Out-of-State Multifamily Investing | Good Idea or Disaster?

Question

Fellow BiggerPocketers:I like the idea of investing in a large multifamily (e.g. 100+ units). These don't exist in my state (New Jersey). So I would need to invest out of state. My fears with being a plane flight away are: Finding the right market and property, given I don't know the area as wellTrusting a property management company to look after the day-to-day operations. I could visit once a month.Is investing in multifamily properties out of state a solid strategy or a recipe for failure? And, if you like the idea, do you have advice on finding and managing the property?I would love to hear your thoughts?Thanks,Mark

Robbie Reutzel · Answer

@Mark Dresdner, the property management company will make or break you. Ideally we like to have "boots on the ground" in the form of a trusted PM or partner. Someone with skin in the game. Also expect to have a few last minute visits :)You might want to look within driving distance of you to start. I'm in the same boat as you in Massachusetts in that 100+ unit buildings are not all that common and they fly off at exorbitant prices when they are available. I recently had a pocket listing pitched to me at $150K/unit which works out to ~$15M+. We focus on other markets because of the numbers.Good luck!

Andrew Campbell · Answer

I'll echo the comments about needing a good property manager--but that is the case whether your property is nearby your location or out of state. Sure, it's easier for me to visit my properties because we're relatively local (all in Texas), but it still comes down to having a great Property Manager and then staying on top of them. In my company, I'm the Boots on the Ground, and I recently wrote an article about how important that is to have local knowledge. Whether that knowledge comes from you or one of your partners its a must. For me, I'd want to be able to get to my property within 3 hours from leaving my house--whether that's driving or having a very short flight. Good luck!

Vince DeCrow · Answer

@Mark DresdnerHi Mark,I think you would be taking on an out-sized level of risk if you invest in a market you don't know well without a boots to the ground equity partner like @Robbie Reutzel mentioned. To piggy back on this thought, your equity partner should ideally have deep real estate focused relationships in the market which could help you to identify your property and give you access to off-market deals before they are made available to everyone and their uncle. In regards to property manager's, they can effectively be handled remotely, however choosing a property manager you can trust could be better done by someone with relationships in that market than by reading reviews on managers and more or less picking one blindly.In addition to having an equity partner that's knowledgeable on the market you want to invest in, you would naturally have to first identify the market. My advice on doing this would be to focus on cities/sub-markets of those cities with the highest level of job and population growth, growing rents, comparatively low levels of rent/income from the tenant base, a lot restaurants/bars/hotels/other amenities, and easy access to major highways. Choosing a market that possesses these characteristics will minimize your overall market, leasing, and tenant risks.I hope this is helpful.Regards,Vince

Lane Kawaoka · Answer

Plus the bank will ask for your experience level and most will want you to be local. Or someone on your team.

Filipe Pereira · Answer

Investing out of state can definitely be practical if you are careful and do it right. -Never take any sale at "face value" and always dig for more information about the property before acquiring. -Ask for videos, not just photos. -Ask to see videos of the immediate area. -Study the area income, what type of employers are in the area, etc. OOS investing can give folks who would otherwise be shutout of REI the opportunity to make some positive returns by investing elsewhere. For example, I just helped a buyer out of Seattle close on a 4 plex in Bristol for under 300K. A similar property in her part of Washington would have cost well north of 1 mil. Very hard to make the numbers work in that scenario, so she invests out of state and hires us to manage it for her! Win win all around. Keep in mind, the months that things are good will make it feel like your property manager is simply an "insurance policy" (meaning barely any issues to take care of, but PM is there to take care of whatever comes up) while other months PMs are worth our weight in gold (things break, tenants need things, some sort of maintenance needs to be scheduled / etc.).Good luck on your acquisition! Is this your first rodeo?Filipe

Fred Heller · Answer

I agree with the other responses. You need to find a good property management company, which will also act as your Realtor, to find good investment properties.All of my clients are from out-of-state, including a couple who are international. None of them have actually visited the properties they own.The key is to find someone local you trust who can guide you on your investment. When I work for a non-local investor I am their eyes here in Houston. I take that very seriously and will not let them purchase a property that I don't think will be good for them.

Joseph Gozlan · Answer

@Mark Dresdner if you identify a property in Texas I'd be happy to chat about possible collaboration.

Joseph Gozlan · Answer

@Mark Dresdner I'd say the answer is "a little bit of both"Looks like you already have the answers. If you invest the time to research and identify a good market AND identify a great operator to run the property for you AND you keep track of your property (don't just hand the keys over) then out of state investment is not that bad. However, if you don't do your homework and just follow the crowd/buzzwords/trends then an out of state investment could bop turn out really bad (for that mutter, so will an in-state investment)

Mark Dresdner · Answer

@Joseph Gozlan and @Robbie Reutzel : Thank you for the advice. I agree that the property manager is a key to running a successful out-of-state multifamily. I have not used one before, so I am not sure how much faith to have in finding a property manager I can rely on. Having a partner with skin in the game living near the property seems like a very pragmatic strategy.