Out of State Investing Advice

[rodney757]

I was wondering if anyone has any advice on out of state investing. I live in eugene, or and the prices around here are too high for me and the numbers generally don't look too good. It seems pretty tough to make a property cashflow. I am looking to buy a sub $100,000 rental out of state. If I add a partner, I could swing a bigger deal, but by myself, that would be what I could afford to start out with. I am going to a local REI meeting on tuesday to talk to local investors and see if maybe I can find a mentor. But anyways, I was just wondering if anyone has any advice or some good books on out of state investing for a beginner who has never bought real estate before.

Another question I had.

Do you think that it would be a good idea to take out my roth ira to use as a downpayment on an investment house?

I'm 20 years old and currently make 24k a year. I don't really see my salary going up much higher then $30,000 / yr any time in the near future. I work as a farm manager and love what I do. I have thought about pursuing a degree in a higher paying field, but I don't think that I would be happy. I have decided, at least for now, that I would rather enjoy my work and not retire as early. My plan is to continue to enjoy my work as a farm manager and to invest in buy and hold real estate in my free time to build wealth.My current monthly expenses are about $750 / month, leaving me with about $1250 left over to invest. Over the past year, I have contributed 10k to a roth ira with vanguard, and have accumulated 10k in an emergency/house fund.

An idea that I had was to use my roth as a downpayment. Obviously I would need to save some more so that I have some cash reserves before I purchase anything, but if I were to use my roth, it is that much sooner I could purchase a house and take advantage of these low interest rates. Should I do that, or would I be better off leaving the roth alone and just redirect my contributions into my housing fund. It would take longer for me to be able to purchase something, but my roth will still be funded and I wouldn't lose those 2 years that I have funded it.

Another option that I am exploring is to partner with my father where he provides the money and I provide the work. I would like to do this along with purchasing something myself.

Sorry for the "all over the place" post.

[jpo]

I wouldn't take funds from my Roth for that. You could see if you can hold the property in the Roth account, or just buy a REIT with the money.

You could also take a look at Lacking Ambition's site, he's worked his way to being a real-estate guy.

[illy5603]

I am in a similar situation. I live in Northern California which has a depressed housing market but the prices are still too high in relation to the rent.

I purchased two rental properties in Memphis in May after flying out and looking at them in March. I am happy with the homes, more happy with the one I actually got to walk through, but happy. Rents are $995 on both and PITI+PM (Prinicpal, Interest, Taxes, Insurance + Property Management) is running me just over half that amount on each property. So, we are clearing a little under $900 a month between the two. This month however, an AC repair has wiped out the profit but we still broke even.
 
Where you may have a problem is down payment (obviously) and debt / income ratio. My wife and I clear over 120k a year and have no car loans / credit card debt and we barely qualified for the 5% investor rate loan on these properties. Ask a mortgage professional for a pre-approval to see what you can qualify for.

My advice is wherever you buy, make sure you visit the properties. Do not buy based off of web listings. One of the best looking pictures I saw before heading out to look turned out to be the worst house of the visit once I actually got inside.

I would advise not touching the ROTH IRA. Interest rates are not going anywhere anytime soon. However home prices are back on the rise and the supply of cheap and foreclosed homes is dwindling in hot investment areas like Memphis, Florida and Arizona.

[iwannaretire]

illy5603, thanks for the information.  I also live in California and am looking into buying property out of state.

When you sought pre-approval, did you get it from a lender in California,  in Memphis, or some other option.  I'm trying to figure where to start on the pre-approval process.   And what type of downpayment were you required to make?

Thanks again.

[illy5603]

illy5603, thanks for the information.  I also live in California and am looking into buying property out of state.

When you sought pre-approval, did you get it from a lender in California,  in Memphis, or some other option.  I'm trying to figure where to start on the pre-approval process.   And what type of downpayment were you required to make?

Thanks again.

I worked with a lender that deals with a lot of the turnkey companies in Memphis, Guild Mortgage. I was able to get financed with 20% down. The turnkey companies I worked with are Buy Memphis Now and Memphis Cash Flow. I am more pleased with my deal from Memphis Cash Flow than I am am with Buy Memphis Now but that one isn't bad either, I think it was just an older rehab and I didn't look it over as carefully as I should have as it was occupied when I flew out there.
 
Most of these turnkey companies will help you with loans, insurance and of course property management. Some people don't like turnkey but I think when it is all said and done, they bring an economy of scale to the table that makes the numbers work, and really, that is all that matters. That and the property management which so far has been great.
 
Good luck!

[Another Reader]

I also live in nosebleed-priced California and invest out of state, primarily in Arizona, and have done so for over 15 years.  You need to decide where you want to invest, and make connections there.  Typically, you need to work with a lender where you invest, but I know people that work with a single loan officer at their large multi-state bank here.  You can expect to get a significantly better rate on SFR's by going with 25 percent down vs. the minimum 20 percent down.  Local banks and credit unions in the area you are buying may have more flexible criteria if they do portfolio lending.

I'm a huge believer in spending a lot of time in an area before investing there.  Drive around, go to open houses, call on for sale and for rent signs in areas that interest you.  Talk to landlords and property managers.  Join the local REIA if there is an active one.  Internet research is a useful place to start, but can't compare to "boots on the ground" research.

Start reading the blog on Bigger Pockets.  Another blog I read is BawldGuy.com.  The author is a real estate broker in San Diego specializing in investing for retirement.  He has his clients investing in Texas and has a lot of reasons why he is not investing in California explained in various posts.  There is also a lot of general content there helpful to new investors.

Watch out for these folks that want to sell you "turn key" investments.  A few are OK, others are just looking for unwary buyers for their flips.

Do the work up front, and you will be much better prepared when you write that first check.

[illy5603]

Watch out for these folks that want to sell you "turn key" investments.  A few are OK, others are just looking for unwary buyers for their flips.

Do the work up front, and you will be much better prepared when you write that first check.

Indeed. Of course a novice real estate investor may not be able to tell what is or is not a well rehabbed property. In my case I walked through over 20 houses in various stages of rehab and had a pretty good feeling about the quality of the rehabs. I also have a close friend that owns in the same area (and in Texas) that has had very positive experiences with this company and their property management. Like I said, working out great for me so far but do your research.

[Another Reader]

Below is an interesting post from the Bigger Pockets blog.  The author owns a "turn key" property company in Memphis.  He does not name the competitor, but the story is an eye-opener.
 
http://www.biggerpockets.com/renewsblog/2012/05/02/real-estate-marketing-talk-the-talk/

The turn key companies run the gamut.  Most make their money on the flip, with residual income from the management.  The renovation quality is only part of the equation.  Service after the purchase is vitally important to a passive investor.

[illy5603]

I read bigger pockets and used a lot of advice there to make my decision to jump into real estate. Premier Property Management (Mr. Clothier's affiliate company) actually manages one of my two homes and I am happy with the work they are doing.

I agree, do your research and YMMV.

[arebelspy]

I was wondering if anyone has any advice on out of state investing. I live in eugene, or and the prices around here are too high for me and the numbers generally don't look too good. It seems pretty tough to make a property cashflow. I am looking to buy a sub $100,000 rental out of state. If I add a partner, I could swing a bigger deal, but by myself, that would be what I could afford to start out with. I am going to a local REI meeting on tuesday to talk to local investors and see if maybe I can find a mentor. But anyways, I was just wondering if anyone has any advice or some good books on out of state investing for a beginner who has never bought real estate before.

There are some other threads with some good books.  If you can't find em, just ask.

Do you think that it would be a good idea to take out my roth ira to use as a downpayment on an investment house?

No, probably not.  You could eventually purchase a rental within your Roth, or even loan the money out from the Roth to someone in order to become a private money lender, but the amount you have right now (10k) isn't enough to buy a house outright with, and getting a mortgage within a self directed retirement account is pretty ridiculous (it has to be non-recourse, meaning they want 50% down and not great terms).

Another option that I am exploring is to partner with my father where he provides the money and I provide the work. I would like to do this along with purchasing something myself.

That could work well, but would be very different.  You'd want to learn a lot about a specific type of real estate investment, and likely be doing it locally (which may or may not be feasible - from the initial paragraph it sounded like not so much).

Disregarding that last possibility and going back to the out of state investment, I think it'd be best to become a lender on real estate, loan your money out to a real estate investor, and make a good return with your loan secured by real estate.  Most any other type of out of state investment will require more capital and/or potentially withdrawing from your Roth.