Should I purchase a 2nd rental property out of state?

[Tyler Galloway]

I live in the Southern California market and am beginning to consider RE investing. My wife and I already technically have a property (we moved out of our condo and have been renting it out with a $700/mo net).

Our best option right now would be a cash out refi on the condo. We owe 105k and it's worth 400k.

However, the SoCal area is cost preventative for RE right now (especially considering we have, at most, 215k out of the refi and would then be operating our condo at a loss.

I'm starting to consider Phoenix, AZ. It's a growing economy, prices are in our range, it's a fairly close drive/flight for us and, here's why I'm leaning there, my parents are retired there.

My questions:

What are some of the big hurdles that you have found doing out of state RE?

In my position, what kind of properties should I be looking at?

Does the area I'm looking make sense from a RE sense?

[Mike Roy]

@Tyler Galloway - If you lived in the condo for two consecutive years in the last five, you should be able to sell it outright with a $250k capital gains exemption for a single person or $500k for a married couple.  I would run this by your CPA if you think you qualify.

Otherwise, you can do a 1031 if you can find a good replacement.  Some investors simply pay the tax rather than be forced into a bad deal.  That is a personal decision based on the opportunities you have access to.