Is out of state investing worth it?

General Real Estate Investing
5yFollow

Is out of state investing worth it?

Sara W.
Investor · Boston MA · Member since 2015 · 50 posts · 18 votes

Hi everyone :)

I have been doing some research on investing in out of state properties. However, after reading and factoring all the hassles and risks of investing long distances and knowing that there are investments out there that are completely passive and yield a standard 7 to 10% returns, now I am wondering if it's worth it to invest in out of state at all.

For newbies, I think a lot of people on this forum recommend to start with turnkey properties. When I looked at some of the TK websites, the properties they featured are generating around 8 to 9% on average. If that's the case, are there any upsides of investing out of state instead of just doing passive investments like Multiple Equity, Crowd Street etc? Or am I missing something?

I know that you can probably get a higher returns if you assembly your own out of state teams and get some off market deals. But what is the ROI for doing that vs. investing in TK? Is the return significantly enough comparing to the risk and work you take.

Would appreciate your thoughts and want to hear your stories about investing in out of state vs. passive investing in funds and notes. Thank you all in advance!

8Reply
696 views

Most Popular Reply

Simone G.
Flipper/Rehabber · San Diego, CA · Member since 2016 · 26 posts · 86 votes
5y

@Sara W.: asking if investing OOS is "worth it" is like asking a room full of hungry first graders what snack they want - you'll get unlimited and diverse responses, and each response will be genuine, well-intentioned, and vehement. Same with OOS investors; based upon each investor's location, experience, capital and risk tolerance, you'll get a smorgasbord of feedback. 

Unsure if it helps, but instead of asking if the best play is OOS, TK or whatever, ask yourself how much of your life you want to dedicate to managing your assets and what amount of money is worth it to you to delegate that management - then reverse engineer that play. 

28Reply
See this reply in the discussion

88 Replies

Jump to latestLatest
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Lane Kawaoka:

    OOS is a great way to start but you definitely hit that scalability issue after 5-15 homes.

    May I ask what kind of scalability issue are you referring to? financing? I found that a lot of OOS investors need to invest in a lot of doors before they can accumulate a big sum of cash flow each month. I am more interested in investing in less doors but higher dollar value properties  - the cost and time of analyzing each deal, the closing cost etc all add up when you are buying multiple doors of low cash flow properties.

    0Reply
  • Jake Tansanco
    Rental Property Investor · San Francisco, CA · Member since 2021 · 16 posts · 8 votes
    5y
    Originally posted by @John Park:

    I agree completely with some of your concerns. I am currently in a situation where I can't do a regular OOS investing due to where I am living at the moment and have recently teamed up with a TK company and am working on closing on a property. 

    I was a big advocate of just investing in stocks and satisfied with owning one property but have just switched gears into wanting to own more rentals in order to create cashflow. I understand that your concern about only generating 8-9% ROI on a property is not attractive at all and usually if you just stick with blue chip stocks you will outperform that. but take into account the equity you're building on the house every month. i kind of look at it as getting paid dividends each month. even though you aren't generating cashflow, you're technically not losing money on the property.

    Hey John, could you share which area you're investing with the TK company? I'm thinking of doing an OOS BRRRR-Key and I'm currently trying to research about this. Thanks!

    0Reply
  • Lynn Berg
    Rental Property Investor · South Amboy, NJ · Member since 2014 · 34 posts · 23 votes
    5y

    @Zachary Beach

    I am thinking about an OOS in FL with ROI of about 14%. It's a new build so I was thinking LTR and equity. Where are you finding 20% IRR with PM? Curious since this is our first investment.

    0Reply
  • John Park
    Investor · Honolulu, HI · Member since 2021 · 17 posts · 6 votes
    5y

    @Jake Tansanco 

    I am getting into the South Bend/Mishawaka, Indiana area. I think there is a lot of opportunity there with South Bend being home to Notre Dame and all. 

    1Reply
  • Steven Virgil
    Member since 2019 · 13 posts · 6 votes
    5y
    Originally posted by @John Park:

    @Jake Tansanco 

    I am getting into the South Bend/Mishawaka, Indiana area. I think there is a lot of opportunity there with South Bend being home to Notre Dame and all. 

    I have a few properties in South Bend and I personally believe SB has a lot of potential long-term. The attention Pete Buttigieg Has brought to the region, the project underway to shorten the commute to Chicago on the South Shore train and the exodus of Illinois residents seeking lower taxes all have me very optimistic. 

    1Reply
  • Menard Sampson
    Hartford, CT · Member since 2017 · 19 posts · 10 votes
    5y

    @Simone G. Wow what a great answer mic drop🔥🔥🔥🔥🔥🧠🧠🧠🧠🧠

    1Reply
  • Menard Sampson
    Hartford, CT · Member since 2017 · 19 posts · 10 votes
    5y

    @Allen Li that sums it up nicely

    0Reply
  • Aj Parikh
    Rental Property Investor · Centreville, VA · Member since 2019 · 1k+ posts · 799 votes
    5y

    Out of State investing is worth it if your market is expensive, or if there is a lot of competition with offers and low inventory. If you hold a well paying W2 job, its worth exploring out of state because the risk is not too high and you can find a home for under 100k which can cash flow

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    It adds an element of risk and you have to approach it different from a property you are buying in your own backyard.

    0Reply
  • Adam Lendi
    Investor · CO · Member since 2017 · 60 posts · 44 votes
    5y

    I am an advocate for learning about investing and investment property ownership in your own backyard, before looking out of state. The success stories you hear of investors buying into out of state markets revolve around either hyper-local knowledge of speculated growth or depressed housing markets where the values of homes have not kept pace with national appreciation, causing good cash flow. If these opportunities were really the golden geese some think of them to be, demand would drive their sales prices up. There is risk that you could buy into an area which is not growing, where property values may plateau and rents could compress. If your market is expensive, you may be best served to seek out opportunities in the area you know, because you will know where the growth is and what to expect in terms of appreciation. If net spendable cash is important to you, it may be wise to start as a passive investor, unless you want to do a lot of research into areas and asset classes of opportunity.

    1Reply
  • Elijah Vo
    Investor · Fort Worth, TX · Member since 2014 · 59 posts · 51 votes
    5y

    @Sara W. I would say OOS investing is worth it as long as you mitigate your risks. Probably two of them that pop up management and market knowledge. As long as you have good boots on the ground teams to help you out and you know and understand the market, that should help you out.

    I've syndicated apartment deals out of state; however, I picked markets that I had researched and could visit...either by a short drive or flight. 
     

    1Reply
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Aj Parikh:

    Out of State investing is worth it if your market is expensive, or if there is a lot of competition with offers and low inventory. If you hold a well paying W2 job, its worth exploring out of state because the risk is not too high and you can find a home for under 100k which can cash flow

    Thank you, AJ! Are there any areas that work particularly well for you and what are the ROI you have been seeing?

    0Reply
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Elijah Vo:

    @Sara W. I would say OOS investing is worth it as long as you mitigate your risks. Probably two of them that pop up management and market knowledge. As long as you have good boots on the ground teams to help you out and you know and understand the market, that should help you out.

    I've syndicated apartment deals out of state; however, I picked markets that I had researched and could visit...either by a short drive or flight.  

    Yes, the more I think about it the more I think maybe I should consider somewhere more "local" like 2-3 hours drive or the state next to MA. The reason why I wasn't look in MA was because it is a very tenant friendly state and the areas that can cash flow are generally in a tough neighborhoods. Having almost been through an eviction process, I know how painful that can be, so I was trying to avoid it as much as possible. 

    0Reply
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Adam Lendi:

    I am an advocate for learning about investing and investment property ownership in your own backyard, before looking out of state. The success stories you hear of investors buying into out of state markets revolve around either hyper-local knowledge of speculated growth or depressed housing markets where the values of homes have not kept pace with national appreciation, causing good cash flow. If these opportunities were really the golden geese some think of them to be, demand would drive their sales prices up. There is risk that you could buy into an area which is not growing, where property values may plateau and rents could compress. If your market is expensive, you may be best served to seek out opportunities in the area you know, because you will know where the growth is and what to expect in terms of appreciation. If net spendable cash is important to you, it may be wise to start as a passive investor, unless you want to do a lot of research into areas and asset classes of opportunity.

    Yes, I did own some properties already in MA. The reason I was trying to avoid MA was because of the high price point and relatively ROI as well as the very tenant friendly law here in MA. But I do think I should start with a more local markets that I am very familiar with before attempting OOS.

    0Reply
  • Adam Lendi
    Investor · CO · Member since 2017 · 60 posts · 44 votes
    5y

    @Sara W. I don't know your local market, however, I can imagine it is probably as challenging or more challenging than Denver, where I live. This is why I partner and I have changed asset classes and we are working on RV parks, rather than residential. We both have a background in single family, multifamily, and apartments. It could be as simple as changing what you invest in.

    0Reply
  • Jenning Y.
    Investor · USA · Member since 2015 · 168 posts · 243 votes
    5y

    @Sara W.

    As an OOS investor for more than 9 years, I think investing in 1~3 hours driving range  is probably a better choice than  investing far away, in your case.

    I wrote my own experience here  before:

    As an Out-Of-State Investor for 9 Years… (biggerpockets.com)

    Living in an expensive market is a boon, not a curse. To make wealth passively, we must grab the appreciations.  Expensive markets usually mean high appreciation  potentials.  Even if the city cores are too expensive to invest, nearby still have more  appreciation potentials than lots of so-so areas.  Cash flows are for active investors, not  for passive investors.

    0Reply
  • Krystle Khoo
    Investor · Hampstead NC · Member since 2019 · 39 posts · 46 votes
    5y

    Hi Sara! We started out investing OOS into SFH BRRRR LTRs near a military base because it was much cheaper than Southern California. After the first 4, we moved to an area where the numbers make sense and has the same demographic (near another base). We are closing on our first local BRRRR later this week.

    I don't see the need to be near the houses we buy and I actually won't even pick up the keys to this local house; our agent will pass them directly to the contractor.

    As others mentioned above, it all comes down to the effort you're give that will determine OOS investing's worth to you. It does take some time to vet a team. Your returns will suffer more from the quality of deals you can find and less from the additional cost of a PM. You will lose a lot of off-market deal finding options and have to use wholesalers to find the best deals, with the additional cost of an assignment fee.

    Simone is right in that this type of investing, local or otherwise, is not passive. It sounds like you've already seen that. But it can be a lot easier with the right systems in place. Investing OOS forces you to build those systems, which we find valuable. The PM will take their cut but it will leave you with time to focus on deal finding and funding.

    I'm happy to chat about our experience so far if you want to learn more. Send me a PM!

    3Reply
  • Aj Parikh
    Rental Property Investor · Centreville, VA · Member since 2019 · 1k+ posts · 799 votes
    5y

    @Sara W. I invested in Cleveland and Memphis and I am seeing Cash on cash returns above 12%. The memphis property that I closed using Roofstock is COC at 18%. Let me know if you want to connect and chat about it.

    1Reply
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Adam Lendi:

    @Sara W. I don't know your local market, however, I can imagine it is probably as challenging or more challenging than Denver, where I live. This is why I partner and I have changed asset classes and we are working on RV parks, rather than residential. We both have a background in single family, multifamily, and apartments. It could be as simple as changing what you invest in.

    Hi Adam, very interesting proposition. I have been thinking about RV parks and mobile home industry recently and been talking to someone from Four Peaks. It's a very different landscape than residential. What your experiences have been like? 

    The reason why I am looking to do OOS is also because I am planning to do a 1031 exchange. I don't think there are mobile or RV park that take in 1031 exchange investors yet.

    1Reply
  • Adam Lendi
    Investor · CO · Member since 2017 · 60 posts · 44 votes
    5y
    Originally posted by @Sara W.:
    Originally posted by @Adam Lendi:

    @Sara W. I don't know your local market, however, I can imagine it is probably as challenging or more challenging than Denver, where I live. This is why I partner and I have changed asset classes and we are working on RV parks, rather than residential. We both have a background in single family, multifamily, and apartments. It could be as simple as changing what you invest in.

    Hi Adam, very interesting proposition. I have been thinking about RV parks and mobile home industry recently and been talking to someone from Four Peaks. It's a very different landscape than residential. What your experiences have been like? 

    The reason why I am looking to do OOS is also because I am planning to do a 1031 exchange. I don't think there are mobile or RV park that take in 1031 exchange investors yet.

    Hey Sara! My partner and I landed on RV parks, as investors in residential single family and apartments, as RV owners ourselves. The industry has been growing, with the largest group of RVers now being millennials. Last year saw an explosion of new RV travelers and parks have seen great growth, most of which is expected to remain into 2021 and beyond. Whether you look at RV parks or another asset, its good to keep your options open. I'm happy to chat further about RV parks if that is a path you want to learn more about. You'll need to check with your CPA and 1031 intermediary, however, you may be able to reinvest your gains into RV parks and other commercial assets.
    0Reply
  • David Thompson
    Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    5y

    Out of state investing is more challenging for DIY investors.  Can be done, but takes more time.  I am a hybrid investor, preferring to manage local properties in my city and diversifying into syndication deals that give me geographic and other niche diversification.  So, flipping houses or buy n hold SFRs might be a good local pursuit while leaving the experts in other markets and niches (like self storage, apartments) for my out of state investing.

    1Reply
  • David Beckley
    Investor · Saint Louis, MO · Member since 2015 · 204 posts · 37 votes
    5y

    @Sara W. Being in the Saint Louis market for the past 6+ years and hearing from tons in f investors from both the East and West Coast, their money goes a long way in this market and they love it!!! The key is definitely building a good trustworthy team ahead of time before diving into the market

    1Reply
  • Nick Dunin
    Real Estate Investor · Longview, TX · Member since 2009 · 111 posts · 28 votes
    5y

    @Zachary Beach you're able to find 20% CoC deals? Where? Maybe I'm doing my math wrong.

    0Reply
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Jenning Y.:

    @Sara W.

    As an OOS investor for more than 9 years, I think investing in 1~3 hours driving range  is probably a better choice than  investing far away, in your case.

    I wrote my own experience here  before:

    As an Out-Of-State Investor for 9 Years… (biggerpockets.com)

    Thank you for the info, will check out your post!
    Living in an expensive market is a boon, not a curse. To make wealth passively, we must grab the appreciations.  Expensive markets usually mean high appreciation  potentials.  Even if the city cores are too expensive to invest, nearby still have more  appreciation potentials than lots of so-so areas.  Cash flows are for active investors, not  for passive investors.

    0Reply
  • Sara W.
    OP
    Investor · Boston MA · Member since 2015 · 50 posts · 18 votes
    5y
    Originally posted by @Krystle Khoo:

    Hi Sara! We started out investing OOS into SFH BRRRR LTRs near a military base because it was much cheaper than Southern California. After the first 4, we moved to an area where the numbers make sense and has the same demographic (near another base). We are closing on our first local BRRRR later this week.

    I don't see the need to be near the houses we buy and I actually won't even pick up the keys to this local house; our agent will pass them directly to the contractor.

    As others mentioned above, it all comes down to the effort you're give that will determine OOS investing's worth to you. It does take some time to vet a team. Your returns will suffer more from the quality of deals you can find and less from the additional cost of a PM. You will lose a lot of off-market deal finding options and have to use wholesalers to find the best deals, with the additional cost of an assignment fee.

    Simone is right in that this type of investing, local or otherwise, is not passive. It sounds like you've already seen that. But it can be a lot easier with the right systems in place. Investing OOS forces you to build those systems, which we find valuable. The PM will take their cut but it will leave you with time to focus on deal finding and funding.

    I'm happy to chat about our experience so far if you want to learn more. Send me a PM!

    Just PMed you, would love to chat with you!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free