HOW did you get your start in out-of-state investing?

Question

Everyone has their own unique "why" that is applicable to his/her own circumstance; however, I am specifically interested in knowing HOW you got your start in out-of-state real estate investing. Here are some more in-depth questions to get the ball rolling:

How did you end up choosing the out-of-state market you invested in? (Most interested in hearing responses to this question) Was it by accident or did you have a strategic approach? What sort of due diligence did you run to analyze the market?
How did you go about setting up your team and receiving trusted referrals?
How did you ultimately find the deal you purchased?
How has your out-of-state investment worked out for you?

Thank you in advance for any input you have to share!

Lee Ripma · Answer

I invest in MF in Kansas City. This is exactly how I chose it: 1. google top cash flow areas or consult something like this: https://s3.amazonaws.com/cashflowsavvy/Cashflow+Sa... 2. Think about if I know and trust anyone in those markets, no I don't. 3. Think about the markets that I can easily fly to from SoCal or have been to and think are cool. 4. Kansas City jumps out right away, I went there in college and thought it was cool, my partner in the deal is a Chiefs fan. Okay, great, let's try it. 5. Research KC a ton, try to figure out submarkets from afar, start looking for deals on MLS and loopnet. 6. Go to KC, meet with people, make offers on deals that in hindsight were terrible. 7. Drive all over KC, look at a tons deals that are terrible, look at a ton of areas I wouldn't invest in, walk over, go all over, drink tons of coffee, download all deals of MLS and map them. Feel like all I've done for 3 days is drive around and stay up all night. 8. Finally, find an area that I like and get a deal there (duplex and fourplex). 9. Get PM company I think I can trust, get contractor I think I can trust. Kick out tenants and start rehabs. 10. After several months have to fire both PM and contractor, end up taking over the projects, fly to KC 6 times in the last 6 months. Spend tons of time on the projects, but learn a ton! Now have trusted people in my KC market. I now know what I want in a deal and know the costs of rehabs. I now understand so much more than I ever did before about the KC market. Here is my take home from this: It's a ton of work, at least at first. It takes a lot of tries before you find someone you can trust. It's hard to invest from far away. Things don't go as well when you're not there. You think that people will make good decisions when you're not there to oversee them, they don't! That is exactly how I chose my market and my experience after doing so!

Dean H. · Answer

Went to lunch with a relative to pick his brain about investing and ended up buying a duplex from him, the funds helped him buy another flip. That was the first of many single and multi family investments my wife and I have made out of state. I just kept his property manager. The rest of my team has just kinda joined the fold as things roll along. I buy a couple a year now and try my best to pay cash for all of them. I know on BP leverage is everything but I just don't want the BS at my age. I look for opportunities that fit my strategy and buy about 1/2 of 1 percent of what catches my eye. One of these days I'll quit working 60 hour weeks and enjoy the cash flow but for now its just to much fun to grow the portfolio.

Mike D'Arrigo · Answer

@Lee Ripma I agree completely. People talk about Kansas City or Indianapolis or fill in the blank as a great market but like most cities, there are good areas and bad areas. As an out of state investor, it's critical to know the neighborhoods well and not get lured in to rough areas because the prices are low. They're low for a reason.

Mike D'Arrigo · Answer

@Sam Manoo Choosing a market is easier than it sounds. Don't base your decision on whether you personally like the city, think it would be a good place to visit or because you know someone who lives there. Take emotions and personal biases out and make your decision on objective economic and demographic fundamentals. The 3 primary factors to consider are: 1. Population growth2. Job growth3. IncomesAll of this data is available through the U.S. Census Bureau and Bureau of Labor Statistics. Just because a market has strong economic and demographic trends doesn't mean it is a good cash flow market. You'll also need to drill down and look at markets with high rent/price ratios, favorable landlord/tenancy laws, and low property taxes and insurance rates. The chart below shows the kind of data that I look at when evaluating any market.

Account Closed · Answer

Hey @Sam ManooI live in Pasadena. I have 2 SFH rentals in Indy. I discovered Indy mostly by accident. After a few trips, a city tour, driving around and seeing a lot of properties, I now feel like I have a handle on repeating the process in buying more. It was a process of going through it myself and learning what was right and wrong for me. I received trusted referrals from trusted sources. Some did not always pan out and some did. I learned so much from that first purchase that my second one went smooth all due to having a better team in place. I would say to pick one market using the logic and strategy you feel is comfortable for you. Then through BP, sign up as a buyer with a bunch of wholesalers in that market. Analyze the deals from home. When you can identify one or two wholesalers that have the most deals that fit your needs, plan a visit. Call up the wholesaler(s) and ask if they can fill your visit with viewings. While you are there, ask about the neighborhoods etc... It took me about 3 trips to Indy and 2 failed deals before I got my first one. I don't regret the failures at all. If you want to meet up to talk more, let me know?

Kerry Mertz · Answer

You might want to look into turn key companies once you choose your market. I think that's an easy way to introduce yourself to out of state investing. There's a lot of hand holding and a lot of turn key providers also do property management. Once you get more comfortable, it's easier to branch out on your own.

Lane Kawaoka · Answer

Sam Manoo Anthony Gayden Start by finding investors that are investing there and know you need to find at least 5 of them before you get enough data points. I started with one then bought 9 at once in Birmingham, Atlanta, and Indiana.

Lee Ripma · Answer

@Sam ManooI did this while working a full time job. Although there were two weeks when I took vacation to work on it and I worked a lot of nights and weekends to make it happen. I always tell myself that the first one is the hardest, and I think it's true (although we'll see). Now I have a team in KC that I trust and a lot of local contacts for the market. I like @Mike D'Arrigo analysis of the greater markets. Once you find some suitable greater markets then I think you've got to drill down into the sub markets. There are areas in KC that would never buy in and there are areas I think are awesome. So identifying your sub market is really important. As they say, all real estate is local, even down to the block. So really being on the street and knowing the exact area where you are investing in is important. Lee

Sam M. · Answer

Thank you all SO much for the super helpful feedback! @Soh Tanaka I can understand your position about wanting to diversity your portfolio throughout various cities in the US. Just going to take that much more work. But I'm sure the reward is worth the effort! @Anthony Gayden Wildfires are indeed inconsequential to investing in SoCal. Solid point. I don't think this would affect my decision-making either in choosing a market to enter. @Lee Ripma Best response yet! Thank you for all the detail in your post. Did you do all this while employed full-time? Or was this your full-time project? @Mike D'Arrigo I'm very much a numbers guy myself and always consider the relevant data points in any real estate-related decision I make. Thanks for all those points. Going to look deeper into the U.S. Census Bureau and Bureau of Labor Statistics. FYI, BP came out with a very helpful article recently on a similar topic: The Data is In: These Are the Best Cities for Rental Investing

Anthony Gayden · Answer

Soh Tanaka How do you predict a tornado? I've heard people say avoid places like Nebraska or Kansas due to possible tornadoes and I just laugh. They are severe storms and are unpredictable. The majority of the time they don't hit major population centers and choosing not to invest in an area due to them would be like me saying I refuse to invest in Southern California because of wildfires.