How to pick a location out of state?

[Anita Ahuja]

Hi. I am new to BP. This site has been so helpful so far. I live in the SF Bay Area and am starting a search for markets out of state to invest in. Looking for single family homes for cash flow. Realized Bay Area was out.My questions are for others who invest out of state. How did you choose your state/city? Do you tend to stick to that state or do you start to move to other areas? How do you develop connections? Contractors? Real Estate agents in that unfamiliar state? How often are you finding yourself having to travel? I've been entertaining Boise, Spokane. Would love San Diego. As of now, I have 200k to pour into real estate. I am Looking at those areas mainly because of the multitude of single family homes and the proximity to the Bay Area. I could fly out in the morning and be home in the evening. I don't have family connections to any of those areas and really don't know anyone. I feel nervous about not knowing an area. For example, i could talk Bay Area geography forever. But if I want to become an REI with cash flow I need to expand my wings... but how to do that without fear of the unknown! Thanks in advance!

[Lee Ripma]

@Anita Ahuja

I was in the same boat about 6 months ago, knowing I wanted cash-flowing RE but not knowing which location to choose. I didn't have friends/family in areas that were good for cash flow investing so I just went through the best markets that you always hear about on BP. KC, MO, Indianapolis, Cleveland, etc. Without any ties I chose KC because my partner likes the football team. It's a silly reason but I needed a way to narrow it down. Once we chose KC I dove in to learning about all the different areas, read all the BP posts on zip codes to focus on, did lots of internet research. Then I found a deal, looked for partners for PM and renovations, flew out and met the partners. I ended up losing that first deal but landed another one while visiting. I closed on 6 units (duplex and fourplex) in March. Working through renovations now with my local partner and then will refi. All the problems that people talk about with distance investing are real, however, I don't find them insurmountable. 

If I were to do it again I would just buy commercial residential to start. I don't want to deal with smaller multi's and certainly not SFH. If I were you with 200k liquid I would look for a small apartment building that needs some cosmetic work. I'd try to pay in the 400k range and have no more than 60k in renovations. For that price you could get something small in a decent B-/C+ area. So instead of trying to scrape by with 150/mo in cash flow from a SFH you could buy a 6 unit with 900/mo cash flow. You'd also be able to get at least some of your capital back if you did value-add. What I just described is exactly what I'll do for my next deal.

There are also ways to get cash-flow in CA but not with long term rentals. So you could do airbnb. Or you could do something within driving distance of the bay that cash flows: Sacramento, Yuba City, Reno, etc. My parents run a profitable vacation rental outside of Yosemite in Mariposa. So while traditional buy and hold won't work for cash flow you can get creative. CA is an appreciation market-so if you can get in and wait for a long time you'll get a ton of appreciation. Appreciation beats cash flow any day, just do the math. If you have one SFH that cash flows 150/mo for 30 years that is 54,000. You could get that in a year in CA. So that is why appreciating markets have a higher ROI than cash-flowing markets.

For out of area investing I think you can find a lot of markets that will work. It's all about getting local folks you know and trust and building relationships with them. 

Good luck!