Investing in rental properties outside of CA -> NV, TX, IL

[Ho Eun Park]

Hello, 

I am new to the forum. I have been thinking about real estate investing outside of California for various reasons. Mainly due to price.  

I have been looking into Las Vegas, Dallas, Houston, Austin, and Chicago as of interest (maybe anywhere in Tennessee too?). 

The prices seems good (I hear a lot of people saying its over-valued but when comparing to CA prices, it seems much better and affordable). 

I was hoping to get some input/advise/recommendations/etc.

For now I'll just cater the list mainly for Las Vegas but most of the list will be applicable to other states as well

1. Las Vegas, Nevada 

pro's & my interests:

- I can possibly use it as vacation home if I buy duplex or multiple units.

- price is affordable with my current income. 

- Lot more inventory to work with (flexibility)

- I see many affordable homes 150k-250k range and multi unit homes around 250-400k range

- Thinking of buying between or near UNLV university/ main strip so I have faculties, staff, students from the universities as well as employees from the casino/hotel

- Property Tax is cheaper (but can be a con in other states).

Con & other inputs: 

- I feel like Las Vegas have short term residence more than long term residence (most of the properties seems to be owners who are not purchasing to live but to use it as vacation home or short/long term rentals.... so many properties can be vacant and potentially allow squatters/long eviction process)

- Nevada law require a "responsible" person aka landlord/property management within 60 miles 

- Distance (I like to buy my properties locally because I can stop by or fix something if needed either by myself or contractors that I work with/familiar with

- Property Management fees since long distance 

- Finding a property management company that is reliable and trustworthy.

- Unfamiliarity with the area/surroundings

- Lower Rent compared to CA but I know I can't compare apples and Oranges (But I don't want to invest just to break even)

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- Tax questions ***Some state does not have tax on income(?) like Texas I believe...? So does that mean I only pay rental income tax in California/Federal tax? 

- Property Tax is rising especially Chicago, IL

Currently I am getting cap rate of 5.6% (really nice area) - 7.8 % (lower income area) cap rate in CA but some of the properties are located in not so good areas and I did have problems with problematic tenants. However I never had vacancy (the most is 2-3 months while looking for new tenant and fixing up the place before the new one comes in). 

I am wondering if I were to invest out of state, should I go for higher cap rate which usually are located in so-so or not too good neighborhood/lower demand or try to sacrifice some % cap rate with better neighborhood/higher demand?  

Currently, I am just researching the neighborhoods in various states and I guess next big thing is to determine a good management company once I have a property or properties in mind. That leads to my next question... how did you find your management companies when you invest somewhere abroad or out of state? I have heard some horror stories from mutual friends and just reading up on forums based on people's experiences. How do you determine a management company as someone you can trust and rely on? I have been browsing through google and yelp reviews but I see good and then I also see the bad reviews in detail description.  

I really want to venture out of California and would like to gain some of your personal experience /stories and any advice or recommendations (i.e. what to watch out for, don't make the mistakes I made, some laws I should be aware of in taxes/landlord/tenant laws, and etc.)

Thank you for your time!

[Andrew Frowiss]

Hi @Ho Eun Park,

Welcome to Bigger Pockets! I can't offer insight on the other states you mentioned, but I have a property management company in Austin TX. 

Austin and the surrounding areas (Cedar Park, Round Rock, San Marcos) offer lots of opportunities for rental  properties, and offer great places to visit. In my experience it makes the most sense to invest in the outer edges of Austin or in the surrounding cities due to the prices in central Austin being much more expensive. You can pick up rentals in these areas anywhere from 150K - 300K and be 25 minutes to Austin or closer. 

Keep in mind that San Marcos is a college town being home to Texas State University so it is different than Cedar Park and Round Rock. A large portion of the population of San Marcos is made up of students. Great prices and rent, but lots of transitioning happening in the city at all times.

As for finding a management company you can trust, this can be troublesome. I wouldn't rely on google/yelp reviews, although they can be helpful. I would put together a list of questions and things that are important to you, and interview as many companies as you can until you find one that feels right to you. 

Also for the cap rate question you asked, I wont tell you what kind of investments to make, but I personally would not take low/no cash flow property on the hopes it will appreciate. Go where the numbers make the most sense.

Just my thoughts!