mixed message?

Question

I read 2 ideas here: First, buy in your backyard so you know the area well,which makes sence. Second, i read some of you are out of state investors if  that's where the deals are, which also makes sence. Being a NY'er, I cannot buy in my back yard--way too costly. but i am unaware of 
values out of state.
 How to decide which route to follow?

Account Closed · Answer

Depends where you live. If you live in a place where you can get good deals, go for that first. I live in a very expensive part of the country so no choice but to go out of state. The other thing to consider is what your objectives are. If you are just going to buy 1 or 2 properties, its hard to do out of state. The key to out of state investing is to have a great team to support you. It takes time and effort to develop that team and once they are in place you can leverage them over multiple properties. ]

Some would say good deals are to be found everywhere if you look hard enough. Maybe thats true but I dont have that kind of time. If you do, then maybe local may work for you as well.

Jon Holdman · Answer

What are your plans for retirement?  Staying put?  Moving?  Is moving now an option?

I've been (and am) tempted by some out of area rentals.  The management holds me back.  I manage my own rentals here and know this is a relatively painless job.  Property manager are, IMHO, overpaid for what they do.  But if you go out of the area, you're stuck.  You have to use a PM.  That eats into your returns.

OTOH, if you're willing to move, you might move to an area with better rentals and cheaper housing for yourself.

$3000 a month is a pretty high goal for rentals.  That's $36,000 a year.  Combining the value of your existing rental with your cash you have $140K.  You would need a 25% cash on cash return.  And since you would be in for the long haul, you really do need to account for major items like evictions, major tenant damage and new roofs.

Will you be able to kick more money into your investment pot in the next 10 years? If you can be adding $20K a year, you would be at $340K in 10 years, meaning you need about a 10% cash on cash return.  Still high, but more feasible than 25%.  You might be able to hit a number like that with hard money lending.  That requires less effort than landlording and (if you work through a broker) is much more hands off than landlording.

I'm in a very similar position to you.  We are seriously considering doing at least one out-of-area rental.  Specifically, buying in FL, renting for the next 10 years or so and then moving into it.  Today's rates are attractive.  As a rental, its probably cash flow negative.  But we could sustain that negative cash flow and sell our house here and have one in FL for retirement.  To me, being mortgage free (for your residence) and retirement go together.  Otherwise, you have to have that much more income to support your house.

Chad Heard · Answer

I can tell you Marc, I work for a real estate brokerage that specializes in real estate investing and one of our biggest investors is an out of towner. They are a big capitalized investor that saw an opportunity in our market during the worst of the real estate market crisis. Their strategy is to buy n' hold properties that will be completely paid off  in 5 years then sell the majority of their portfolio in 10- 15 years to reap the benefits of equity. This strategy will make  them filthy rich. Now in saying this, you have to address the big big issue of control of your asset. You can't truly manage and control your asset in State. This is the allure of real estate investing for a lot of stock investors  who are tired of the measly returns.  You have to find yourself a phenomenal property/ investment portfolio manager. These can be hard to come by. Marc, I work for a company that manages properties and I can tell you that a lot of property management companies are no good. A lot of them will not take care of the property in the manner that you would like.  Some of them don't do a thorough screening of the tenants  and you will have a high turn-over rate.  If you are going to invest out of town you better have a top notch property manager. Even when you do have a top notch property manager, don't let them roam free-range with your investments. Physically check in with them. Our top dogs come down quarterly to check in on their portfolio and to look for more investment opportunities. Our operations are kind of a one- stop shop.  We can take our investors from A-Z. I am sure that this not a unique model. If I were you, I would check into this as well if I were an out of town investor. I totally agree with both Anish and Joel. They both bring up good good points. You have to consider these things as well.

Cheers,

C

Marci Stein · Answer

Sure- i own one rental house free and clear, cost $80,000. 
i am 10 years away from retirement and will need to supplement my income with another $3,000 a month . 
i have $60, 000 cash to invest now.  Any help much appreciated.

Joel Owens · Answer

Hi Marc,

What you are going through is common and you will get a bunch of different answers. The reason is not everyone's life and income goals are the same and different people are at different stages planning for retirement.

A big component of WHAT and WHERE you invest will be money to start. Different avenues of real estate investing require different thresholds.

If you make 200k a year income and have 300k to 400k to play with versus you make 50k a year and have 25k saved up my answer will be different on what is available.

Your returns you want annually,versus money down, versus more weight on appreciation and tax write off then cash flow will determine many things.

I often go through this process with clients where I talk about investing in houses, notes, apartment buildings, triple net leasing, etc.

I tell them what I think sounds like a fit for them. If you could share more of your situation then we can offer more specific suggestions.