Buying out of state property

[Jayson Valdez]

Hi everyone, 

New member here. Is it wise to buy a property without actually seeing the property in person. I would like to buy a turnkey duplex but it's in another state as my first rental property.

[Leo R.]

@Jayson Valdez a few thoughts:

1. Due diligence is YOUR responsibility, and you can't hand it off to others.  If you want to be a successful RE investor, one of the first things you'll need to learn is how to personally walk a property and assess its existing & impending problems, current value, and potential value--this is a critical part of due diligence. Although your team members (agent, GC, inspector) can help you with this, at the end of the day, the due diligence buck stops with you, and if you wholly rely on others to do your due diligence, it will often come back to bite you.

2. Photos / videos are not sufficient.  There are countless potential issues that will not be conveyed via photos/video, so it's essential to see the property in-person. For instance, old galvanized steel plumbing hidden under a flipper's brand new drywall. Water diversion failure points causing masonry degradation or rot. Settling issues. A neighbor with constantly barking dogs. The house is directly under the flight path of a nearby airport. A bad neighborhood with drug dealers around the corner.  These are all things that either can't be fixed, or cost tens (or even hundreds) of thousands to fix, and they are not easily conveyed in photos or video.

3. RE investing is challenging, and it's 10x+ MORE challenging OOS. This has been described thoroughly in other forum threads, articles, podcasts, etc., etc.; so you'll want to study up. Even very experienced RE investors often fail when they attempt OOS investments. In general, OOS is not a good strategy for an inexperienced investor, and there are far better strategies for inexperienced investors to get their start (e.g.; house hacking).

4. "Turnkey" is often too good to be true. One of the most common ways inexperienced investors get into trouble is with OOS property, and "turnkey" properties. Often, "turnkey" properties are freshly rehabbed properties in D class neighborhoods where nobody wants to live, and no PM wants to manage. There are many stories on the forums of inexperienced investors buying a "turnkey" OOS property, only to discover that it's in a D neighborhood, they can't find tenants (or the tenants they do find are a nightmare), and the PM doesn't manage the property correctly--because the revenue isn't worth it for a PM to put in the serious amount of time and effort it takes to correctly manage a property in a D neighborhood. ...also, if a property were truly "turnkey" (i.e.; in great shape, in a B or A area with a top-tier tenant pool), the local pros would be all over it. If RE investing were as simple as buying a true turnkey property in an A area, handing it off to a PM, and sitting back as the rent checks roll in, everyone would be doing it!  ...but, in reality, RE investing takes serious work, skill, creativity and perseverance...if a "turnkey" property seems too goo to be true, it probably is! 

5. Be wary of OOS C areas, and never buy in an OOS D or lower area--no matter how good the cashflow looks on paper!  This is another way inexperienced investors often get burned. Every few days, an inexperienced investor posts on the forums saying "I bought an OOS property and it's a trainwreck; the tenants didn't pay, then they trashed the property, and now my PM is ghosting me"...inevitably, it's a property in a C or lower neighborhood, and the investor got lured into buying it because the cashflow numbers looked great on paper.  A property in a C or lower area takes a LOT of time, effort, and skill to manage properly--and no PM will put in all that effort unless you're paying them a fortune.  Moreover, the catastrophes these types of properties produce aren't worth any amount of cashflow.

6. A good team is required, and a good team is hard to build. It's not possible to succeed in OOS investing without boots on the ground...but good help is rare, and it's expensive. As they say: "Cheap help ain't skilled, and skilled help ain't cheap".  Moreover, the incentives of many potential team members are not aligned with your best interests. Every agent will always be happy to sell you a house, but they are DISincentivized to steer you away from problematic properties (assuming they even have the expertise to spot problems, which many do not). "Turnkey" property companies will be happy to tell you all the good news about potential cashflow, but it's not in their interest to inform you of the bad news (e.g.; low quality tenant pool, neighborhood problems, etc.). Obviously, there are GREAT agents, PMs, GCs, etc. out there who will act in your best interest--even when they're disincentivized to do so--but these pros are few and far between (and their time/experience is valuable!). Since having a good team is critical for OOS investing, it's worth studying up on how to find, screen, build, and incentivize an effective team.

Don't get me wrong: it is possible to succeed in OOS investing (and even OOS turnkey investing); obviously, people have done it. However, it's way more challenging than other investing strategies (like house hacking in your local area), and it comes with unique issues and risks to navigate.

Hopefully that's useful info.

Good luck out there!