Should I focus on finding my first investment out of state?

Question

Hi Everyone - I am new to Bigger Pockets and looking for some advice. Hopefully, this is the right place!

I am currently living in New Jersey and finally working towards my first investment property (multifamily/Airbnb). With the high property taxes in NJ and how expensive it is to purchase, I am not sure if buying in NJ is the right move financially.

What are your thoughts on finding my first investment property out of state? Have you purchased a multifamily/host Airbnb outside of the state that you live in for your first deal? What advice would you have for being a landlord from another state, finding the right markets, working with agents/lenders, etc? Thank you a bunch for all your advice and insight.

Patrick Drury · Answer

@Kenneth Rose Definitely buy the house hack first, it will introduce you to real estate investing as well as being a landlord and if done right, you won't have to pay rent. After that, I would recommend looking towards the mid-west market's more specifically Columbus OH. Lots of job opportunities and population growth.

Drew Cheezum · Answer

Welcome to BP @Kenneth Rose!! While purchasing out of state can be a little scary for your first deal, it is pretty common for investors in expensive markets to do this. All you need is a team that you trust of a Property Manager, Agent/Broker, Contractor, and Lender to have all the tools needed in order to acquire a good investment.

I would recommend starting with an agent or a broker first, as typically they have connections to PMs, contractors, and lenders they've had success working with. Agents/Brokers have their hands in a little bit of everything so they can break down the market the best!

I invest in Ohio (Columbus mostly) and have had a huge amount of success here! Good luck

Clay Boykin · Answer

@Kenneth Rose My suggestion would be to flip first to rack up some capital. I would suggest markets such as Columbus, Oh, Indianapolis, Charlotte, or even Denton, Tx. If you are investing in Columbus, definitely flip for about a year before buying a buy and hold. Yes, it all comes down to your investment strategy and it can be done. But with the available flips right now and old homes, it would be wrong to do so immediately.

Columbus, OH, offers a variety of markets/submarkets in such a small space (and it's only growing). For flips; Hilltop, Franklinton, Linden, Southern Orchards, would be my go to markets. Most investors can get a early 1900's build for less than 170k cash and have it done within 2 months. When you reach the buy&hold/airbnb stage, my immediate suggestion would be also Southern Orchards, Driving Park, Whitehall, or anywhere North side of Columbus (Dublin, Westerville, Delaware, near downtown, etc).

It is 100% a market to tap into right now and finically speaking, most people are fools for not doing so. If you're looking in markets such as far south or far west coast (where most people are moving to right now), your investment strategy need tweaked (for residential at least).

Feel free to reach out to me for any further questions. Either way, Happy Investing!

Joseph Guzzardi Jr · Answer

@Kenneth Rose hey Kenneth. Can definitely understand where you are coming from. Many locations in NJ if you are buying on market or conventionally can be pricey. Good news is there's several ways and locations/markets to acquire your first rental in NJ. Partnering with experienced investors, working with an agent who invests, doing direct to seller marketing yourself are just a few ways.

Kenneth Rose · Answer

@Jonathan Greene Thank you for sharing. I've always had the mindset of once I start out investing, cash flow would be the priority, but I am open to the idea of understanding appreciation more with a bit of research. I have heard some good things about Philly, so it would be great to really understand the city dynamics and blocks as you mentioned. What is the best way to get signed up for your NJ, Philly, and new investor zoom calls? I would love to attend all if possible.

Marc Rice · Answer

Owner occupied house hacks are a great way to start. After that its best to identify a market you want to invest in and develop a team there.

Kenneth Rose · Answer

Thank you for sharing some great perspectives @Jeffrey Albaum! I like how you mentioned, work "on your business" instead of "in your business" as I am a big fan of having things automate and run on their own. I also would want to prioritize my family over everything as I start this journey, so developing this system to help run things is a major key.

@Eric Goldman, I appreciate you sharing your insight and advice! Building a solid team seems to be a big theme of thriving and surviving in this space. Thank you!

Jeffrey Albaum · Answer

@Kenneth Rose Hey Kenneth, welcome to Bigger Pockets! I'm out in California, so definitely can understand the reality of living in a super expensive market. I would totally recommend looking for deals out of state. There are tons of resources/podcasts/books etc. out there on the subject of owning property out of state and I'm a huge fan of it. It forces you to work "on your business" instead of "in your business" because you aren't able to just drive by to fix something small, you're forced to develop systems to help you run things.

To start, the best thing would be to identify some markets that interest you. From there, go on Bigger Pockets and look for Property Managers. I know people say to talk to agents first, but I've found that property managers have less incentive to sell you something, and therefor are great people to talk to and than recommend agents from there.

Hope this is helpful, if you ever want to chat more shoot me a message and best of luck to you!

Eric Goldman · Answer

meet ups, face book groups are good places to start networking. friend your local agents on face book. I have clients that only do out of state investing  because the pricing is cheaper. You have to have a solid team around you! agent, property manager and lender to name a few.

Eric Fernwood · Answer

Hello Kenneth,

I moved from New Jersey to Las Vegas. I know how expensive real estate is in NJ and how high the taxes and insurance are, plus the anti-landlord nature of NJ. If you want to make money, NJ is probably not the place to buy.

The most important decision you will make is the location, not the property. As long as you buy a property in a "good" location, all but the worst mistakes will be corrected over time through appreciation and rent increases. However, if you do not buy in a "good" location, you can do nothing to turn things around after the fact. Fortunately, selecting a "good" location is relatively easy if you use the right metrics.

• Rent and Price Growth Rate - Inflation is constantly eroding buying power; each year, it costs more to buy the same set of goods and services. If you buy in a location where prices and rents rise faster than the inflation rate, your buying power will increase due to the increased rents. If you buy in a location where prices and rents are increasing below the inflation rate, your only option will be to decrease your standard of living over time. Also, do not rely on the rapid increases resulting from COVID; these increases are not sustainable. Evaluate locations based on the ten years preceding the COVID times compared to the current inflation rate (>5%).

• Population Size - Greater than 1 million. Small towns rely too much on a single business or market segment.
• Population Growth - If people are moving into a location, many things have to be right, including jobs and the cost of doing business. Do not invest in any location where the population is stagnant or declining.
• Crime - People and companies will not move to locations perceived as dangerous. One source of cities to avoid is Neighborhood Scout's 100 most dangerous cities.
• Disaster Risk - Some parts of the country suffer frequent natural disasters. The best indicator for natural disaster probability is the cost of homeowners insurance. Avoid states with high insurance rates. Note, even if insurance pays for all the damage your property suffers, you still lose. When a significant disaster occurs, people and jobs move to locations where they can make money today. The location may take years to recover, or it may never recover. ValuePenguin is a good source for the relative cost of insurance by state.

Investment Team

After location, the most important success factor is finding and working with a good investment team.
If you needed surgery, you would not start medical school. Also, not just any doctor will do. You want a surgeon that specializes in the kind of surgery you need, not a general practitioner. The same is true with real estate investing. You want to work with an investment team that already has the skills and a proven track record of finding, qualifying, renovating, and managing properties. A good investment team will minimize your risk and save you time and money. If you try to do everything yourself, it will cost you more, and the odds of success are much lower. The place to start is with an investment Realtor, not an investment "friendly" realtor. Below are the skills and experience an investment Realtor and their team members provide at no cost to you.

However, it may be hard to find an investment Realtor. Even in a large metro area, there is likely only one or at most two investment Realtors. While finding an investment Realtor may take time, the cost, risk, and time savings will be worth it.

Tenant Pool

The only way to consistently make money is to keep the property occupied by what I call a "good" tenant. A good tenant is someone who:

• Has stable employment in a market segment that is very likely to be stable or improve over time
• Has a credit history with which you can evaluate the likelihood that they will perform
• Pays all the rent on schedule
• Takes care of the property
• Does not cause problems with neighbors
• Does not engage in illegal activities while on the property
• Stays for many years

Good tenants are the exception, not the norm. Good tenants are the result of:

• Targeting the right tenant pool.
• Selecting properties that your target tenant pool is willing and able to rent.
• A skilled property manager.

How do you select a good tenant pool? Your investment team is your first stop. In addition, I would interview multiple property managers. I believe that the best tenant pool will be obvious once you go through the interviewing process.

Properties

The next step is selecting good properties. You now have all the information you need to select good properties. Your investment team will find and analyze properties and provide actionable analytics, not MLS sheets. MLS sheets contain little value to an investor. They will also provide renovation estimates and the other information you will need in your evaluation.

Summary

Kenneth, if you follow the process outlined above, your odds of constantly buying properties that provide a highly reliable long-term income stream are excellent.

Should I focus on finding my first investment out of state?

Most Popular Reply