It’s Better to Buy out of State

As a service member we often don’t get to choose where we live; we are constantly on the move, changing duty stations every 2-3 years. As a real estate investor, this makes it really hard to invest locally, as the location may not always make sense. As a Navy guy this seems to be even more true, as most of our duty stations are on the coast and normally are quite a bit more expensive than markets in the middle of the country. Places like Hawaii, San Diego, Washington D.C., Virginia Beach, and Washington State tend to have much higher price points for a single-family home and the rents don’t normally cover all of your expenses if you are analyzing it as a rental property for a buy & hold strategy. You tend to be left with negative cash flow at the end of the day. Now, some will come up with creative strategies that may help boost the cash flow like “house-hacking” or using AirBnB for short-term vacation rentals. But these strategies may not last forever, as state and federal landlord rules are constantly changing. Hence, investing locally at every duty station may not make the most sense. Instead, you are forced to invest out of state if you want a better return on your money.

But here’s why that’s a good thing – investing out of state makes you a better real estate investor! And the sooner you start to treat your real estate investing like a business, vice a hobby, the better you will become.

If you are investing out of state, you have to think differently; you have to put systems and processes in place, you have to create a support team that will help you, and you have to delegate tasks that you would probably do yourself if your investment was local. You are forced to be a business owner, not a real estate manager.

Think about all the tasks that you would probably try to do yourself to save a few bucks if all of your properties were close to where you lived. And think about how much extra time that would take away from what you should really be doing as a business owner. Think about what all those tasks normally cost, then think about what your time costs.

Time is the most valuable thing we have. Would you rather spend it painting walls after a tenant moves out, or would you rather spend it networking with other business owners at a real estate conference with the possibility of finding a new investment opportunity? Would you rather spend your time vetting and showing your property to a potential new tenant, or would you rather spend your time analyzing a new deal? What is your time worth? Is it worth $20/hour, $500/hour, or $1,000/hour?

Think about what team members you’ll need to add to your business if your investments are out of state. As I list these off, think about how many you would probably try to do yourself if your properties were local, then think about how good you are at these tasks. Here’s a few that come to mind: Realtor, Property Manager, Attorney, Accountant, Contractor, Handyman, Title Company, Lender. Now some of these professions actually require that you have a degree, but some of these jobs I’d bet you’d try to do yourself; I know I would. And that’s where you start to go wrong – you are working IN your business, instead of working ON your business.

Now, don’t go off and decide to just choose some random market because somebody said so, or because you read it in a blog somewhere. Choose wisely. Check out my YouTube video about the 8 Criteria for Choosing a Market. Here’s a few more tips:

Don’t pick a city out of convenience. Don’t just choose a market because your grandma lives there and you want to go visit her. Choose a market where the numbers actually make sense.

Use technology and metrics to your advantage; net migration, unemployment, job growth, job diversity, cost to rent vs buy, ownership percentage, vacancy rate, are just a few that can help you make a decision on a market.

Find a fantastic property manager! They will make, or break, your business. Make sure you interview them to see what type of business they run. And get referrals. Here’s a great book that will teach you how to build a team out of state: Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties.

Make sure you are buying in a good neighborhood. Again, use technology; Neighborhood Scout, Trulia crime maps, City-data, are good starters.

But, the absolute best thing that you can do…actually go and visit the market. Drive and walk the neighborhoods (at night). See what type of growth is happening. Talk to local businesses, police, property managers, Realtors, etc. The cost of the plane ticket will be well worth it when it comes time to invest in that specific location.

Become a better real estate investor by investing out of state – work ON your business, instead of IN your business.

Written by Stuart Grazier