Expanding into out of state markets

[Josh E.]

Hello BP forums! I now have a couple duplexes under my belt, and am looking to expand my horizons. Real estate tends to be a little pricey in the state of Utah, so I'm considering branching out into other states that might look more attractive from a numbers stand point. My question is how do you go about finding deals, property management companies, and everything else that goes with it? Especially when you don't live there? Ive thought about looking for properties where I have friends or family in the area, so I can visit them and my properties at the same time and get the tax deduction. That would be St. Louis, Houston, Florence South Carolina, somewhere in Massachusetts, or maybe Oakland. But what other ideas are out there? Thanks! Josh

[Clayton Mobley]

Welcome to BP @Josh E.! 

Out of state investing can be trickier, for all the reasons you listed, but it's often a necessary step to build a viable and diversified RE portfolio. Many people, like you, like the idea of at least investing in places they might visit, which has it's merits if you are going to be self-managing the property or just need to feel a bit more control. 

However, unless you are set on self-managing your properties, I don't think that investing in a market you visit is necessary. Unless you've lived in one of those markets before and really know it well, you're not gaining any advantage by investing where friends and family live - you'll be hiring a PM that knows the area, and you shouldn't have to check in on the prop physically with any frequency unless you just want to. Of course, if you are going the self-assembled team route (as opposed to full-service turnkey), there is the possibility that one of the cogs in your machine fails - your contractor bails or under quotes, your PM drops the ball - and you have to take a last minute flight to do damage control and find replacements. But if that happens, your visit isn't going to be scheduled ahead of time and it won't likely have a lot of time for fun and relaxation, so the location doesn't much matter. An initial visit to meet your team or TK provider, view the area, and make sure all is as-advertised is a good idea, but after that you shouldn't need to fly in unless you want to.

You're in the right place to get numbers for different investment types in all kinds of markets, so I'd start with narrowing down the specific strategy you want to go with. Are you going to self-assemble a team? Go turnkey? Self-manage? SFR? MFR? Stick with duplexes? What class of prop, A, B C, D? (Hint: not C or D for out-of-state). The answers will make some markets more appealing than others, and then you just have to do the work of asking around here on BP and running your own numbers. You'll get no shortage of referrals and marketing pitches, so it helps to have a firm idea of the type and class of investment you want before you jump in.

If you have any questions about the turnkey model or the Birmingham market, feel free to shoot me a note any time.

Best of luck!

Clayton