Author Topic: Out of town real estate?  (Read 3028 times)

DB43

  • 5 O'Clock Shadow
  • *
  • Posts: 6
  • Location: Sacramento, CA
Out of town real estate?
« on: April 10, 2015, 06:57:39 PM »
I live in CA and would like to start looking at investment/rental real estate. As my local area (and pretty much my whole state) is out of reach for anything approaching the 1% rule or positive cash flow I am curious where in the country folks are finding reasonable returns on rentals. I am also interested in how folks research out of town real estate.

iamlindoro

  • Handlebar Stache
  • *****
  • Posts: 1520
    • The Earth Awaits
Re: Out of town real estate?
« Reply #1 on: April 10, 2015, 07:16:41 PM »
I also live in CA.  I purchased property in Memphis TN through a turnkey seller to start.  The property cash flows and hits about 1.4-1.5%.  I spent $56,700 on the first property.  The turnkey company I went through came highly recommended, and made the process pretty streamlined-- they do the rehabs, I worked with their lenders, they provide a 12 month warranty on the property, and they do the property management.  I had a tenant move in two days after close on the first one, and haven't had any tenant or major repair issues so far.  My only interaction in the past 8 months has been to check my monthly statement and make sure my wire transfer happens on time.  My two properties are in B- to C+ areas.  The downside to a turnkeys are, of course, that you are paying at or near full retail.  The upside is that for people like us who do not have neighborhood/city knowledge, they take away a lot of the uncertainty of the process and help streamline your purchase.

Having now purchased a couple, I am considering buying on my own somewhere and trying to coordinate a rehab myself.  It is challenging finding a trustworthy team, though, so the next purchase (likely May-June) is probably a tossup between going back for another turnkey or trying to strike out on my own a little more.  Other areas I am looking at are Milwaukee, Little Rock, Kansas City, some parts of Ohio, and Indianapolis.  I have found that even aggressively reaching out to recommended people on Bigger Pockets, etc., it's difficult to find someone who is willing to put in as much work as I am.  Finding a realtor who is looking out for the right deals and calling out those which they think are worth pursuing in particular has been really hard.

On the one hand it would be easy to go with another turnkey because my first couple properties have been painfree and profitable.  On the other hand, I know the remaining .5-.6% is there for the taking if I can pull off a good deal on my own.  Tough call.  If I don't run the next deal myself, I will certainly do so with the next, just to give it a shot.
« Last Edit: April 10, 2015, 07:29:09 PM by iamlindoro »

humblefi

  • Stubble
  • **
  • Posts: 107
    • Humble FI
Re: Out of town real estate?
« Reply #2 on: April 10, 2015, 09:59:51 PM »
Two points:

1.
I hear you on the out-of-reach aspect. I used to know a couple people in CA who had rental properties in Stockton, Fresno and Brentwood. Not sure what the current state is, but it helps if the properties are close, but not too close. On the out-of-state front, most of the people I knew had some member of family who was local in the remote area.

2.
On the other hand, what is your tax situation? If you are not in the high tax bracket, then REITs can be an option for now until the market calms down.

Hope that helps.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28010
  • Age: -999
  • Location: Seattle, WA
Re: Out of town real estate?
« Reply #3 on: April 11, 2015, 08:31:13 AM »
I live in CA and would like to start looking at investment/rental real estate. As my local area (and pretty much my whole state) is out of reach for anything approaching the 1% rule or positive cash flow I am curious where in the country folks are finding reasonable returns on rentals. I am also interested in how folks research out of town real estate.

I wrote a thread on this here: http://forum.mrmoneymustache.com/real-estate-and-landlording/purchasing-real-estate-you%27ve-never-seen/

Hope that helps.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

sammybiker

  • Bristles
  • ***
  • Posts: 370
    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: Out of town real estate?
« Reply #4 on: April 12, 2015, 08:14:58 PM »
Arebelspy's thread has a lot of value.

You might also find some value in my thread...I own rentals and lease options from NW British Columbia and will be soon managing these from SE Asia as I've taken a new position over there.

Once you get the team setup, managing from CA is plenty doable.

http://forum.mrmoneymustache.com/real-estate-and-landlording/my-long-distance-lease-option-flip-project/msg534062/#msg534062

Poorman

  • Bristles
  • ***
  • Posts: 260
  • Age: 41
  • Location: Orange County, CA
Re: Out of town real estate?
« Reply #5 on: April 15, 2015, 03:15:18 PM »
I live in CA and would like to start looking at investment/rental real estate. As my local area (and pretty much my whole state) is out of reach for anything approaching the 1% rule or positive cash flow I am curious where in the country folks are finding reasonable returns on rentals. I am also interested in how folks research out of town real estate.

This is a commonly believed myth, but definitely not true.  I've been able to purchase two duplexes hitting 2% in the past 6 months within California.

Since you hail from Sac-Town, you are in one of the better investment markets in the state.  A quick search on Redfin shows me plenty of condos selling for about $50-55k that will rent for $750-800 per month.  That's a 1.5% ratio directly off the MLS.  I'm also seeing duplexes that hit 1.3-1.4%.  No fancy deal making skills necessary.

I think you should practice your research skills in the local market, so you can actually hop in the car and get to know different neighborhoods intimately.  See if there's an area that looks promising before ruling out an entire city and state based on "conventional" wisdom.  I was able to find something meeting your criteria in less than a minute which means you aren't applying yourself. 

My favorite site for home searches is Redfin.  If I want detailed property info, Zillow usually has it (although ignore the Z'Estimate).  For rent data, I find Rentometer to be pretty accurate, but I will usually cross check against the Zillow rent estimate and Craigslist.  You can also call property managers to ask their opinion of rent amounts and other information.

jnc

  • 5 O'Clock Shadow
  • *
  • Posts: 93
Re: Out of town real estate?
« Reply #6 on: April 16, 2015, 01:43:15 PM »
I live in CA and would like to start looking at investment/rental real estate. As my local area (and pretty much my whole state) is out of reach for anything approaching the 1% rule or positive cash flow I am curious where in the country folks are finding reasonable returns on rentals. I am also interested in how folks research out of town real estate.

This is a commonly believed myth, but definitely not true.  I've been able to purchase two duplexes hitting 2% in the past 6 months within California.

Since you hail from Sac-Town, you are in one of the better investment markets in the state.  A quick search on Redfin shows me plenty of condos selling for about $50-55k that will rent for $750-800 per month.  That's a 1.5% ratio directly off the MLS.  I'm also seeing duplexes that hit 1.3-1.4%.  No fancy deal making skills necessary.

I think you should practice your research skills in the local market, so you can actually hop in the car and get to know different neighborhoods intimately.  See if there's an area that looks promising before ruling out an entire city and state based on "conventional" wisdom.  I was able to find something meeting your criteria in less than a minute which means you aren't applying yourself. 

My favorite site for home searches is Redfin.  If I want detailed property info, Zillow usually has it (although ignore the Z'Estimate).  For rent data, I find Rentometer to be pretty accurate, but I will usually cross check against the Zillow rent estimate and Craigslist.  You can also call property managers to ask their opinion of rent amounts and other information.

Right, but condos are going to have HOA fees probably in the 200-300$/mo range  so based on the numbers you quoted, they might barely meet the 1% rule but not nigher.

Poorman

  • Bristles
  • ***
  • Posts: 260
  • Age: 41
  • Location: Orange County, CA
Re: Out of town real estate?
« Reply #7 on: April 16, 2015, 02:22:04 PM »
Right, but condos are going to have HOA fees probably in the 200-300$/mo range  so based on the numbers you quoted, they might barely meet the 1% rule but not nigher.

HOA fees are an expense that should be factored when calculating the return on investment, but you don't normally subtract them from rents when calculating your rent ratio.  If you buy a condo in a well run community, the HOA fees go towards expenses that a SFR investor would have to pay for anyway.  Insurance, water, landscaping/gardening, exterior maintenance, and capex.  For the condos I was looking at, I'm calculating a 10% cash-on-cash return and 7% cap rate.  Maybe not great for some on this board, but remember the belief was that it wasn't possible to achieve 1% rents.  These condos would hit 1.5% rents and would cash flow about $1,250 per year (including management fee).

Before somebody decides to invest out of state, they should look to see what deals are available in their own backyard.  Don't accept the conventional wisdom that deals don't exist.  Get good at researching your own market and validate for yourself that no deals exist.  Then if you do decide to look out of state, those research skills will serve you well.