Out of state Investing

[Brian Koralewski]

Hi All,

I am from NYC/Long Island area.  My parents currently own a co-op in Queens which I would like to sell, for around 200,000+ (based on previous sales).  They want to sell this co-op to me.  I have other ideas however: I would take the 200,000 and buy 1b/1ba and/or 2b/2ba units in another state (say North Carolina or Florida).  My parents are currently netting $700/month for their co-op - my thinking is to buy 3-5 cheaper units (between 40-60K) in other states for the full amount (no mortgage).  The net cash flow would be considerably higher, and you'd have multiple units instead of just one.

My question would be concerning the tax implications if I transfer the proceeds from the sale of my parents co-op in NYC, to multiple condo/co-op units in another state - will we be taxed or would this somehow qualify for a 1031 exchange??

Additional questions - where are there reasonably priced condos/co-ops that would provide decent cash flow?  (I have been looking in Charlotte, and also Boynton Beach, Florida, but am open to anywhere).  

Additional caveats - I have no steady income (apart from $1600/mo Unemployment) as I just left my professor position after two years, but I do have a large amount of savings (around 50K).  My credit score is perfect, and I have no debt along with minimal expenses.

If all goes well - I also plan to take out a Home Equity loan on my parent's house, since it is also all paid off and worth roughly 7-800K. 

Sincerely appreciate your time and help.  Looking forward to discussing more with you.  

-Brian from Floral Park, NY

[Trevor Ewen]

@Brian Koralewski

I invest entirely out-of-state despite living in Queens. We enjoy our careers and options as a child-free couple at the moment, but we have no interest in paying the high price of entry to New York landlord-ship. 

Although I can't speak to your particular tax situation. I have a couple tips on out-of-state investing:

1) Management is everything. The best people (of which I am not one, still pretty new to this) tend to say that I would rather invest in a mediocre area with a great team than a great area with a poor team. My entire investing career so far validates this point beyond a shadow of a doubt. My team(s) is the only thing that allows me to sleep at night. Audition the new market, but audition your management and contractors harder.

2) Condos and coops are a mixed bag for investment. Most (not all) people on the forums steer clear because of bad experiences with an HOA and converted primary residence. This is also known as accidental landlords. HOAs tend to be the kind of organizations that support the will of owner-occupants, and are rarely kind to verifiable landlords in the building. I think this BP podcast with Nazz Wang should give you a balanced perspective on that topic.

3) Some things are too cheap. As an out-of-state landlord, you are subject to a lot of proxy in your transactions. You will spend your time trusting agents, inspectors, plumbers, and electricians about the merchandise. Right now I have a minimum (not max) of 60k. Anything under that is very likely below the class of tenant I can deal with, or too much repair work to make a confident estimation. 

Some people poke fun at the returns out-of-state landlords receive, but it's a reality that some of your money gets eaten up by the prevailing local knowledge. As long as I am beating the stock market (and learning), I am happy.

Always keep in mind that a big part of your advantage is your ability to collect an NYC salary and apply that money to markets where you get more value / dollar. 

Hope that's helpful. Any more thoughts on specifics, feel free to pm.