Should I buy out of state or am I not getting creative enough?

Question

Hello! My name is Jake.

First time poster here.

I want to jump in to real estate today. The “issue” (more of a roadblock) is I am living in a rather expensive area on the coast of California.

San Luis Obispo, Ca

Median home price: $749,900

Average rent: $2,625

I don’t know if it would be worth buying a SFR in the area, simply for the expected appreciation. I couldn’t see cash flow being something to boast about either.

I’ve listened to a few podcast featuring guys/gals who have had great success in Out-of-State investing. Sounds great and all but I’m Just uncertain! It seems like a daunting task to build a team of people you’ve never met to manage you’re properties while you’re 2000 miles away.

I hope everyone can prove me wrong!

Options:

A) Trust Appreciation and buy a “deal” in the area.

B) Invest out of state In a location that I’m not familiar with but has great cash flow rates. Building a team there.

C) Invest in my home town (Dalton, Ga) because I know the layout of the city. Where to buy, where not to, already know people in real estate, ect.

Thanks guys!

Jake

Darius Ogloza · Answer

Jake: I live in SF/Marin County and can only dream of a market with SLO's "low" housing prices!

Jokes aside, I have 10 years experience from 2004-2014 investing out of state (Rochester NY) as well as having local RE investments  (Marin, SF, Davis).  As a had close friends in Rochester, my out of state investing resembled a mixture of your options B and C in many respects.

Based on this experience, apart from a couple of speculations in Florida and Las Vegas, all I now do are local (Marin area) rehabs and flips as these have proved to be the most dependable and lucrative sources of income. All of the cash I derived in Rochester over those years was swallowed by capital expenditures, bad tenants and shifty property managers. If you do end up going this route, make sure whoever is selling you shows you REAL numbers over a meaningful period of time (minimum 4 years) and not some pro forma with sunny projections based on perfect tenants and perpetual sunshine. There are a lot of BS artists out there trying to sell Californians on the dream of perpetual income that seldom manifests. Moreover, the amount of research you will need to do in order to have a chance of making money out of your area is the equivalent of a full-time job. To paraphrase Dorothy, there are deals everywhere, including in your own backyard. Good luck.

Jermaine Chad Ingram · Answer

@Jake Stokes

I live in Miami and am farming 2 hours north in Saint Lucie County. You just have to think outside the box.

It would be easy for you to solicit real estate agents here on BiggerPockets to send you three or four houses that they would suggest for your situation. you can also find good agents who would be willing to manage the properties for you.

New construction in my area is selling for $140,000 for a two bedroom 1 1/2 bathroom house in a fantastic neighborhood

You’re only limited by your imagination

Ralph Justiz · Answer

@Jake Stokes At the end of the day it's up to what you're most comfortable with and what investment goals you've set. Are you looking to retire in 30 years and want to bank on appreciationn or do you need cash flow to replace your current income?  Out of state investing isn't hard at all it's just different and requires a certain level of trust with the people you are working with. Investing in your home town where you know the market and have connections in the area would probably be the easiest place to start. Do the numbers make sense at home? That's up to you to decide!

Jake Stokes · Answer

@Patrick McCandless

I agree!

I think buying some kind of foreclosure at a discount would be the best option in this county. A flip would probably make the most sense too.

The end goal is to buy and hold properties as a landlord. Starting with The BRRRR method along with House Hacking (Both of which the guys talk about in many of their books and podcasts) I just don’t know if those are truly doable in this area.

Jake

Jake Stokes · Answer

@Tyler Jahnke

Tyler! I appreciate it man.

I’m starting to do some investigating in the Midwest area to see what there is to find.

New to the idea of Real Estate investing but I definitely have the bug. Reading/research/podcasts/guys like you have really helped in the education process!

Jake

Jake Stokes · Answer

@Patrick McCandless

Out of state is just a matter of knowing where to start! Like I said in the original post, it seems daunting but doable!

Ralph Justiz · Answer

I'm going to be honest, my recommendation on where to invest out of state is super biased. I have investments in TX and OK. I prefer investing in OK because its a stable market and the properties cash flow really well.

Tim S. · Answer

Most important member of your team for OOS investing is the property manager.  Decide which market you like, reach out to BP members who invest in that market.  Get recommendations for property managers and realtors.  Make some phone calls, ask a lot of questions.  Property managers know which areas are most desirable, and how much houses will rent for.  Realtors usually don't know, as most houses are sold to local owner occupants.  IF you can find an investor friendly realtor, great.  Make a trip out there, drive around, get a feel for the areas, meet with multiple PM's and realtors.  Look at a lot of houses around your pricepoint.  Get a feel for what you can get for your money.  Find out what they would rent for, Craigslist, other sites.  Ask your PM's which areas are the most desirable, what features are most tenants looking for.  Don't feel like you have to buy something on the first trip.  Once you have a feel, you can tell what's a good deal and what isn't.  Talk to locals, waiters, what areas do they like?  Where are the good schools?  Where are the high crime areas to avoid?  Check Trulia crime maps. school rankings.  I avoid low end houses, shoot for houses just under the median price for the market.  I would not buy anything that rents for less than ~$900/mo in any market. Too much drama at the low end.  Plenty of people make money in C class, but I don't think it's a good idea to start there, it's riskier IMHO.

Run your numbers and Make some offers.  If you're back home, get your PM to go look at them for you, take lots of pictures.  You can have a good experience with OOS investing if you are smart and methodical about it, and know what the market will bare in terms of rental rates.

Arlen Chou · Answer

@Jake Stokes have looked into student housing? Cal Poly is right there, I have to assume that there is a market for student housing. It is very different than regular rentals, but the margins appear to be much higher. You would be especially in good shape if you could find a SFR that could carve out additional bedrooms. It is a completely different business model but I hear there is good money in it.

Good luck,

Arlen

Ika Sargeant · Answer

You can invest out of state but you need to make sure you have a number of things in place. I bought houses in Orlando Fl.

The most important thing for me once the homes were rehabbed and rented was to find a handy man who deals with maintenance issues, I have another person who shows the home when a tenant leaves and does Walk throughs, plus I have a team of cleaning, HVAC service people and more. I also visit the area once a year to do Walk Throughs.

Should I buy out of state or am I not getting creative enough?

Most Popular Reply