Out of State Investing - NEW and IMPROVED

[Joe Kim]

I recently had a post "Out of State Investing-SCAM! False promise land of cash flow".

https://www.biggerpockets.com/forums/88/topics/351...

I may have given the wrong message that out of state investing is not a good way to invest.   I think it can be a great way to invest but it's not as easy as it seems and the cash flow model does not FIT everyone's goals.

I want to outline in detail my 3 most recent out of state purchases in 2016 and show how they better meet my goals. (PASSIVE + APPRECIATION + CONTROL + CASH FLOW)

Disclaimer: everyone has different goals, different financial background, and different current job/family situation(time).

I listened to countless podcasts, read the forums and I totally bought into the cash flow model of buy/hold (out of state since I live in California). I also had the dream that I could replace my income with rentals.

But I realized that I have a dream job. There is no need to replace my income with rentals and in fact my goals totally changed to "wealth building", "college saving", and "retirement saving" RATHER than wanting or needing any cash flow NOW.

I want to accomplish this as a PASSIVE investor. Now all the note investors, syndicators, and private lending people are going to rush in and say their type of investing is what I should be doing - YES. I agree. But there is still a place for buy/hold of real property for tax benefits, and long term equity/wealth building.

I have no plans to quit my job. I think for those of who really love their jobs, make a great living (more than top 10% in your region. making 125K in some parts of the SF bay area is pretty middle class) - this focus on wealth building rather than just cash flow is a better way to go.  Imagine how many SFRs you have to buy to replace your income of 200K, 300K, or more...too many and NOT passive at all. 

Let's jump into it. Property #1 5/2016

Location: Atlanta suburb (Buford)

Brand new construction single family home. School district 8,9,10 rating!

4 bed 2.5 bath, 2330 sqft. Purchase price $195,000

Rent $1600

PITI : $964/month (25% down, 30 year fixed at 4.25%)

HOA: $38/month

Maintenance: $0 (projected for first year)

Vacancy: $130 (although tenant already put 3 month deposit!)

Management cost: $0 (SELF- Managed!)

First year cash flow is currently $600/month or minimum $470/month if vacancy.

So far I got one phone call about electrical panel (breaker problem). I sent an email to the builder and it was fixed without cost or any headaches.

IF property management was used at typical 8% rate = $128/month or $1536 savings per year by self managing.

So my cash flow is pretty good at max $600 but probably typical at $400-$500 in the next 5 to 10 years. Principal paydown is $200/month unlike my cheapest property at $100/month. With schools in the 8,9,10 ratings and brand new construction, appreciation potential is good (5% annual?)

How did I find this deal? Biggerpockets! I met an agent online and started looking at properties without the aid of turnkey provider/property manager etc..

Because it's a new construction, I put LVT vinyl on the first floor for durability and added value.

Financing: HELOC loan to pay for downpayment. Equity pulled out of my high priced California home and putting it to use in make equity! HELOC (4.0% fixed for 3 years, but then I rolled into my primary home at 3.25% fixed at 15 year fix)

Therefore 25% downpayment is now fixed at 3.25% for 15 years! and 75% primary mortgage fixed at 30 year fix for 4.25%.  

Next post Chicago property! 

Here are some pics of my buford home.

[Jay Hinrichs]

@Joe Kim  I was buying those same homes in 2011 for 60 to 70k putting 25k into them renting at 1200.. I bought 54 of them.. they about doubled and I sold to a hedge fund 2 years later.. I like Atlanta.. I would not count on a lot of upward movement from here on out though I think many markets are at the top.. demand is still there no doubt but we are seeing push back on raising prices anymore.

I also bought 11 New constructions in the mid 2000's for go zone bene's  and I had them put in scored concrete floors and they were brick homes.. other than hail damage these have been worry free .. the Go zone tax bene's sunseted on the recapture so I am selling them all.. they never went up and I am breaking even.. which is pretty good since I bought at almost the peak in 2006 ish.

I read you other post.. your issues as is all issues with rentals is in PM it looks like and maybe you did not pick the more expensive less headache properties its common for many to pick the one's that look best on paper but then you soon realize they only do because they are not in the greatest areas.

As for your Dallas stuff  TAX's and foundation issues just eat your lunch in Texas.. I personally would not buy and hold anything in that state.. because of these reasons.

And it also appears your turn key out fit up front did not do a great rehab job.

did you get properties inspected prior to closing?  this is important.

wish you the best of luck with it.. and yes us Note guys are going to tell you to buy some notes.. much less headache and return is higher frankly.. but no tax' bene's but I prefer write on's not write offs.  ( with the exception of the GoZone that was a brilliant play)