First timer wanting to invest outside CA

[Khalil Chu]

Hi all,

I’m currently living Cali and saved about 60k over the last 8 years and was looking at multi family 6+ units in like Kansas, Texas, Oklahoma, and Ohio. I was wondering if anyone knows the steps on how to do it?

I never owned any property yet and don’t think I ever will in California. The prices are nuts, but I was looking at pieces for like 400k and was thinking maybe I can do a 10-15% down but would it be best that I get a lender here in CA to give me a loan or just ask for the loan in the states over there. Also does one get a management company first or after getting the property? I’m also a bit worried about going to a lender because my salary as a waiter is pretty low $22k after taxes and if I’m asking for 400k would they even grant it? I’m living at home (parents house) so I don’t pay rent. Any tips or advice for a newbie?

[James Wong]

I am in a similar situation as OP. I'm from California and I agree it is really difficult to get into the market without risking significant amount of capital or time. Where are you looking at properties for 400k? I have property in Central Valley and they are in rough areas. Just consider the fact that there are guides online for tenants to live rent free for up to 6 months and how to game the system. 

There are a lot of guides on BP on how to invest out of state. If you're open to it, download "Long Distance Real Estate Investing" by David Greene as a primer.

The lender will look at debt to income ratio. If you are living rent free, that's a good thing because it will help you qualify for a larger loan. The lender will need a note from your parents acknowledging you are living rent free. I had difficult getting a loan at first because I am self employed and I transitioned from W2 recently. If there is an existing tenant in the property, you may be able to qualify using the rental income from the property. This helps your DTI. Would your parents be able to assist you with the down payment? The lender may be able to increase the loan amount.

After months of lurking and researching, I invested out of state into KCMO. I started with zero knowledge and experience in the area. I like the area, it's growing and there is a lot of opportunity. It is affordable as well. What I love the most was the landlord friendly laws. If the tenant breaches contract for nonpayment, its rather quick to evict. Consider the fact you're paying a mortgage and you need to run a business.  Would you want a tenant playing the legal system so they can skip paying rent for a couple months? Make sure to have a criteria you want and follow it so you can mitigate your risk.  

In terms of finding a property manager, there are a ton. Try to find accredited property managers since they have a standard to follow. You can bring in the property manager at any time. I recommend getting one before signing a purchase sale agreement so you aren't scrambling to find one that just conveniently fits. Look at the term sheet they give you. What is the management fee? Are there seller contingencies? How much of a deposit is the PM asking for? If the tenant has a clogged sink, is your PM willing to coach the tenant over the phone how to fix it before sending a contractor? If there is light rehab work that needs to be done, how will the PM charge you? Screen your property managers and ask them difficult scenario questions. Look on review sites to see what people say about them. If they have a lot of bad reviews, it is most likely from a disgruntled tenant and that means the property manager is doing a great job in managing your property. If you are completely unsure if the area is good or bad, ask for third opinions. I find people on thumbtack or willing to a short gig to take a video of the neighborhood and the house. This is pretty cheap and can help you mitigate risk of investing.

Good luck and I wish you the best!