How to start when your area is too expensive?

[Vinny Cristenson]

Hello everyone, 

I know this is probably a silly question, but I'm just getting started into investing and I have a facing the following dilemma:I wanted to start in a market there I'm familiar with, and that I can go and visit the property my self. However, the market I'm located (Seattle - WA) is out of control! Among many other reasons, there is 3 main that makes it very hard for me. 1 - there is a lot of people loaded with money that are willing to go 20 -30% above asking price. 
2- The prices are already high and the purchased price / rental ratio does not make much sense.
3- Seems that there is more buyers than properties available. 

I have been thinking a lot about going OOS, where there is more options and where my money can go further, but then again, how to do something like this on your first time? What are your tips and advices for situations like this? Any tools you know of that I should use?

Im just getting started, so any piece of information and advice helps. 

Thank you!

[Joe Villeneuve]

First of all, starting in your own market, because you know it well, isn't a good plan.  What if your knowledge of your market is so great, that it is screaming at you, "Don't invest here....you can't make money!"?

You invest in markets that make you money, not that you know well.  When you find that market that makes you money, then you learn about that market so you know it better than the one you're living in.  Knowledge of a market isn't a reason to invest in that market, but it is a requirement.  They are NOT the same thing.

Now, if you're dead set at investing in your market, then you need to learn new strategies that will work in that market.

[John Barrett]

@Vinny Cristenson Just because Seattle is very expensive doesn't mean there are not investment opportunities in cities that are within a 1-3 hour drive.  If you broaden your search to include a wider area you maybe able to combine the benefits of lower entry prices while not having to invest outside of this geographic area.  There are cities in eastern WA that are attractive price wise.

None of this means you do not need to follow @Joe Villeneuve's advice to become an expert on the market you are interested in. There are a lot of resources both here on BP as well as meetups / REI clubs as well as agents in the market you choose who can assist you. Make a list of all the information you need to be able to make an informed decision about the market you want to invest in and then build your plan to get all that data. Once you have all the information, you can feel comfortable you are making an informed (not risk free) decision about moving forward.

Hope this helps.

John

[Tesho Akindele]

@Vinny Cristenson I agree with what @Joe Villeneuve said. Live where you want to live, but invest where the numbers make sense.

There are a lot of tools out there to help you get started with OOS investing. First step is to pick a market. Sites like Zillow can give you a great idea of average prices and estimates of rent.

For a more detailed look at cities and neighborhoods you can check out Vestmap. They dive deep in the details of different markets.

Once you picked a market find a good property manager! They will be the key to your success and can usually give helpful info and connect you with other useful resources in their city.

[Andrew West]

@Vinny Cristenson you are not alone in the place you find yourself in! I would agree with the others that you shouldn't rule out areas close to home just because they're too expensive. For instance: what partnerships are available? What cities/neighborhoods are within driving distance that might be more affordable? Can you do short-term rentals which are often more lucrative and can get you to the cash-flow you need?

All that said, you may still decide that OOS investing is more practical for the stage you're in. This is EXACTLY where I'm at now. I live in Salt Lake City and homes out here (while not as pricey as Seattle) are out of my league for investing. My priorities are total control over my portfolio (i.e. no partnerships at this time) AND I want a lower-cost area to begin experimenting with some different strategies. This might not be true, but I've convinced myself that "lower prices = lower risk" :)

So out-of-state was my play as well. We have our first multi-family under contract under in Michigan and are STOKED with the cash-flow it will offer. Here's a few steps we took to get here that might be helpful:

1) Pick an area. Do you have any family or reasons to travel to less expensive areas? (We had family in Michigan so it was an obvious choice). If not, that's okay, just narrow down a few and decide where you'd most like to travel to. There are TONS of BP blogs & forums on lower-cost markets which offer great returns.

2) Network like crazy. We had a holiday visit planned, so we lined up meetings/phone calls/showings for the entire two weeks we were in town. This is tricky during COVID, but still DO-ABLE!

3) Start searching. We look ourselves and also have an agent sending us properties. We had several "good deals" come up within a matter of a few weeks and we eventually just picked one & made an offer. 

All of this assumes you have the background & knowledge you need to make smart decisions as well as a readily deployable funding strategy. Also, I am by no means an expert, but just wanted to share a simple synopsis of what got us going. We promised ourselves we wouldn't get stuck in the "paralysis by analysis" phase, and so eventually we just had to go for it.

@Brandon Turner always says : "Combat fear with math" and that definitely helped us! If a deal works, it works whether it's close to home OR long-distance.

[Brandon Goldsmith]

Building your core 4 of a realtor, lender, contractor, and property manager. OOS investing is very doable when you have the right team in place. I would narrow down your goals with REI and then pick a few markets based on what fits that criteria. Have a few conversations with local connections and start doing the research. @Vinny Cristenson

[Brandon Sturgill]

@Vinny Cristenson It sounds like your approach is pretty simple

1- define a radius around where you live and answer the question "are there any deals here I'm comfortable with"

2- if yes, implement the plan and stay local; if no, start your market research and go OOS

There are opportunities in every Midwest market...and you will find highly qualified agents in all of these markets...you just need to start building a team you can depend on. 

[Lane Kawaoka]

I started with SFH in 2009-2015 with turnkey which I was working my engineering gig while working in Seattle. Then went into syndications once my net worth went over 500k.

[Aj Parikh]

Where there are more options and where my money can go further, but then again, how to do something like this on your first time? If you have decided to go out of state, it would be helpful to research areas like Cleveland or Memphis where you can find properties under 100k which cash flow around $1000/month in rent. 

What are your tips and advices for situations like this? I am in Northern Virginia and similar to your market, there are a lot of investors, less inventory, expensive market so I decided to go out of state. I joined a mastermind group with a few rookie investors and it really helped me understand different markets in the country which fit my budget.I decided to work with Martel Turnkey and Roofstock to purchase 2 out of state investments last year 

Any tools you know of that I should use? Look into Roofstock.com for different markets out of state and you should be able to find a good neighborhood to invest. Let me know if you want to connect and chat about the purchase process. 

[Timothy Lewis]

I am also in your same shoes. I currently live in Miami, FL and this is the reason I turned to OOS investing. You should take a look at the turnkey model. Very straight-forward and less stress involved here. However, if you are looking for a bit more returns (and difficulty...and stress lol) you should look at developing a team out of state. Check out David Greene's book. He outlines everything you need to know here: 

https://store.biggerpockets.co...

[Eric Goldman]

I worked extensively in Philadelphia. shells and lots are becoming super expensive. We decided to move west. Yes its a drive, but we took some days off and drove around about 5 different towns got in contact with a bunch of realtors and figured out where we would be comfortable starting projects. We are still doing projects in Philly we are just more selective in the process. We have been dialing in the numbers before hand for our brrrr's to make sure we have an out and are not forced to sell if we dont want to. Not that we dont check our numbers before hand... we add more to the contingency %.

[Vinny Cristenson]

Thank you so much for all of your responses! Sharing your experiences and advices definitely gave me some more perspective and direction on where to start looking and study. 

I appreciate you all, and I'm sure we will keep in touch.