Purchase 1 Investment property nearby or 2 out of state?

Question

My wife and I are saving up to buy an investment property for buy and hold.  We live in Colorado and it is pretty expensive to do a buy and hold here but we would have the benefits of being close to the property and not having to hire a management company.

Our other option is to buy something from a reputable turnkey provider in a state where it would make more sense to do a buy and hold.  With the prices of some of these markets we could afford around 2 houses while in Colorado it would be one so this is attractive of course.

We are curious to hear from more experience investors.

What would you do in this situation with the goal being buy and hold?  Get a more expensive property locally or work with a provider in a better market?

Thanks and we greatly appreciate your feedback.

Kind regards,

-Nick

Adam M. · Answer

@Nick Van Sandt Good question. I'm in a very similar situation in Fort Collins. My general rule was to only buy within a 20 minute drive, but our buying power is ~5x out of state. Looking into out of state investing also.

The question I keep asking myself is, do I want to manage 4-5 class A rentals locally in an appreciating market or 25-30 class C properties?? I keep leaning to stay local.

Jimmy Murray · Answer

Everyone on this thread makes great points. It all comes down to Cashflow and Rate of Return. Invest your money where you are going to receive the greatest rate of return for the risk you are taking on.

Nick Van Sandt · Answer

Wow thanks for all the great responses and input.  Weighing the options I think it really does just come down to the numbers which means out of state may be best for us.  We might not have much appreciation but it's not such an issue if we are not planning to ever sell and doing buy and hold.

One benefit we've thought of too is that if we buy just one out of state we wouldn't be stretching ourselves as thin financially and would be in a better positions if repairs etc. came up early on.  We will definitely be using a property management company.

Jennifer Slaughter · Answer

@Nick Van Sandt, been there.

What is total cash flow like for 1 here/2 there?

What are local and TK economies like? Population growth? Diverse job economy? Fortune 500 companies?

What is crime and historical appreciation like?

Let the numbers guide your decision, in my experience I really don't see a difference in buying locally or remotely.

Chris Lopez · Answer

@Nick Van Sandt are you able to get more specific and share numbers on the investments? Your questions are pretty broad with a lot of room for interpretation.  The more details you provide, the better responses that you'll get.

I wouldn't look at it as an "expensive" property vs an "inexpensive" property. What's going to give you the best rate of return? Are you strictly cash flow focused?

What properties are looking at in Denver? Can you share a few deals that you've analyzed? Is it a single family home or a condo? What part of town?

What do you have saved for a downpayment? I'd compare that amount invested in Denver to two properties out of state. What out of state market are you looking at?

Based on the little bit of info that you provided, I'd say invest in Denver. I'm also biased. There's an advantage to knowing the area you're investing in, being able to drive there, etc. Plus, I'm very bullish on Denver long term. Look at the long term demographics of population growth.

I want to buy places that are growing, not flat or declining.

Chris

Matt K. · Answer

If you're going OOS do yourself a favor and get a nicer place... get something with in an area that has good schools and you'll be more likely to have a long term tenant.  Not saying this is the magical answer or that lower class properties won't work... but they can be much more hands on.

Tom Ott · Answer

Find out what gives you the best return. If you can get more for investing in the Midwest where homes are still affordable, that may be better than investing in an expensive inflated market. If you go out of state make sure it is something that might not need as much work so you are not stuck in a money pit.

Good luck to you!

Jennifer Ward · Answer

Michael, what is your criteria for a "best class of tenant" and what data or resources do use to find these areas with the "best class of tenant"?

Jennifer Ward · Answer

My main target is to purchase buy and holds out of state.  I owned a duplex and managed it out of country once before; that was not the intent at the time but life happens.  Just goes to show even if you intend to invest local, you never know if your local properties may end up being out of state properties.  I was managing the duplex myself for two years and then decided to hire a property manager, best decision ever for out of state investments.  You are probably thinking....isn't that obvious?!

We are currently looking into the Midwest, particularly in Wisconsin.  We are focusing in Wisconsin because my husband's family is from there and it offers a little comfort to know people we trust live fairly close.  However we still plan to hire a property manager.

I am curious, what are your most important factors when looking for out of state markets and what resources do you use to find your data on any of these factors?  For example:

1) job and income growth

2) rental rates

3) appreciation rates

4) property taxes

5) population size

6) owner occupied vs. renter occupied

Luke F. · Answer

Great question as we are in that similar boat.  I recently drove past a local four plex here that was well priced at 650k (I believe it has sold and was told be an agent that it had multiple offer on it).  Anyways, the property was at best a C.  That made me really start thinking if going out of state is the best option.  The appreciation wouldn't be what it is in Denver but will that continue?  Love the question and certainly would like to hear feedback from others as well.

Purchase 1 Investment property nearby or 2 out of state?

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