Founder, CEO of Blue Lake Capital LLC. Helps passive investors grow wealth through real estate. Podcast Host: Ready2Scale. Mentor.
Before answering that important question, it’s best to gain an understanding of why some investors avoid out-of-state investments while others embrace the concept. Investing in real estate, particularly multifamily properties, that is close to home has many advantages. You’re familiar with the area, and you often know real estate agents and brokers who can recommend properties that come up for sale.
Many out-of-state markets offer exceptional investment opportunities for multifamily investors. They’re often located in “landlord-friendly states,” where rent control doesn’t exist or is very limited. In addition, there may be a limited number of higher-end rental properties available, or the area may be experiencing a dramatic surge in population and job growth, as well as many other reasons.
Like every other syndicator and investor, I apply specific investment criteria when looking at out-of-state properties. I prefer value-add deals in states with low unemployment rates and strong growth in jobs and population. Even though I live in Southern California, I don’t invest there. That’s because there are too many wild market swings, rent controls and compressed cap rates. Instead, I invest in properties located in Texas, Georgia and Florida, which are landlord-friendly states that have tremendous population growth and high employment.
First Thing First: Do Your Homework
While I have my own investment criteria and business plan, yours might be different. Regardless of how you approach a multifamily deal, the universal key to a successful investment is to do due diligence. That includes the location and the property, so get ready to do your homework.
Finding the right market begins with an in-depth market analysis. You’ll want to look for rental income growth, job growth and a close-up look at the demographics of the market. Who lives there? Is there an abundance of millennials and baby boomers in the market? It’s important to know because those two groups are the ones fueling renter growth, so you want to be sure their numbers are high.
To ensure you’re investing in a strong market, it’s time to do some analytics. To make your job easier, there are many online tools available that provide the market data you need. That includes population growth, demographics and other key factors. Start with Census.gov and City-Data.com. Both provide the information you’re searching for. In fact, you could even Google the name of the city with terms like “population increases” or any other topic you want to search.
There are also some advanced tools available that reveal a large variety of metrics on property appreciation, employment, neighborhoods and more. They include the Yardi Matrix, IRR.com and Veros. Just be aware that these websites are expensive. To find out if a state is “landlord-friendly,” check out Vertical Rent, which lists policies in each state. You don’t want to find out after you invest that you can’t evict a tenant for nonpayment of rent.
Build Your Out-Of-State Team
Managing out-of-state properties is a team effort. I learned this firsthand by syndicating out-of-state deals. You want to have a group of professionals who understand both multifamily properties and the market you’re investing in.
Your team should include a broker because they’re often great sources for recommending other team members. You’ll also want to include a CPA and a lawyer, both with experience in out-of-state investments. In addition, you’ll want to include a property manager who is local and knows the market inside out.
What It Takes To Invest Out Of State
Hiring a remote team takes time and effort, but it’s a crucial step if you want to invest out of state. After you have your team in place, your job is not over. You will still need to visit your property, which may be a six- or seven-hour flight from where you live. You’ll want to be a present owner. I visit each of my properties at least once a quarter to check on its condition and see how the team is doing.
Yes, it does take time, money and effort to travel to remote properties. Not every market is worth the hassle; it needs to be a solid enough market, and the property needs to be good enough to generate the right amount of cash flow to be worth it. You should have a number in mind that will make it worth it. Many investors want to invest out of state but don’t want to deal with the hassle of managing it remotely. The solution for them is to invest in a syndication.
My answer to whether buying out-of-state real estate is worth it is a resounding yes. You’ll need to do the due diligence on the market to ensure it’s strong and has both job and population growth. You’ll need to build a professional team to help you manage your property, but even with the strongest team in the world, you’ll need to travel to the properties often, unless you invest in a syndication as a passive investor.