Should I buy rental properties in multiple states or focus on 1

Question

Hi there,

I started purchasing rental properties a year ago and I'm a bit confused as to where I should buy and build a larger portfolio.

I'm currently invested in south Florida but it seems impossible to find good deals anymore. I was thinking to buy duplexes, triplexes and fourplexes out of state but I'm trying to figure out the best strategy to do so.

Is owning a nationwide portfolio with few properties in each state/area a smart decision or should I focus on 1 area?

What would you guys recommend me to do?

Crystal Smith · Answer

I haven't read the other responses but I suspect that the general advice will be to focus on 1. I'm going to be the contrarian. At one point we had all of our $ in one small market. When that market went south, so did our portfolio. After that we decided not to be dependent on one small market so we invested in multiple markets & then also invested in one large market that had multiple sub markets. Does this mean we'll be forever protected from another downturn; probably not. But we treat our real estate portfolio like we treat stocks; We never put all our $ in one stock and one industry- We spread it out.

With that said- We also decided that we could not invest Nationwide so we narrowed it down to a few key markets and each year we evaluate where to expand but within a narrow range.

Allen Wu · Answer

@Gidon Levy

Two schools of thought. The “pros” say you should buy in one area that you know best and keep buying.

However, I disagree. I’m in Southern CA, if I want to go all in in Los Angeles, I’ll be buying line 1 property every 5-10 years.

I’m all about diversification. My scenario:

1) Los Angeles CA: own 2 condos for high appreciation play. 1 is cash flowing. Both bought in 2015. Both killing it on appreciate with 50-75% return

2) San Antonio TX: own 1 SFR. Cash flowing machine. Bought during covid.

3) Cape Coral FL: bought back in 3/2021. Cash flowing. Duplex play.

4) Online REITs and private placement reits: small percentage of money to get some passive play.

As you can see, I’m fairly diversified, though heavy in CA. So if CA crashes, my hedge would be #4 and #2, since FL pretty volatile too.

Remington Lyman · Answer

I started purchasing small multifamily in Columbus, Ohio a little over 3 years ago and have done extremely well. The cost of entry is low while the cash flow is high. Columbus is the only Ohio market that has seen a rapid growth in jobs and population.

Cincinnati and Cleveland, Ohio are solid too.

Allen Wu · Answer

@Ginger Zumaeta

No LLC. Just have enough insurance.

Alecia Loveless · Answer

@Gidon Levy I’m currently investing in my home market. I’m in the process of buying one multi family now and then have my eye on one more project.

When I have accomplished that I will probably look elsewhere especially if the local market has continued to appreciate. The point of entry right now here is around $250,000 to pay your mortgage and cash flow about $300 a month which isn’t exciting me.

If I were you I’d probably look for one second market and build a team and invest there for a while, as long as you are getting good deals and have a good team and it makes sense to do so.

Then I might look for a 3rd market and build s team and invest for a while.

I don’t think I’d just buy one house here and one house there and have 10 houses spread all over the US because then you’ll spend all your time managing property management companies and never getting a better deal out of any of them because they only have one property of yours and it’s more of a hassle to them every time it’s empty because they’re only earning $130 s month off you instead of like $800 if you had 5 houses with them.

Just my 2 cents worth.

Paul De Luca · Answer

@Gidon Levy

I also recommend focusing on one area to invest in to start. That way you only have to build one solid team to invest out of state. That seems far easier than trying to build teams in multiple states/locations and also become familiar with all of those markets simultaneously.

Stephen Brown · Answer

I'd recommend investing in one general area. So just like what you're doing in Florida. Instead of going into different states, go into one state but different cities. Ideally, here in the midwest you can find multiple cash flowing cities relatively close to each other with multifamily deals.

Theresa Harris · Answer

If you are investing out of state, it is nice to have the places in one area as you get to know that area and can deal with one property manager.  Having said that if you can no longer find good deals in your current area, try buying in a second.  I have places locally and long distance (all in one area where I want to retire).

Gidon Levy · Answer

I'm glad and impressed by every reply in this post. Thank you guys. Just wanted to make sure I'm not the only one wanting to diversify their portfolio. With that being said and well answered by you guys, any main cities you guys think worth investing right now? My research gets my attention in San Antonio TX and Columbus OH areas. Any thoughts?

Andy Daniels · Answer

@Gidon Levy this entirely depends on each person individually. Preferences, experience, energy level, appetite for risk etc.

Investing in one specific market is what many people do, and it works great. I also know of investors who have land holdings in 10+ states, and they also do just fine.

An argument I would make for investing across different states/markets is it spreads out your risk. For example, say you own 5 properties in a city, but 2 major corporations move out of town to relocate elsewhere. Demand drops, renters move out and it becomes more difficult to adapt with all your eggs in that one basket.

As I'm developing my strategies for investing, I want to go for a diversified approach. This means investing in multiple markets and multiple different unit types. This is MY preference however, this may not work for you.

As long as you have a solid 'Core Four' in each market (Agent, Lender, Contractor, Property Manager), you can invest anywhere.

Hope this helps! Reach out anytime if you need help.

-Andy

Should I buy rental properties in multiple states or focus on 1

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