to Indiana to take care of anything, I can do so relatively easily.
@Roee Hazut
Many ways to shave this cat. The brrrr/ 0% down / out of state / turnkey “is the best ever” crowds are prominent here. Don’t drink the cool-aid. Find your own path. Shave the cat as you see fit. Absorb it all, but don’t drink the cool-aid.
Thanks, Tim.
Seems to be relatively nicer areas.
I won't mind investing there if I lived there before, and knows people around there.
Originally posted by @Tim S.:
@David Song 64014, 64015, 64055
OOS investing is riskier, but the risk can be managed to a reasonable level. You have to put some effort into it and know what you are doing.
Not everyone has $250k for a down payment (+ more for reserves), as would be required here in San Jose. OOS you can build your portfolio, with a reasonable financial barrier to entry.
I am newbie here. I live in Silicon Valley and have a few rentals here.
One thing that I don't think I saw people mentioned here is diversification.
Lets say I can sell a rental property here for 1 million and then buy 4 or so OOS.
This way if a renter leaves I have 3 more renters still paying the rent. If I only have one property and the renter moves out , I may have to lose money before leasing it out again.
Another interesting thing to consider especially in high tech /high rent places is the effect of Coiv19 and remote work on the current housing situation. Since more and more companies realize that remote working is actually a good thing, the workers also realize that they don't have to pay high rent to avoid the commute. They may start moving to other states and continue working remotely. Hence buying properties in strategic places OOS may result in good ROI and appreciation opportunities as well.
@Justine Phillipson @Roee Hazut There are easy ways to get your foot in the door in SoCal by house hacking a duplex using low down payment optioins like fha with 3.5% down. It would take less money to purchase a 700k duplex here than a 150k property out of state.
- Twana Rasoul
@Twana Rasoul are there any A level duplex properties in SD that you see in this range? I live in LA but some of the prices around here seem inflated.
@Brynn Raber you can get 700k-800k duplex in great areas like Clairemont, Bay Ho, Bay Park. Linda Vista is great For long term as well just to name a few areas. SD is the cheapest real estate left on the coast in CA among other major metros
- Twana Rasoul
I’m definitely looking to invest out of state.
For the NN / NNN asset class I think it's par for the course. I see a lot of nationwide owners in my database searches. Sometimes I do see people who focus only in their state of residence. It's about half and half in this asset class.
Originally posted by @Roee Hazut:
Recently I had the opportunity to speak with two investors, they are both in their 60’s and both of them have managed to create a great financial freedom for themselves and their families. I was really happy to have this moment to learn from them and to educate my self.
Because the market here is at the top of the k wave it doesn't make sense for me to buy my first real estate investment here (BRRR), so I asked both of them what they thought about investing in other states, in markets with lots of opportunity right now. The answer from both of them was
"I never invest out of state,” and one of them even told me that "it’s a really bad idea.” That was very discouraging for me because in my eyes they are both very successful and they have created exactly what my vision is, as far as the real estate. Because of this it was strong for me to hear that while I’m creating new relationships in other markets in other states and looking for my first deal.
l already read the book "Long Distance Real Estate Investing" by David M. Green (really important one). At the beginning of the book he explains exactly this about the older generation, that some them have a “paradigm" of not investing out of state.
Of course there is a risk in every investment and there are a few additional parts in the puzzle of long distance investing that need to be mastered in order to lower the risk.
I would love to hear your opinions and experiences with investing in other states. If this is my first deal is the consideration different when thinking about investing out of state?
Do you also prefer to invest only in your local market like many people or do you work wherever the opportunity is?
Thank you in advance!
Roee
It's human nature for people to hang on the methods that made them successful so it's not surprising for men that age to say that. Success is also a subjective word that only you can define. Your success and their success can and probably will be two different perspectives.
The internet and the resources that come with it have provided a whole new realm of possibilities when it comes to investing. The old time investors that are successful in today's market (at least what I've seen from my clients) are the ones who have advanced with the times and embrace the new technology that's provided to them. They continue to find the best deals today because they're not stuck on old-school myths that made them successful in yesteryear.
Networking is so important when it comes to out of state investing. You need to build the right team and it's not going to happen over night. So if there's any advice I can give you it's to optimize technology, build your network, and learn construction basics. I think if you have those 3 down then you're ahead of the curve in this game.
Good luck!
@Roee Hazut
There's a REALLY good BP podcast with Spencer Cornelia (look him up on YouTube). He has the exact same thoughts as you and invested in two flips out of state.
He actually found two great deals, built his team, etc, but a series of problems that really only happen out of state, ended up losing him like $50k.
There's a really REALLY good book called "Building Wealth One house at a time" that explains why you never need to go out of state also. I'd say research the potential pitfalls to find ways to avoid them going out of state, and exhaust your options in your neighborhood first.
It’s already been said, but be very careful taking advice from someone who has never actually done whatever it is you’re looking to do. Simply put, that opinion is worth next to nothing compared to people who have actually had the experience.
It’s funny when people say don’t invest OOS because you’ll talk to someone who promises you the world and then you’ll buy in a bad area and lose your butt. I’m sorry, but if someone is that naive/lazy/trusting they are destined to fail in whatever they do. OOS investing is not that person’s problem, THEY are their problem.
Research, research, and then research. Talk to multiple people. Get referrals. Do background checks on owners of companies. Yes, background checks. I’ve eliminated companies by doing very easy, limited Internet research. I personally feel you should research markets for months before choosing one, but that’s just me.
OOS investing comes with some risk, but if I invested locally I would be putting six figures down on a property that wouldn’t even cash flow. Tying up that much money for years with no monthly income is MUCH riskier, IMO.
My first property was out of state - it went extremely well. Vetted my team thoroughly, great returns.
I'd challenge folks that think that ANYTHING in RE is not possible. Most things can be done if you're gritty and creative enough. There is no "right way" to do real estate investing.