All Forum Posts by: Ricardo Cristobal

Hi all, 

My name is Wyatt Duncan. I am a current college student in Los Angeles looking to potentially start doing deals out of state (midwest) given the inflated prices and high barrier to entry here in LA. 

I would love to connect and chat with others here in the LA region who are also looking to invest out of state, or those who already have invested out of state and could pass on some advice. 

Thanks so much for the time. 

My name is Cedric,

I'm 24 years old, I know what I want in life but knowing where to start is the problem. This is why I have chosen to be an REI, to become financially free, so I can make better use of the time I have to spend with family and friends, a better future for my children, and a better environment for people who do don't have. Like everybody else in this world, I need help from others, I want to help others. I became a member of the BiggerPockets family, for these reasons, thank you!

Sincerely, 

Active Wholesaler seeking advice

Hi @Ricardo Cristobal,

My husband and I invest both in the Midwest and California. They are completely different markets and to be transparent we do almost all of our investing in the Midwest even though we live in California. Our model is mostly fix and flips along with wholesaling so this response really relates to those strategies. As far as buying and holding, we have done some but I can't foresee us doing any in California. Returns just simply aren't there, they aren't even close.

The California market is upside down and I have seen some very scandalous things done. Everyone is desperate to get a deal (agents, wholesalers, Investors, Contractors, Property Managers) and will do just about anything to make it happen. Business can most certainly be conducted here in California it's just at a different pace than the Midwest and you really need to know what you are doing and watch your back. It truly takes big pockets and the ability to move fast. With the right team in place this is possible. Returns are the next issue. We just picked up a property that will be a wholesale, (we aren't flipping CA right now) that has a whopping 15% - 18% return. That's big for California...and bad for the Midwest! Most California investors are happy with 8% - 10% returns.

The Midwest has much better returns and stable of a market. Take Indianapolis, Indiana for example, where 20% - 30% profit margins are the norm. Even when we wholesale the end buyer is meeting those returns.

I agree with @James Wise that you must cover all of your bases when investing in a property that you cannot physically see. We get third parties to check out our Midwest properties when we get them under contract. In the event that we have any question on them we wholesale them to a local investor that does have the ability to check the properties out themselves and complete their due diligence to an acceptable level. Sometimes we wholesale just because the timing isn't right for us but that is neither here or there. 

If you invest out of state and are doing anything other than a wholesale I can't stress enough how important it is to have checks and balances. We get a least three qualified people to verify everything. I would highly recommend going into out of state investing knowing that you are going to pay more for the solid system that will keep you safe. We pay a ton out in bonuses for our people to bring things to our attention and be invested in the success of our properties. We are told all of the time how we could cut cost here or there and they are right to a certain extent. We could do it a lot cheaper but our system would fall apart. Pay people well and trust but verify (multiple times) and you should be good.

@Ricardo Cristobal, Yes, prices are much cheaper in the Midwest than pretty much anywhere in CA. $90K-$110K will get you in a good B class neighborhood in Indianapolis and Kansas City. Just don't get lured in by the promise of phony high COC returns on cheap $40K-$50K properties, They're in terrible areas and don't perform.

@Ricardo Cristobal You're right, southern California is an expensive market. We built some spec houses thereand loved it. It was hard finding land, and permitting was lengthly, but it was a great market. However; due to the passing of my husband unexpectedly, my business partner/son and I decided to move to Oregon. However; if not for that, I would be in the so cal market. There's always a high demand for homes, qualified buyers, perfect weather, and so many other great things. California does however; have a lot of negatives happening now, and there's more people leaving than moving in. However; those moving in have money. 

I have no experience investing out of state, but always caution people on going out of state. If you're struggling with getting in to the local market, what will happen when you invest back east and have issues with tenants, the house, or? Can you afford to go back there?

EVERYTHING you need to know to invest you will need to trust to another persons opinion. Do you want to trust a complete stranger with your money?  Does their opinion of a safe neighborhood meet the same standard as yours? 

When you invest close to home, you have a better understanding of the markets. What neighborhoods are like, crime, schools, proximity to various things. 

I know there are people that have invested out of state with turn key providers, and people that have been ripped off by people that put fake tenants in, etc. It's a bigger gamble in my opinion, UNLESS you KNOW the person putting the deal together and trust them. 

@Ricardo Cristobal I always caution people about out of state investments especially when youre just getting started @Brandon Turner always says try and look for a deal an 1-2 hours outside of the area that you live in when looking to invest in an expensive area, that device is sound and has worked for me and clients of mine who live in NYC. If you are going to invest in out of state property make sure its a GREAT deal and that you take into account the cost of property management (shop around to find one before inking the deal).

Good Luck

Many who invest out of state do so because they are in a high priced market. So Cal being one of them. Investing out of state can be very complicated if you let it get complicated. No need to do that. Don't try to reinvent the wheel here. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

@Ricardo Cristobal Definitely get in touch with @Ali Boone if you're thinking about investing out of state. She's a fellow Californian and buys out of the area specializing in turn-key property. Also, she's written extensively on this topic for the BP blog. Hope that helps. Good luck with your decision!