Should I Buy An Out of State Investment Property?

If you are a real estate investor in California or another high-cost area, you probably are considering an out-of-state investment property. In the costly cities of San Francisco and Los Angeles, many real estate investors are priced out of the market.

This recent graphic of San Francisco housing prices tells the tale:


Investing in a market like that is brutal unless your closets are full of cash. Here in Texas, I have been blessed to build a big portfolio of under market value investment properties that are very low priced.

If you are ever considering an out-of-state investment property purchase, below are some pointers:

How to choose your out-of-state market

The best locales to invest in under market value properties depends on what you want to achieve. Do you want to flip for quick cash or buy and hold long term? I always want long term real estate cash flow.

Also, I favor investing in under market value, buy-and-hold properties — usually with seller financing. Long-term cash flow is, in my opinion, the best vehicle for massive wealth accumulation.

Anyway, note that a good buy-and-hold market might not be so great for flipping. In my home market of San Antonio, flipping is getting harder as prices rise.

Many flippers I know are starved of under market value deals that can turn them a decent profit. On the other hand, buy-and-hold investors like me are doing well; 10 to 12 percent ROI is still routine for my portfolio.

As you mull where to purchase your out-of-state investment property, consider these points:

  • State laws: Is your potential out-of-state market friendly to under market value property owners? I advise you to invest only in states that have landlord and owner-friendly laws. I want to be able to evict non-paying tenants and foreclose easily on defaulting buyers. Texas is property owner-friendly.
  • Population and economic trends: Is the state growing or shrinking in population? How is the job market? As an example, according to CNN Money, Texas is seeing rapid population growth and a strong job market. Forbes stated in a Jan. 14 article that four of its 53 boomtowns are in Texas: San Antonio, Houston, Austin and Dallas. A state with strong population and job growth will have plenty of renters and buyers needing houses.
  • Price-to-rent ratios: What does it cost to rent a house compared to buying one? CNN has a helpful graph on price-to-rent ratios. San Francisco and Honolulu have the highest ratios — over 30 — while Detroit is lowest at around 10. Generally, I recommend buying in a market with a moderate price-to-rent ratio.

This is not an exhaustive list of considerations for buying out-of-state investment properties. However, if those three points look solid, odds are you will produce positive cash flow in that area.

How to locate a good out-of-state investment property

If you have a good idea of your best city to invest in, how do you know which under market value property to buy? Most investors go one of two routes:

  • Find a great real estate agent or investor who knows how to scout for good under market value properties and wholesale property. Hopefully, he or she will network with top-notch property inspectors, rehabbers, title companies and a real estate attorneys.
  • Find a reliable turnkey property company. These under market value properties have been 100 percent rehabbed and often have tenants already in place.

Which route do you choose? It depends. Many out-of-state property investors want zero headaches or stress and don’t want wholesale property. So they purchase turnkey properties.

Other investors want to save money, so they find their own under market value properties and coordinate their own rehabs and property management.

If you handle your own investment properties out of state, consider:


  • You get the house cheap
  • High ROI
  • You control rehab costs


  • The house has zero cash flow during your rehab and time to find the occupant
  • Rehab costs might skyrocket if your partners on site are not top tier
  • It’s difficult to manage rehab from 1,000 miles away
  • Material costs can increase when you do one rehab at a time

If you buy turnkey, consider:


  • There’s no rehab to worry about
  • An occupant is in place
  • There’s no muss or fuss on your part
  • Material costs are standardized
  • The quality of work is there for you to see from the start
  • The entire investment team is in place


  • Higher upfront cost
  • Lower ROI

How much is the difference between buying an under market value property yourself or a turnkey property? In my experience, I can do the rehab on a distressed property for half of what a typical rehab crew will charge.

That can make a difference of 2 to 3 percent in ROI per year. That adds up over time. However, I’m a full-time investor with a construction company. My rehabs cost less because I do 100 per year. You might not be able to do that, so a turnkey might make more sense.

For the beginner, I might lean toward buying solid turnkey company in a low-cost market as a first out-of-state investment property. That will help you dip your feet into the investing waters with some positive cash flow, then you can grow into building your own under market value investment team. Above all else, look for solid real estate cash flow from your distressed properties to get the best start in real estate.

How $20,000 ‘Junk’ Under Market Value Properties Make Me Rich

Many under market value real estate investors cannot believe that I have become very wealthy by buying and selling below market value ‘junk’ houses for $20,000 or $30,000. The fact is, I have bought and sold hundreds of these distressed properties in the last 15 years in San Antonio TX.

There always is very strong demand for these little, profitable under market value houses. We have so many blue collar, Hispanic workers here who have rented forever and want to buy a house but do not have credit. I consider it a great opportunity to work with these people so that they can buy their own house.

Just because the house is unattractive to you or I does not mean it does not hold value for some buyers. Most of my under market value buyers are contractors, and they can repair the house and turn it into a very livable little home. These are great little houses for the out of state investment property investor. Note that the house is always sold at fair market value, never above fair market value.

For example, the house below was said by some people to be worthy of a tear down. They are not wise investors; I have been criticized on ‘investor websites’ such as Bigger Pockets for this type of investing. Frankly, they are fools – conventional thinking, 20% down, rental property investors.

I have made a few million dollars off of these ‘junk’ owner finance properties that many so-called ‘investors’ overlook, and provide a house for a hard working person to live in. But note – investing in under market value properties and owner financing them takes cash. It’s an advanced investing system for out of state property investors with cash.

Most of my  blue collar worker buyers had rented for years, and some of them had truly ‘slumlord’ type landlords; I’ve heard the stories from my buyers. Buying a house via owner financing such as this can be a better option for some workers, as long as the house is priced at fair market value.

Here are the details:

front 3
$20,000 cash purchase, $5000 in rehab, 65 DOM, sold for $39,900 owner finance (Fair Market Value), ROI 12%.

This is an example of our lower priced affordable home, but still an excellent investment in property. These houses will sell in our neighborhoods in San Antonio TX. It is a 4/1 on Colima Ave. in the 78207 zip code. It was purchased by the out of state investment property investor for $20,000 cash, which was well under market value. He had it repainted in and out and the door secured, and other minor fixes. That cost him $5000 total in repairs.

Houses in this range and location do not require major repairs and upgrades to resell.

We then sold the house with owner financing to a qualified end buyer. The buyer was qualified according to SAFE Act – documented income, tax returns, pay stubs, employment verified. All Dodd Frank underwriting rules were followed.


  • $3000 down
  • $400 per month PI/TI
  • 30 year amortization
  • 10% interest (legal in TX – sorry Bigger Pockets!)
  • No prepayment penalty
  • No balloon
  • Final price: $39,900 (FMV)
  • ROI: 12%

Note: The final price for the owner finance buyer is FMV and DOES NOT constitute ‘predatory lending,’ which is illegal per Dodd Frank regulations. Sold comps in the neighborhood on properties of similar size, age and condition are approximately $39,900 to $49,900 – if elec and water work and roof is not leaking.

A CMA was run on similar houses within a two mile radius. Max value in that area for similar houses is $99,900 for an immaculate property that has been updated.

More photos of this below market value property:

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It has been occupied by a blue collar, owner finance buyer for a year, and I know that many repairs have been made to it. All the while, it has returned 12% ROI of passive income to the investor.

Buying and selling these little ‘junk’ under market value properties has been very good to me, and can be for you, too. You also can buy nicer homes here in San Antonio and do the same thing, if this type of property is not your cup of tea – such as this under market value property.