How to invest out of state?

Question

Hey everyone! Long time lurker, first time poster here  :)

I'm a buy-and-hold investor in Huntsville, AL, and I'm looking to diversify a little bit location-wise. I own 2 rentals here and the Huntsville market has been pretty good.  But I've always wanted my investments to be location agnostic, so I want to get to the point where I can pick up rentals in any state as long as the numbers are good.  I've gotten a pretty good system down for buying rentals locally (use cash to buy, get a mortgage on them shortly after, rinse and repeat [plus a lot of little details, but that's the gist]), but I had a few questions for buying out of state rentals.

1. Mortgages - I have a very good relation with a banker here.  Should I try to use him, or is it best to find a mortgage broker that's in the city where I'm buying?  I know I could ask the banker guy, but that seemed to have a little conflict of interest there...

2. Property manager - what's the best way to find a property manager in another town?  One property I'm interested in is in Independence/Kansas City, MO if anyone knows someone good!

3. Closing - do I have to be physically present at closing, or is it possible to do it from afar?  How does the logistics of that work?

Any extra advice is greatly appreciated!  I know I probably look like a bit of a newbie on this, and honestly I am when it comes to out of state stuff...  So any help would be awesome!

Thanks!

Joel

Jared Garfield · Answer

Joel,

Huntsville is one of the best markets in the country, diversifying makes sense if you are spending millions on real estate, but if you are buying 20 or less, I would stay in one state.  We are about to start buying in Kansas City (currently we buy in Huntsville, Birmingham, Montgomery, Atlanta, Macon, Warner Robbins GA).  We have $40 M lines of credit and we are only beginning to diversify now, mainly because AL inventory is down.

Huntsville inventory is down 40-68% from last year, meaning the supply is way lower than demand.  Jobs are increasing with the new Remmington and Polaris plants.  Crime is 1/3 the national average, property taxes are 49th in the country (making your ROI better than most states), median home cost is better than almost anywhere else, and median income is among the highest in the country because of all of the R&D jobs in science, technology, aerospace and defense industry.

Huntsville is a primary nuclear target, so if you worry about that diversification is a great idea, but you can inspect every property, have oversight on construction and property management, and get off market deals more easily.  You lose these advantages out of state unless you find a fabulous team.

If this doesn't dissuade you, send me an invite to connect and I'll gladly help answer your other questions.

Eric P. · Answer

I love the theory behind "location agnostic" REI (ie, buying anywhere at any time, as @Joel Palmer says it) but I'm not sure it works out so well in practice? I'm open to hearing opposing viewpoints but I'm of the opinion that at least 2 major things are desirable to have in order to increase your success odds when investing out of state: 1) detailed understanding of that metro area so you don't get swindled, 2) team on the ground. Both of these require extensive time investments before you buy. I'm all for expanding to new cities 1 by 1, but location agnostic REI (any city at any time) seems fraught with risk - I mean, you might occasionally get lucky but man, you can also get swindled big time.

Joel Palmer · Answer

Wow, you all are full of great information!  Thanks especially @Paul Timmins for the help on property managers.  To me that can make or break a deal.  I have a manager here who is willing to handle literally everything - even up to almost flipping a home.  But I gather guys like him are hard to come by...

@Christy Harris, I'd definitely be interested to see what you've got in inventory.  I'll PM you my criteria and we'll see if anything fits!  I also know a couple people in the area who are also interested, so hopefully something will work out!

Thanks again everyone for the great info!

Joe Splitrock · Answer

@Joel Palmer I have had similar thoughts of diversifying, but I only own seven houses and it doesn't seem to make sense until I am larger. @Jared Garfield made the valid point that you are in a good market and there is really no need to look elsewhere. I read posts daily on here and there is regularly someone who is having trouble with out-of-state investments. Why burden the extra trouble of looking someplace else? If you can buy local, that is going to be best.

Peter Vekselman · Answer

Currently I'm doing deals in 8 different states.  I have ONLY been able to be successful in the out of state model in the locations where I have my own people on the ground.  All the way from people to run my comps, to rehab, to selling.

Basically my advice is unless you have your own team on the ground that you personally assembled I would not be doing deals in random locations.

Chris Dawson · Answer

@Joel Palmer I'll try to answer all of your questions.

1) Definitely talk to you local banker.  Its doubtful that they would be willing to lend money on properties in a different market (especially if they are a small bank) but they might have some connections or at least some advice to give you.  They will also appreciate the fact that you came to them first before you pursued another banker.

2) Call the local real estate commission and asked them for referrals.  Go to NARPM.org and search for a local PM company.

3) No, you do not need to be present to close on a property.  If you are paying cash, you can close via email.  If you are financing, you will probably have to close with a local (to where you are) title company.

4) if you are interested in the Kansas City market, you might want to check out this thread on what areas to avoid in KC: https://www.biggerpockets.com/forums/48/topics/276...

Hope this helps!

Paul Timmins · Answer

@Joel Palmer

Welcome you have received some excellent advice.

Go to IREM.org search for ARM certified property managers. Call 5 ask them what they see expenses running per category per unit. What do they see them selling for per unit, what is the market occupancy rate. What are the market rents? Ask them if they know anything coming up for sale. Great way to pick up some good info and possibly a deal.

You can also search NARPM.org for the RMP (Residential Management Professional) and MPM (Master Property Manager) certified.

Paul

Joe Splitrock · Answer

@Eric P. you are right that buying local means you have great knowledge of the area and your feet are on the ground. I just drove by one of my rental houses last week and found the grass was 10 inches deep. The city would fine me if that was reported. The tenants is a good guy but had neglected this. I called him and it was fixed within a day. I don't drive by all my properties regularly, but it is nice after storms or occasionally to drop by. Maybe a PM would do this for you, but are they really going to care as much as an owner?

The other nice thing is if you scale larger, you have economies of scale in your market. For example if I need to hire a handyman, you can keep them busy with 50 properties. If you owned 10 properties in 5 markets, there is not enough work in any one location to keep someone busy.

Christy Harris · Answer

Hey @Joel Palmer , as @Jared Garfield @Jay Hinrichs and @Joe Splitrock already mentioned, going out of state doesn't seem to make sense when HSV and surrounding areas are already a good place to invest.  If you're looking to diversify outside of Huntsville, try Athens or Decatur.....still driving distance to reduce headaches mentioned above and I've seen a few good deals out there.  To further what Jay Hinrichs mentioned on not being present at closing, ask your lender and their suggested closing attorney if/how they do mail away closings - the one I just worked with a client (buyer from CA) on the closing attorney emailed the paperwork to the buyer with an overnight shipping label.  They signed/shipped and wired funds day before closing.  It was a great closing for me - I showed up 3 minutes late and missed the whole closing :)

PM me if you'd like to staying in the Tennessee Valley, and I'd be happy to help you find another investment property that might fit your criteria.

Jay Hinrichs · Answer

I agree with Jared  on his through process of staying local in a good market.

to answer your question about closings.. and banking.

your local banker probably only does loans in his footprint..

there are national lenders jumping into the rental game finally. with good credit cash and reserves that won't be an issue for you.

you don't need to be present for closings... if your paying cash.. to buy you can have docs e mailed to you scan sign return wire funds... they may have a doc or two that you need to notarize. ( usually an indemnification form).. other wise pretty easy.

when you get the loan.. you can either set up a courtesy close at a title company in your home base or get a mobile notary.. lenders won't send their docs to you directly.  ( worried about fraud etc.)

How to invest out of state?

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