Do I need to make my 1st investment in my area?

Question

The reason I ask is because I was listening to one of the podcasts here, and one of the guests said though he was from Southern California, his first investment was in Texas. So, though Denver is hot right now, would it hurt to look in Tucson, Dallas, San Antonio, and of the like (whatever other cities are steaming right now). If there's one more way to put the question, should I stay landlocked in Colorado? I would hope not, because that would only be limiting my potential. I think I should go where the deals go.

Secondly, this is separate from the original question, but do I really need a business plan? I listened to the podcast with Grant Cardone, and he said something that seems to make sense. "Use a business plan if you want comfort," and "Most of what happens will not be in your business plan." I'm pretty apt to taking that advice from someone who has a $350 million dollar RE empire. I'm gonna be taking notes on this.

Hattie Dizmond · Answer

@Derik S.

A lot of people invest out of their local area, because their local area is (or they perceive it to be) cost prohibitive for them to invest in.  I've seen quite a few people on BP from the Denver area looking to invest elsewhere, because housing costs in Denver are so high.

Personally, I would say...if you can find deals locally that meet your investment criteria, it is probably best to start closer to home.  You have a better chance of knowing and understanding the market you're investing in.  When you are investing at a distance, you must have a team in place in that market that you can trust.  I believe having successfully invested at home would put you in a better position to know what you will need from a remote team.

But, if you can't find deals nearby, then you will likely have to expand your search.  If buy & hold is your model, looking for a scorching hot market isn''t necessary and may not even be wise.  Dallas is incredibly hot, with near record low inventory levels for almost 3-years.  The result is that deals are hard to come by and property values are outpacing rents, which makes cash flow difficult in a lot of areas.

Figure out what your goals and criteria for an investment is first.  If what you're looking for is to maximize cash flow with little regard for any kind of appreciation (as long as the property is not declining) areas like Indianapolis, KC, the midwest in general, may be better options.  Just my 2 cents.

Hattie Dizmond · Answer

@Derik S.  I neglected the question about the business plan...

For us it was essential or at least we believe it to be.  Here's why...

1.  A business plan isn't necessarily a road map.  It is not an itinerary.  Instead, it's a description of the destination and high-level plan on how you're going to get there.  (I like analogies.)  Think about it in terms of an around the world trip, to visit all 7 continents, that's going to take you the next 5-years to complete.  My trip plan is going to include things like the fact I'm starting from Dallas, TX.  I plan to drive from Dallas to New York, where I will fly to England.  I will take 6 months to drive across Europe, then take a boat to Africa and spend 10 months traveling through Africa and finish up in South Africa.  Etc.  The point for us is to have a written vision plan, so we stay true to our core purpose.

2.  Credibility.  We will be looking to do syndication deals and bring on private investors.  How can we possibly expect lenders, investors, JV partners, etc. to take us seriously, if we haven't even bothered to write down what it is we are doing and why?  We can't, and they shouldn't.

So...is a business plan necessary?  For us it is.

Derik S. · Answer

Thanks all for your replies,

To answer Dorothy's question, I'm looking o buy and hold, and deal primarily with multi-family homes, apartment complexes

In terms of involvement, I want to build a multi-million dollar portfolio. I want to be on these properties like flies on sandpaper. Over the long term, I want to come as close to a real estate mogul as I can (who says anybody can't?). Gather the reputation that the tenants best interest, as long as their piggy banks are oinking, are kept in mind, with a fruit bowl as a welcome gift.

Mic Nguyen · Answer

As mentioned before, yes I think the 1st couple should be near home due to the fact that you wanna be close to your project to oversee things and make sure deadlines are being met. Depends on how particular you are.

Adam Smith · Answer

@Derik S.  I think it comes down to your goals which leads into the business plan question.  If you are the person who has some cash to invest and doesn't want to be involved in the day to day or month to month interaction with the tenants then investing out of state may work for you.  As others have said you have to have a team on the ground that you can trust.  This could involve some out of state travel to drive the areas, meet with people, etc.

Personally, we don't have an official business plan (we only have one rental now) but we do have a few spreadsheets that line out our goals, rentals, etc.  This is just to have a general roadmap of where we would like to be in 10 years (ie-number of rentals, income, expenses, payoff, etc.)  We don't want to get caught up in the details of future properties.  We know our goals and minimum criteria for purchasing another rental and when we find one that meets our criteria then we buy it.  (This has only happened once but we are close to rental #2)

I am not familiar with the Fort Collins market but it seems that you could find some areas within 1 hour that would have a cheaper price point if you wanted to be more involved in the rental.  We are in Firestone and while I don't know for sure but I am assuming that it is a cheaper market.  There are a few smaller towns not to far east of I25 that are cheaper but are "bedroom communities" to Fort Collins, Loveland, Longmont, etc. that are cheaper but current rents are high.  15-years ago I was told and I think it still holds true...if you want to find cheaper housing just go north and east of Denver.

This is just my 2 cents.  Good Luck!  I am sure you will do well since you are asking the questions.

Rob Hayes · Answer

Derik, good luck with the start of your investing career.

I thought Hattie's post was great!   I would highly highly recommend that you start within an "easy" drive of your home.  There are soooo many moving parts that makes up the machine that is a successful real estate investor...and with every part there is a chance that your machine breaks down.  So, in my opinion investing outside of an "easy" drive from your home is adding several more parts to your machine.  I believe to increase your chances of success you should have as few moving parts as possible.

I know that's not what you want to hear.

Best of luck!

Dan Mackin · Answer

Going out of state comes with its own difficulties, but it can be done with some good prep. Biggest thing is how will you actually know the area you're investing in. If it's somewhere you travel to often then that can be acceptable. Otherwise you're likely just going on word of mouth which can be dangerous.

For business plans I would say they aren't for everyone. If you have any sort of plan in your head then that can sufficient dependent upon how your mind functions. They can be helpful for numbers, but otherwise I don't personally find them to useful.

Crystal Smith · Answer

If you're going to treat it as a business, then you need a business plan.  It can be as simple as your current Income Statement w/ a Balance Sheet followed by your future income statement & Balance Sheet.  The future financials essentially establishes the goals for your business from which you can then make decision on how to accomplish those goals.  Example:  Your original question on do you make an investment in your area or not?  If you can find deals that meet your financial goals in your backyard then stay in your backyard.  If not, then look elsewhere.

Scott Steffek · Answer

Derik,

I have investors buying in my area that live all over the country. However, these are typically investors that have experience in the business and have already have purchased several properties. Investors come to us, because we rehab the homes for them and manage them as well, for buy and holds. So that allows them to purchase outside of their area.  But I would suggest you stay in your area for the first few deals, until you're comfortable and then branch out. Learn  "what's going on" with a property you buy. What I mean by that, is if they're rehabbing the home, watch what they do. Hang around a while. You'll learn quite a bit. Ask the rehabber for his scope of work. That shows you everything he'll be "fixing" or "changing". That will also help you when you look at properties that you might be interested in. It'll open your eyes when you walk into a house as to what needs to be updated or repaired. Experience is key!

If you do go outside of your area, be careful. You can get burned. It's a matter of checking everything out.  My first time investors usually fly out here to Chicago, after the rehabs are completed. Once they're satisfied, they rarely come out a second time. We send pictures to show our progress, when rehabbing. So take it slowly and I wish you the best of luck!

Alexander A. · Answer

@Derik S.

Hey Derick if you can find good cash flowing deals where you live then I just don't see the point of going out of state.   If that is not the case, then absolutely its okay.

It will be scarier and harder since it would be your first but that is how it is for everyone.

I am about to start looking for my 5th rental property out of state and im excited about it.   Need to find me a good winner!

Feel free to PM me if you want more details.

Do I need to make my 1st investment in my area?

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