How to go about purchasing an investment property out of state?

Question

Hello everyone. This is my first post on this forum. My wife and I live in Wa state. Currently trying to sell our house and are interested in using the profits to place a large down payment ($80K) on a 4 plex in the Phoenix, AZ area.

Why Phoenix? Why a 4 plex? Because that is where my wife and I want to live within the next five years, and a 4 plex nets more income than a duplex or single family home (I could be wrong). My wife and I each have close to an 800 credit score and carry zero debt besides our current mortgage on house we have for sale. Once our house sells, we plan on renting a home (hopefully for substantially less than our current mortgage).

Our long term plan is to purchase a 4 plex, pay it off and purchase another and funnel the majority of the net income from both to pay off the second. Wash, rinse and repeat until we can purchase an apartment complex or possibly build one brand new someday. The only factors I believe we have going for us is our age (were both 31), credit scores and being debt free once our house sells. As well as our willingness to sacrifice comfortable housing and quality of life right now in order to afford to make investments to secure financial freedom in the future.

I am totally 100% uneducated on how to go about purchasing an investment property out of state. With this being said, I am open to all suggestions/criticism, pros-cons etc. Thank you for reading!

Bob Okenwa · Answer

@Justin Spruell

Make sure you visit the area at least once and become familiar with the lay of the land. Phoenix Metro is a large area and it can be quite daunting to learns the ins and outs of the city. You need to be dedicated to studying the market and understanding how much homes sell and rent for in various parts of the city.

Above all else, when visiting, you should be networking and putting together your team. Get referrals, go to REIA meetings and meetups if possible, and use this knowledge to help refine your plan.

As for the Phoenix area itself, 4plexes tend to be a little bit older and in older parts of the city. Make sure that you want to live in these areas since some of them can be kind of rough on anyone, let alone a newbie from out of state.

Wes Blackwell · Answer

@Justin Spruell

Awesome plan! Lots of people are currently moving to the Phoenix metro area, so you won't be alone in your thinking. Using this strategy will definitely show it's dividends down the road vs. buying single family homes.

The first thing you need to consider is your relative experience and familiarity with the Phoenix Metro Area. Have you ever lived here before? Have you ever visited in the summer? You're looking at a 30 degree difference compared to Washington in the middle of July. Are you sure your wife will be okay raising kids in the neighborhood where the fourplex is located? How close will this property be to your work when you move here? Are you used to rush hour traffic that could take you an hour to get home? Etc.

These are important questions to consider when looking at a fourplex, because if you plan on living there in one of the units, often what you want out of a rental and what you want out of a home to live in are at odds with each other. If you'll be renting a separate home to live in here as well, you still must consider the area where the fourplex is located and you comfortably with the crime, school ratings, and overall quality as well.

As @Frank Procopio said, the #1 thing you can do is find a savvy local agent who knows the area and understands your goals as an investor. Because most agents don't. And you should find someone who's willing to be your boots on the ground and go look at properties for you and send you videos and pictures while you're out of state. That will make you far more confident in your decision whether to purchase a specific property if you aren't familiar with the area.

If you have any more specific questions about the Phoenix area, just reply and we'll help you get them answered :-)

Account Closed · Answer

Great choice! Phoenix is number 1 in net migration according to the Redfin report released yesterday. It’s a very hot market with surprisingly low inventory considering the appreciation rates the last few years of 5%+. I work for a REIT full time and am constantly analyzing deals in Phx. If you’d like to connect I can screen share some of my analytics.

Whit

Jake Marmulstein · Answer

Purchasing investment property out of state certainly comes with its challenges. It’s a new market so you should consider the local economic conditions, both at a city level and in the neighborhood itself. Since you are unable to consistently view the property yourself, you need to rely on word of mouth, research, and the opinions of professionals you hire. You may have to hire real estate agents, property managers, and contractors/handymen to take care of the property in your stead, preferably these professionals will be introduced by referrals. As @Todd Dexheimer said, you need to pick the right people for the job. These relationships are crucial for the successful management of your property. Also, I would suggest familiarizing yourself with Arizona’s laws and see if there are any legal considerations specific to the area.

Pamela Sandberg · Answer

One of the most important considerations in investing out of state is getting a local team on the ground that you trust. You need a property manager who will stay on top of the finances, a maintenance team who will respond quickly and get issues taken care of right the first time, etc. I've got referrals for these types of people, if you'd like. I'm also happy to share market knowledge/insight/etc. as you're looking around Phoenix. Happy to help however I can!

Justin Spruell · Answer

DANG! This is a lot of information to process and go over. Thank you everyone for your replies. Quickly- current mortgage payment is $1500 monthly. I have already looked at dozens of places to rent and they are all nice and much cheaper than $1,500. So I got that going for me, which is nice.

David Lilley · Answer

@Justin Spruell renting would be a mistake. Any cash flow you would get from a quadplex will just be thrown away paying your landlord rent. My advice would be to buy a quad (or bigger) and live in one of the units. Buy something that needs updating and do the work yourself.

I would wait to sell your home until you are ready to make the move.

EDIT: If you want to lower your payments and you're not ready to move, buy a cheaper house that needs to be fixed up in your area. Read about the BRRRR method.

Todd Dexheimer · Answer

1. Decide on 1 or 2 markets

2. You need to know where the market is trending, meaning the areas people are moving into and out of.

3. Know and understand the good and bad areas of the city.

4. Get to know Real Estate Brokers.

5. Get to know property managers. Building relationships with 3-4 property managers is important.

6. Work on building the rest of your team. You need a team that will help you be successful. Find a closing attorney, find a mortgage broker, an accountant, appraiser, inspector, surveyor, etc.

After all this is done initial from the comfort of your own home/office, you will need to visit the city.

7. Visit the city.

See more:

https://www.biggerpockets.com/member-blogs/10145/74387-keys-to-out-of-state-investing-oos

Chris Pike · Answer

@Justin Spruell I have been having luck with value add small multifamily deals in gentrifying neighborhoods in Downtown Phoenix. Feel free to DM me if there is any way my experience could be of value to you. Good luck on the sale of your home in WA!

Bjorn Ahlblad · Answer

@Justin Spruell Start educating yourself now. Join the AZ LL association-50 bucks a year. Great resource.

Hang out here on BP and make field trips to where you want to own. A 4 plex is way better than a duplex or SFR. IMO. Even better is living in the 4 plex for a year house hack and get a cheaper loan. When investing OS be conservative, buy what you can handle and don't take chances like FSBO. Use an agent and do your due diligence! All the best!

How to go about purchasing an investment property out of state?

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