Successfully Investing In Out-Of-State Real Estate

This Blog focuses on two areas with the objective of providing insight for you

on the advantages of investing in the Texas real estate market.

First, I am humbled and thrilled to share that my partner and I closed on a 12-unit multi-family property in Lubbock, Texas, home of Texas Tech University. The rehab process has begun. Additionally, we have a contract on a single family residence, also in Lubbock and are considering another multi family. This successful closing was accomplished with a dedicated team effort of effective communication with the sellers, local lender approval, in-depth property inspection, and timely title company support. As a reminder, three months ago, I knew very few of these individuals. It “is” possible and “you” can live in one state and invest in another.

Secondly, I want to share my top learnings from studying the Dallas market. As an exercise, I performed financial analysis on 100 properties. This allowed me to become familiar enough with the key financial measures whereby I can now determine in a few minutes if a property is worth a deeper dive analysis. Ongoing communication with property managers, real estate brokers, lenders, buyers and sellers provided valuable learnings. These measures and learnings include:

1.Dallas provides attractive investment features including job growth, highly rated schools, family living, population growth, no state income tax and a continued expansionary stage.

2.Intelligence from my Dallas property managers confirm escalating SFR (single family home) prices and projected 5%-10% additional increase over the next 12 months. Even with low interest rates, many potential buyers are still unable to qualify for home loans. This and the Millennial indicators supporting rental vs. home ownership for mobile flexibility provide continued good outlook for investing in rental property.

3.Cosmetic upgrades for successfully improving a property’s value include kitchen countertops/appliances-ceiling fans, flooring (wood laminate)/some carpet, and paint.

4.Favorable capital expenditure improvements include water saving toilets, roofs and repaved parking lots.

5.Cap rates (net operating income/asset price) in 2016 average 5.5%-6%. This compares to 2015 Class B multi-family caps at 6.5%.

6.NOI per square foot and $ price per square foot are good equalizers for comparisons.

7.I have established good contacts with brokers, property management, title services, and appraisal services. Relationships with a local team are key.

8.Dallas enjoys business diversification beyond oil. This minimizes the boom and bust cycles compared to more oil-dependent states such as Oklahoma and the Dakotas.