All Forum Posts by: Sohel Mahmood

@Sohel Mahmood I am currently halfway through David Greene's book on investing in out of state property. If you haven't read it, I highly recommend it. It will give you some better insight and give you answers to questions you may have (or answers to questions you didn't even think of!). You can find it through this site here: https://store.biggerpockets.co...
Or Amazon. I'm not affiliated in any way to of this book but thought I'd give you a recommendation that can help! Good luck!

@Sohel Mahmood

It’s more from a lending perspective and will they count the rents if you don’t already own a primary. That’s what one lender told me but you need to double check.

You can house hack in California but you may not be cash flowing right off the bat. California is all about appreciation because there isn’t enough land to build. For example, I could house hack my residence now and actually make money but I’m just choosing to keep the house to myself and rent out my accessory dwelling unit separately. When we first bought it and built everything out, we would’ve been short. It’s all about the long-term play and reality is you’re gonna have vacancy on some level wherever you go but California tends to have lower vacancy rates.

@Sohel Mahmood

Phoenix used to be a very inexpensive market but since Covid has appreciated more than any other market. For appreciation Phoenix has diminishing returns, I believe investors still have reason to be optimistic when looking at population growth at an all time high vs. New SFH Starts is at an all time low, supply and demand are on our side but I still believe with how prices are now less people will move here over next decade. Major benefit that my out of state clients point out is that AZ is known as "non judicial" or Landlord friendly state compared to many states on the West Coast. I've had several clients to 1031's form their home state to AZ because of politics.

Phoenix was one of those hot markets that is cooling off quickly based on some reports.

You will also need to talk to a lender about the pros and cons of buying an investment property before the primary. I had a client who wanted to do that and it was going to complicate things.

Why not house hack first and then buy out of state? Put less money down, better interest rate, and if you already have roommates, your lifestyle wouldn't change. Especially being in a high priced market means that rent/value increases are a higher dollar amount. For example a 3% increase on a $3K a month rent is more cash than a 3% increase on a $1k a month rent.

@Sohel Mahmood I have found a lot of value in the mid west markets. I prefer to invest in Cleveland and similar to you, the housing market in Northern Virginia is also very high so I decided to go out of state. It has helped me scale a lot faster in my real estate journey

@Sohel Mahmood

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

Phoenix rents are going down.  Might wait and see how things shake out.  Living in an expensive state you need to be careful not to view other markets as bargains in comparison.  Look at price vs rents and rent histories.  Markets cycle.

Sohel,

Townhommes area good way to start as long as the HOA is not extremly high. A Townhome qualifes FHA, and conventioanl where a condo may need a condo apprvoal through FHA or Fannie/Freddie. Townhome is managed by the property management company so as long as the monthly HOA fee is reassonable its a good choice. Less in taxes and usually requires an HO6 policy instead of a full HOI hazzard coverage on an SFR which can cost 10X more per annual.

You may also want to consider buying a duplex, or 3-4 family and if you do not own a primary you can go FHA and put only 3.5% down and occupy a unit for a year or less if you buy another home or move out to a bigger space.