Government Foreign Service and Landlords?

[kralmatej]

Given MMM's attention in the WaPo, I doubt I'm the only reader in my particular situation.  I work overseas for the government.  The government provides housing and my expenses are very low.  I have no debt and, while overseas, can save money very rapidly. 

I am attracted to the idea of purchasing an investment property.  For a modest two bedroom rental in the university district of my home city (young professors, graduate student renters), I could expect to pay about 140k.  Assuming I was able to rent this property and pay down the debt on my own as well, I believe I could pay off this debt within two-three years and be left with an income property.  The idea of collecting income leads me to prefer this option to other investment options.   However, since I'm overseas, I'm worried that property management, insurance, condo fees, and property taxes might sap the property's potential.  I am also concerned about landing back in the very non-mustachian Washington DC before the property is paid off.   

Any advice from from thos who are either in my situation or not?  Are there other options that could turn an investment into a monthly source of income?

[arebelspy]

However, since I'm overseas, I'm worried that property management, insurance, condo fees, and property taxes might sap the property's potential. 

You would have all these fees no matter what, even if you were close. The only one you might save on would be property management, but then you'd have just bought yourself a job. That's fine, but it's not a return on your investment, it's a return on your labor.  Your investment should give you a good ROI with property management costs calculated in.

I am also concerned about landing back in the very non-mustachian Washington DC before the property is paid off.   

Purchase a property that cash flows without being paid off, and save a cushion of cash reserves.  Then you won't have to worry about moving or your savings rate or such things.

Since you are in the position to be forced to invest long distance, you get the advantage of picking anywhere without that hangup.  So many people want to invest locally, so they get stuck on their one location, even if it's a bad place to invest based on the return. Since you won't be local anyways, why would you need to have your investment be back in your "home city"?  Pick a place where the cash flows are good!

[brand new stash]

I live in Northern Virginia, and actually know several foreign service folks who bought the house that they wanted to live in during tours in the DC area, and then when they are overseas they rent it out to fellow foreign service or military folks.  The people I know who have done this have focused either on family friendly areas with good schools, or smaller places in Arlington right near the FSI campus.   That's one strategy to consider.

[more4less]

Very interesting topic, gentlemen! I'm thinking about investing into real estate somewhere out of my local area (whic is Silicon Valley) since it is very overpriced. Any ideas which areas of the country are affordable for RI investments (less than $200k) yet have relatively high rent? Property and state income taxes would matter as well.

[arebelspy]

Very interesting topic, gentlemen! I'm thinking about investing into real estate somewhere out of my local area (Silicon Valley) since it it very overpriced. Any ideas which areas of the country are affordable (less than $200k) yet have relatively high rent? Also, property and state income taxes would matter.

There are many good places.  On any real estate forum you'll find dozens of investors or more who have various markets they prefer.

Start with your investing criteria.  Then narrow down based on market demographics and indicators (jobs, net population increase or decrease, etc.)

I could name a dozen markets, but it'll really depend on many other factors as well and me naming ranked cities or counties probably would be doing more of a disservice than anything (though I have done so in the past, and wouldn't be surprised if others do so).

Are you looking for cash flow? Appreciation?  Low entry costs? Highest quality tenants?  etc. etc. etc.

[Johnny Aloha]

I'm in a similar situation - I live in high COL area and looking to invest remotely.

My advice is to do lots of research.  As suggested above, figure out why you are investing and what your objectives are.

Then spend enough time educating yourself on investment properties so you are comfortable buying remotely.  I like biggerpockets and a couple books recommended in other threads.  Read up on the 50% rule, 1% rule, etc.  Make sure you understand the assumptions within those, and how they might be different based on your target location.

Then, overcome the FUD (fear, uncertainty, doubt) and jump in. 

You'll probably come across "turn key" REI companies.  Understand they provide a service, and if you use them your return will be lower than if you were to find the property, renovate, and place a tenant yourself.  But it could be very convenient and still provide acceptable returns or diversification.

[more4less]

Are you looking for cash flow? Appreciation?  Low entry costs? Highest quality tenants?  etc. etc. etc.

All of the above. But cash flow over appreciation,  quality tenants over entry cost.
I just want to put 20% down, get some positive cash flow with hands off. Btw, what are typical property management fees? I heard something like 10% from rent.

[kralmatej]

Thanks to everybody - it's very helpful. 

Although the idea of choosing the absolute best market is appealing.  I choose my home city because I believe it is a good rental location and the entry cost is comparatively low.  I also feel like I know the area well enough to evaluate a property's appeal to a renter.  And, when I am in the States, I will easily find time to visit without incurring additional travel costs or time away from family. 

 

[arebelspy]

Are you looking for cash flow? Appreciation?  Low entry costs? Highest quality tenants?  etc. etc. etc.

All of the above. But cash flow over appreciation,  quality tenants over entry cost.
I just want to put 20% down, get some positive cash flow with hands off. Btw, what are typical property management fees? I heard something like 10% from rent.

Okay, so it sounds like you want to target higher cash flow markets.  That definitely gives you a good place to start, and is a good example of why I didn't post my recommendation that is no longer applicable.  :P

Next you want to start researching those markets for fundamentals that excite you - like I said, jobs, population growth/shrinkage, landlord/tenant laws, taxes, regulations, etc.

PM fees on the area and your connections and the size of your portfolio. Typical is 7-10%.

[arebelspy]

Thanks to everybody - it's very helpful. 

Although the idea of choosing the absolute best market is appealing.  I choose my home city because I believe it is a good rental location and the entry cost is comparatively low.  I also feel like I know the area well enough to evaluate a property's appeal to a renter.  And, when I am in the States, I will easily find time to visit without incurring additional travel costs or time away from family. 

The point is to not have to visit it, ever.  :)

Definitely do what makes you comfortable.

[Riceman]

Thanks to everybody - it's very helpful. 

Although the idea of choosing the absolute best market is appealing.  I choose my home city because I believe it is a good rental location and the entry cost is comparatively low.  I also feel like I know the area well enough to evaluate a property's appeal to a renter.  And, when I am in the States, I will easily find time to visit without incurring additional travel costs or time away from family. 

 

I am also Foreign Service.  I don't know much about property renting/landlording, so I'll leave that to the others.  But Florida can be attractive for two reasons to FSOs:

1) With property, you can easily establish (legitimate) Florida residency and set it as your state of domicile.  Florida has 0% state income tax.

2) If you rent the house out as a vacation house, rather than to long-term renters, the down season for renting in Florida is during the summer.  It's hard to find tenants then, and they pay less. Since most FSOs transfer during the summer cycle, that means you can spend your home leave in FL without forgoing much rental income.