guide for out of state real estate investing

[Rajiv Gupta]

Is there any step by step guide for beginner for out of state real estate investing? Please provide some details on how I can start investing out of state for cashflow rental properties with buy and hold strategy? Which areas I can start with?

[Mike McKinzie]

All Real Estate investing, whether it is the house next door or one across the country begins with RELATIONSHIPS. And the best place to start is right here on Bigger Pockets. We have members in all 50 states and when you connect with them, you are then connected to all their connections.

Like you, I live in California and started investing here in 1982, having bought my first rental in San Bernardino. I was lucky as my father was a Realtor at the time, (I was only 21) so he had connections and we found a cute, slightly junker property. And since then, I have bought all over. My last purchase, in Memphis, TN, was with Alex Craig, whom I met right here on BP. We closed late last year.

I have just a few basic rules for EVERY property I buy, whether next door or thousands of miles away.
1. ALWAYS get an independent appraisal. Don't trust a Realtor, Lawyer, Property Manager, Zillow, Realtor.com, or anyone. Get an independent appraisal.
2. ALWAYS get a home inspection, independent of any interested parties.
3. Check internet classifieds for rental rates in the area you are interested in investing in.
One trick I like to do is to call several Property Manager's in the city/area and tell them that you are being transferred to their city and want to know what areas are the best to rent.

Using online resources, it is not difficult to find good Property Managers either. I needed a new one in Fresno, CA and a person from BP gave me a good referral for Fresno.

If you want to find what area's to invest it, you need to set your own criteria. For me, I want a 1% of price in rent as that gives me an 8-10 CAP rate. With my other criteria, I will accept a slightly lower CAP rate than most IF there is a stronger chance for appreciation. I would never go under 12% CAP if the appreciation possibilities were under 50%. Since I can get 12% or more as an HML, when I get less on a rental, I want a strong chance for appreciation.

So once you have your own criteria, then you can start checking markets. For my criteria, I like TX, OK, AZ, UT and some parts of CO. My second tier areas would be TN, FL, NV and the Carolinas. While good deals can be found in all markets, I would rather fish a pond that has 100 nice fish vs. the pond that has 2 or 3 nice fish.

One last bit of advice if you are still unsure of investing out of area. Try buying your first rental close enough that you can drive a round trip the same day. My first foray out of area was in the Visalia area of CA, about 200 miles away. Close enough to drive to if I absolutely had to, and far enough to be considered out of area. Best of luck to you.