Considering buying a small multi-family out of state...advice?

[Monica Boyles]

Hi all - looking to buy my first 2-4 unit multifamily (or possibly STR). I live in the San Francisco Bay Area, so buying locally doesn't make sense. I've been looking at more remote but still desirable parts of California, but obviously CA is just expensive in general. Even though I am aiming to put 30-40% down, it seems like it will be challenging to get rents to cover a loan and basic monthly expenses. Would love any guidance on buying out of state -- from best markets to consider, to techniques for research, how not to get burned, is it OK to purchase sight unseen or would you always recommend viewing in person, etc. I'm sure this topic has been covered before, so please feel free to point me to existing guidance if there is some. Many thanks in advance.

[Ari Stern]

@Monica Boyles, all of the advice on here is solid. Rather than repeating what has already been said, I will stress something that I feel was only lightly touched upon - property management. 

I see this more often than I'd like, where new investors will buy a property solely based on how it underwrites. If the numbers look good on an excel spreadsheet they jump all over it. Yet they don't put too much focus on the actual management side of it, and end up cutting corners, or engaging a third-rate management company. And sure enough, the investment ends up being a disaster.  

Since this is out of state, and you're not likely to self-manage the property, I'd highly suggest putting a lot of your effort into identifying a solid local management company. One of the important things to pay attention to, since you are looking for a small property, is your building's proximity to other properties that the management company is managing. A big mistake a lot of investor make, especially when when it comes to small properties, is that they rely solely on the reviews, feedback and reputation on the company, and disregard how far away the company is from their property. Since you're likely to pay the management company a percentage of income, the management company doesn't end up making all that much on smaller properties, and they tend to not want to inconvenience themselves and deal with issues as they arise, and in a timely manner, if it means traveling a half hour away each time. As apposed to a management company that is already managing a portfolio of properties within a few block from you, and can hop over at any time. As a side note, especially with smaller properties, another thing to pay attention to, is some companies also tend to play games on the accounting and expense side, to prop up how much they make from the property. So definitely do your research on this.

Good luck!