Help me decide, what are your thought?

Question

I've been trying to decide whether to invest locally or out of state. Here are the 2 scenarios.

Option 1) Buy 3 x Triplex in Stockton area at $180k each triplex, total 9 units. It will require 30% down, say $162k for all 3. Each loan would be $128k at 5% = $676 a month. Gross rent is $2200 / triplex. Basically spend $540k for gross of $6600 month. Good thing is they're all local to me and have better chance for appreciation.

$6600 - gross income

-$825 - taxes and insurance

-$900 - water / garbage

-$2028 - loan payment

-$660 - vacancy estimated

-$660 - repairs estimated

-$660 - PM - but I'd most likely take care of it myself

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$867 - NOI each month....???? (Am I being too conservative, as expenses are way above the 50% rule)?

50% rule would be $3200 - $2038 = $1272 NOI

Option 2) Buy 3 x duplex in Rochester, NY (yeah, out on East coast). These duplex average about $50k each. Most likely, I'd be paying cash as loan fees are pretty expensive relative to loan amount. Basically $150k for all 3 duplex. Should rent for $1400 per duplex. So, $150k for $4200 of gross income.

$4200 - gross income

$600 - taxes and insurance

$600 - water / garbage

$420 - vacancy

$420 - repairs

$420 - PM

______________________________

$1740 - NOI each month

50% rule saye = $2100 NOI

Sibbir Noman · Answer

@Tou V.I read post here on folks buying properties out of state which seems extremely risky unless you know the area yourself. Have you thought about your travel costs for option 2?

Rebecca Lebowitz · Answer

I completely agree with @Alan Diamond that you have to be very careful in where you are investing in Rochester. While duplexes can be found in the $50k range-be VERY selective! Investing in the rough areas can often burn investors.Having a very savvy realtor and PM is critical to finding successful deals especially at that price point.

Brandon Hopkins · Answer

Without a good realtor and PM investing out of state is asking for trouble. With good people it's the same as investing locally. My real estate agent sent me pictures of everything, inspector did the same. PM found a couple minor things like a couple light bulbs and a stuck window. Those are things I wouldn't have noticed if I walked it myself.

Elizabeth Colegrove · Answer

I am a buy and hold and own locally and out of state. My husband is active duty military so local is only relative to the current set of orders. Therefore we don't take alot of stock in location. At the same time, as SOON as we settle down we are selling all of our houses and investing them locally. While out of state investing is an awesome way to broaden your horizons when your area doesn't make sense there are TONS of hidden costs even when you are like us and buy the best type of house to reduce costs.You still have the $200 an hire handy man (he charges by job, $10 light bulb lol) because he has you hostage. Not saying you will hire him again but you have to get it fixed.Or the $250 plumbers calk- its leaking and you can't do anything but hire a plumberor the damaged carpets you can't get the tenants on because your friend didn't do a good move out inspection.I could go on and on. I am a big proponent of investment where it makes sense. WE move alot so buying local doesn't mean anything. At the same time, I personally have found that even though our more expensive "local houses" end up producing just was well because of the stuff that just being close does.

Michael Wentzel · Answer

@Tou V. I invest for cash-flow and not for appreciation, so my vote is for Rochester. Maybe do phone interviews with 3-4 Real Estate agents and 3-4 property managers to get the lay of the land and start building your team. You should also be able to find a few investors on BP to give guidance on that market. Take a flight out and meet the team you decide on and you should be good to go. It is great if the properties in your portfolio can be close to you, but do you really want another job managing 9 units. You also reduce your risk by paying cash for the properties out east.Mike

Dave Savage · Answer

@Tou V. there are definitely deals here in Rochester, but I have seen a lot of Out of State landlords getting burned by their property managers here. You can PM me for some recommendations of who to interview as that will make or break you being a profitable out of state landlord. Personally I would build in one trip/year of expenses and time to check on the properties yourself to ensure the living conditions are acceptable and there isn't any defferred maintenance. You could also look into a blanket loan once you buy the properties to lower the mortgage expenses but increase your leverage to allow you to buy more properties. As @Alan Diamond mentioned do not plan on any appreciation in house value, and slow appreciation in rental rates, but things are very predictable in Rochester as evidenced by the last real estate crash that did not affect our market in any significant manner. If you start looking at particular areas in Rochester, post them up and there are a number of us that will give you ideas on where to focus. Good luck with your decision

Alan Diamond · Answer

An addendum for my last post.... Appreciation is not likely in the lower cost areas, some properties have actually decreased in value over the last 20 years. I do buy and hold, so I'm not sensitive to that.

Alan Diamond · Answer

I've been shopping in Rochester for duplexes for a little while, just closing on one now. I would suggest finding a reliable realtor in the area to help guide the selection. The city can provide some nice opportunities but the good neighborhoods can be small and well defined. 2 blocks can mean the difference between a family area and a very undesirable area, that will have much lower rents and higher crime. The Zillow estimates and alike are worthless in those areas and the taxes are normally incorrect because they don't pull all the proper data. There are good opportunities, but they are very geographically sensitive. I work with Elizabeth McKane, with RE-MAX, she knows the city well and is very helpful and trustworthy.

Tou V. · Answer

I would probably view the places once, then trust my agent and PM to take care of it on a regular basis. Don't plan on making too many trips out there.