Out of State Investors: What would you choose?

Question

Hi BP community. My name is Jordan and I'm a new OOS investor (and as a new real estate investor in general). After reading as many books as I can and doing the best possible research I could do, I found myself with a couple of potential markets to invest in BUT ONE BIG QUESTION:

As an OOS investor, would you rather invest in an area you are familiar with, in which you have a network in place and people you can trust OR would you go for a market you are not familiar with, but have stronger ROI and CoC numbers? Both are profitable, btw.

Post your answer and if you don't mind your "why". Thanks!

Andrew Zimmermann · Answer

@Jordan M. I’m considering/struggling with the same situation. As a Boston investor, cap rates are low, cash flow scarce and very capital intensive. I like the basic concept of using equity built in a high cost market and then deploying it in a lower cost/higher cash flow market.

The compromise I’m coming to is focusing on out of state markets I have visited or lived in (there have been many in my case). But to everyone else’s point, building a good team and/or connecting with old contacts in those places are key. BP is a gold mine for assembling a team.

Julio Garcia · Answer

Answer: #1. you know the market, fall back on the ppl you know and the areas you have an idea of.

Jeff Wallenius · Answer

This is an easy one for me. Invest in the market you know and have people you trust. I learned this lesson the hard way, even when I believed I had built trust in the OOS partner. Finding trusted partners is difficult out of state, not to say it can't be done, with a large vetting process and short leash.

Jonathan Greene · Answer

First one all day. There is too much trust being tossed out in option #2 that can't be returned in alleged CoC and ROI. You can't learn a neighborhood or city from afar so it's best to start with areas you know if you can't invest locally or at the very least, areas where you know and trust someone already to be your eyes.

Follow-up though, why are you deciding to go OOS from Providence?

Samara Huntley · Answer

@Jordan M. If both are profitable, I’d suggest going with the one that is MORE profitable. Study the sub markets that you’re interested in religiously. Once you find one market you want to focus on build a good team of knowledgeable trustworthy people based there. Most importantly, find a qualified agent that knows their market well, works with investors regularly, and knows how to run the numbers. Oh, and actually knows what a cap rate is.

Do your research.

Good luck, Jordan!

Lee Ripma · Answer

@Jordan M. I think you can build a trustworthy team and learn any market. So if you pick a market with great returns you’ll be able to learn it and build relationships there. So my answer is that either of these will work but don’t discount 2. I think people spend way too much time thinking about what they will do, planning what they will do, and a year goes by and you haven’t actually done anything. So if 1 or 2 gets you going, that’s the better choice.

Matthew Irish-Jones · Answer

@Jordan M. #1 for sure

Jason Regan · Answer

Such an interesting question.  I am currently looking for places OOS to invest in.  I live in MA and feel I can get better ROI elsewhere.  The hard part is finding the right team to trust.  I have met with a few people here that have been very helpful

Lane Kawaoka · Answer

I only invest out of state because I used to live in Seattle and now Hawaii. San Francisco, Hawaii, Los Angeles, Seattle, Boston are examples of primary markets which are NOT ideal for cashflow investing. Sophisticated investors look at the Rent-to-Value Ratio and look for at least 1% or more to be able to cashflow after expenses.

Tesho Akindele · Answer

Great question @Jordan M. I would say invest where the numbers make the most sense. The most important thing is to build your “core 4” in that new market. Use BiggerPockets to connect with realtors, property managers, contractors, lenders, and other investors. If you can connect with professionals who have experience working with OOS investors you will be successful!

Which are the two markets you’re deciding between?

Out of State Investors: What would you choose?

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