Buying rentals outside of your area
Auburn NY · Member since 2019 · 97 posts · 56 votes
Buying rentals outside of your area
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Paul CoxPro Member
Rental Property Investor · Manassas, VA · Member since 2013 · 193 posts · 156 votesInteresting article that I received from Ken McElroy this morning talking about rental stats around the country in case you're trying to zero in on an area.
"This was something sent to me I think you all may find interesting. The link to the full article is here "
If you don't feel like reading here are the Key takeaways:
- Las Vegas has been the top performing rent growth market from both 2016 to present as well as 2018 to present
- Phoenix and Tucson have also consistently been top performing markets
- Colorado Springs leads all markets with gross rent growth of 70% between 2009 and present
- Since 2014 Sacramento has been the strongest market with rents up 50%
TOP 20 MARKETS BY REGION
- Western markets have been the top performers over each timeframe dating back to 2009
- Only one Northeast market has been in the top 20 – Boston ranks 18th since 2009, and 10th since 2018
- The Southeast markets have narrowed the gap with the Western markets, as they now represent 8 out of the 20 best performing markets dating back to 2016
- Fort Worth and Austin are the only markets representing the Central region of the country
Right now I'm focusing on STRs so I'm in a slightly different dynamic, but it's good info for myself when I move to purchase my first LTR or multi-family.
Merry Christmas and Happy Holidays
Paul
12 Replies
- Member since 2019 · 89 posts · 65 votes6y
@Edward L lauckern
Investing outside your home market comes down to three things.
Firstly build a team you trust and can lead, and business plan that makes sense for the property and the market.
Most importantly you'll need a great property manager.
Secondly qualify the market you plan to invest in, and find a specific area in this market youd like to invest in. Learn everything you can about this sub market then find a manager that knows more than you.
And last find a great deal with enough cashflow to pay your team, yourself, your debt, and keep operating reserves full.
You'll need to plan ahead so nothing goes terrible wrong and build trust In your team for when things change you and your team can pivot with the changes.
- 6yPaul CoxPro MemberRental Property Investor · Manassas, VA · Member since 2013 · 193 posts · 156 votes
Interesting article that I received from Ken McElroy this morning talking about rental stats around the country in case you're trying to zero in on an area.
"This was something sent to me I think you all may find interesting. The link to the full article is here "
If you don't feel like reading here are the Key takeaways:
- Las Vegas has been the top performing rent growth market from both 2016 to present as well as 2018 to present
- Phoenix and Tucson have also consistently been top performing markets
- Colorado Springs leads all markets with gross rent growth of 70% between 2009 and present
- Since 2014 Sacramento has been the strongest market with rents up 50%
TOP 20 MARKETS BY REGION
- Western markets have been the top performers over each timeframe dating back to 2009
- Only one Northeast market has been in the top 20 – Boston ranks 18th since 2009, and 10th since 2018
- The Southeast markets have narrowed the gap with the Western markets, as they now represent 8 out of the 20 best performing markets dating back to 2016
- Fort Worth and Austin are the only markets representing the Central region of the country
Right now I'm focusing on STRs so I'm in a slightly different dynamic, but it's good info for myself when I move to purchase my first LTR or multi-family.
Merry Christmas and Happy Holidays
Paul
- Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes6y
@Edward L lauckern It's all about personal preference. Like you, I have no desire to turn over management of my properties and no interest in investing more than an hour from my home. My entire state has a real issue with garbage OOSI who have become a detriment to the community, and I've seen too many crash and burn. It's left a sour taste in my mouth. But there are hundreds, if not thousands, of folks here on BP who invest OOS, or are PMs for OOSI, and have found great success while becoming an asset to the community.
It's probably wise to diversify your investments simply because it's never a good idea to have all your eggs in one basket. But diversifying could mean index funds or note investing; it doesn't have to mean B&H investments in another market. You're clearly successful in your market if you've made it to 11 units and don't hate self-managing. If it ain't broke, don't fix it.
- Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes6y
@Edward L lauckern yes you are missing something. I live in FL ( moved from LI in March ) do all my business in Cleveland for the last 10 years or so . I have sold/ flipped about 500 props SF MF to Ca and Israel investors. 90% have never been to Cleveland . Its all about your knowledge and your team....
Good Luck
- Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes6y
@Paul Cox I am not sure where you are getting your stats from but they are incorrect . , 4, 5 6 years ago we were providing 25- 30% NET cap rates to our clients with all in pricing of about 35k rents from 900- 1100 SF . Forbes had Cleveland the # 1 rental market in the country 2017- 18, but they were not paying attention it was MUCH higher ROI prior . We are still providing 10- 15% net caps with all in pricing of about 60kish . So IMO you really cant beat those % s
Good Luck
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes6y
Originally posted by @Edward L lauckern:
I own 11 units in central NY all within close proximity to me. I do my own management on all the properties. I have had opportunities to buy outside of my area but I dont feel as though it's a good idea, (what if something went wrong and I couldn't get there) all I see is high risk. am I missing something? I'm looking to see what experiences other investors have with buying outside of their areas, where management companies have to take over. Compared to investing locally. Is it worth it?
Pretty much most all of the investors who invest out of state flock to the turnkey markets. There are tons of turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
- Cleveland, Ohio
- Dayton, Ohio
- Toledo, Ohio
- Youngstown, Ohio
- Cincinnati, Ohio
- Memphis, Tennessee
- Birmingham, Alabama
- Huntsville, Alabama
- Kansas City, Missouri
- Saint Louis, Missouri
- Indianapolis, Indiana
- Detroit, Michigan
- Erie, Pennsylvania
- Louisville, Kentucky
- Milwaukee, Wisconsin
- Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
- Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
- Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
- Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
- Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
- Make sure your property manager is a licensed real estate brokerage.
- Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
- Rental Property Investor · Miami · Member since 2019 · 18 posts · 3 votes6y
Originally posted by @Edward L lauckern:
I own 11 units in central NY all within close proximity to me. I do my own management on all the properties. I have had opportunities to buy outside of my area but I dont feel as though it's a good idea, (what if something went wrong and I couldn't get there) all I see is high risk. am I missing something? I'm looking to see what experiences other investors have with buying outside of their areas, where management companies have to take over. Compared to investing locally. Is it worth it?
As James said, some markets like Cleveland are popular. With a good team there is no problem.
- 6yPaul CoxPro MemberRental Property Investor · Manassas, VA · Member since 2013 · 193 posts · 156 votes
@Bob Prisco...Those stats came from an email from Ken McElroy and as I looked again, those stats seem to be for Multi Family stats which came from this site: https://cbreemail.com/rv/ff011...
Sorry if it was misleading to any...It seems to me that if you do your homework and buy right, then any market can be profitable!
Paul
- Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes6y
@Paul Cox its all good, I still disagree. We used to buy MF at about 15k per unit ALL IN. , 3,4 5, 6 years ago, trying find a MF, 4 + units for under 30k per unit now, not going to happen.
All the best
- Auburn NY · Member since 2019 · 97 posts · 56 votes6y
@bob prisco What did places rent for at that time? And what do they rent for now? If we did a comparison using inflation calculators I'm curious to see how close it is in relation to purchasing power of that same dollar amount back then
- Specialist · Helena, AL · Member since 2017 · 40 posts · 100 votes6y
@Edward L lauckern I am a full time wholesaler in Birmingham Alabama and I have several buyers who buy and hold remotely. Like others mentioned, You just have to have a good team in place. In my area the property management companies typically charge 10% and first months rent. If you find a good management company then it’s well worth it.
- 6yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 993 posts · 1k+ votes
Hello @Edward L lauckern,
An excellent question. I will start my response with a quote:
“Live where you like but invest where you can make money.” …David Lindahl
If you can achieve your goals locally, then I recommend investing locally. The key question is, what is your goal? I believe that every investment property must meet the following three criteria.
- Sustained profitability - The property must generate a positive cash flow today and into the foreseeable future.
- Currently and likely to continue appreciating for the foreseeable future at or above the rate of inflation - Properties appreciate in locations that have strong demand, which is the key driver for sustained profitability.
- In a location where you can make money and you control your property as opposed to the government dictating what you can do.
Achieving these three criteria requires a combination of the right location, tenant pool, investment team and property. If you do not get one or more correct, you are likely to lose money or not achieve your goal. The two most important are the location and the tenant pool.
While I could list several criteria, I will include only three in order to keep this post short. If you would like my full criteria list for selecting a location including tenant pool, property manager, Realtor and location, let me know.
- Appreciation - Appreciation is the best indicator of demand. If properties are not appreciating, then there is limited demand which indicates poor economic condition for the area. Also, rents lag property prices by 2 to 10 years so the trends in property prices today are a good barometer of what rents will do in the future. Also, if property prices are not rising at or above the rate of inflation, rents are effectively declining.
- Population size - I would focus on cities with a population of 1M or more. Small cities tend to be reliant upon a single industry, which makes them vulnerable to economic changes.
- Jobs - Not just any jobs but jobs that pay similarly to what your target tenant population is making today. Remember that companies do not live forever, the average life expectancy of an S&P 500 company is under 15 years. So, unless new employers are setting up operations in the location, look somewhere else.
All the above said there is no perfect investment location. Factors such as not having a good investment team or properties that require a lot of money to rehab could make an otherwise good location unacceptable. So look for a strong good and not a “perfect” location, they do not exist.
FERNWOOD Team, KW VIP Realty520 Reviews
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