Perils of investing out of state
There can be some extremely positive returns from investing out of state. However, you can run into some perils, too. You need to either really know the market you're investing in, or have someone acting as your "boots on the ground" in that target market who knows the area.
Here is a recent case in point. I am helping an out of state investor buy a duplex. There was a duplex listed for sale and the seller's agent reported (and this is a direct quote): "It's self-managed, and the roof, water heaters and furnaces were updated prior to her purchasing the property." This would sound great since the property was purchased in 2002.
However, when I actually visited the property, the neighborhood was on a very busy street and the traffic was very undesirable. There was garbage strewn about the property. Both furnaces were dinosaurs, maybe even original to the building -- they could go any time.
None of this you could see from the online pictures or the listing realtor's description. Based on those things alone, you would think this would be a great property for the price!
Comments (5)
Dawn You are stating my exact points when investing out of area. I live in California and to get $2,000 rent where I live, I have to spend about $600,000 on an SFR. That same $600,000 in TX or TN or OK will get me a minimum of $6,000 a month rent. Therefore, I have no choice but to go out of area. And before I purchase out of area, I get an appraisal, a Professional Home Inspection and at least two different Broker Opinions (thus, my BOOTS ON THE GROUND). And most times, those items are cheaper than a round trip ticket and hotel stay. In your scenario, my 'boots on the ground' will find that out for me and save me the expense of plane fare, rental car, hotel and food. Also, I have used the home inspection to get concessions from the seller, whether it is price reduction or repairs.
Mike McKinzie, almost 11 years ago
Thanks Jeremiah B. ! You can tell a busy street from the size of the road, yes, but on a static picture, unless you were watching a traffic cam, you couldn't tell how many cars went by. There's a small freeway near my house that hardly anyone uses for example. If you got pictures of the furnaces, then yes, you'd probably catch that. Or if you hired a home inspector before purchase, they would tell you that the furnaces are old. But then you'd have already paid for an inspection. Would the realtor notice and tell you all the little things such as the garbage around the property, etc.? Maybe ... there's just a lot of "ifs" there.
Dawn Anastasi, almost 11 years ago
Thanks Dawn! I'm really becoming a fan of your posts!!! I'm interested in your thoughts, but it feels like these issues would have been caught even if I was buying that property out-of-state, unseen, through a Realtor. The busy street would show up on online maps and I'd like to think that I'd have several checks (2-3) that could catch the furnaces. What do you think?
Jeremiah B., almost 11 years ago
I'm a big proponent of keeping your investments less than a 20-30 minute drive when you're first starting out. After you've built up experience perhaps increasing that to an hour. My experience has been that tenants take better care of a unit knowing their landlord is watching over them.
Darren Sager, almost 11 years ago
Great post Dawn. These are exactly the kinds of issues that get people into trouble. I'm a firm believer that until you've built up a trusted relationship with someone with boots on the ground, you MUST personally visit those out of state properties to ensure this kind of thing doesn't happen.
Joshua Dorkin, almost 11 years ago