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Why Buy Out of State Investment Property?

If you are an investor or possible investor in California, you probably know the answer to that question! Many of my out of state investors in California cannot believe the sky high cost of investment properties in many of the high population areas of California, such as San Francisco, Los Angeles and San Diego. Great places to live, but for positive cash flow investing? Not so much! California investment property is very expensive.

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I feel for San Francisco real estate investors.

I’ve been fortunate enough to build my large portfolio of under market value properties here in Texas, where property values are a lot lower than some places. San Antonio investment property produces excellent real estate cash flow and is quite inexpensive. I also only owner finance my houses, so I have no maintenance costs.

If you are thinking about buying an out of state investment property for passive income, here is a good simple guide that can help:

How to Select Your Out of State Investing Market for Passive Income

Where you are going to invest in under market value properties depends on your real estate investing goals. Are you a flipper or a buy and hold investor? If you hang around my site long, you’ll learn I retired early with buy and hold investment properties that are owner financed. I’m a big believer in buy and hold long term cash flow – that is how I financially retired at just 28 in San Antonio – one of the best cities to invest in real estate, in my humble opinion.

Anyway, a good buy and hold market for passive income might not be the best flipping market. Here in San Antonio TX, flipping has gotten tough as the economy is booming as of January 2016; it’s hard for flippers to get properties cheap enough to make a good profit. For buy and hold investing though, I still make 10-12% per year, or $500-$700 per month in positive cash flow.

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I’m biased, but TX is a great place for out of state investors – the population is soaring due to job growth.

As you think about where to buy out of state investment property and under market value properties, consider:

  • State law: Is the state friendly to property owners? You want to invest in a state that makes it easy to evict tenants or to foreclose. State that are tenant friendly, such as CA, make it so hard to evict or foreclose, you could lose your shirt.
  • Trends: What’s going on in the state as far as population? Here in Texas, we are seeing MEGA population growth.   My market of San Antonio is #5 on the list above as far as hottest housing markets go. Jobs are the biggest reason that people are coming to Texas, as well as housing affordability. This makes Texas a great place for out of state investors.
  • Price to rent: What does rent cost compared to the price to buy? In my town, it’s 16.90, while in San Francisco it’s 30.05. Whoa! No wonder so many CA investors are investing in out of state investment properties.

These are not all the factors to consider when you are buying an out of state investment property instead of California investment property, but if those three areas look favorable, you probably could do well in that market and financially retire early as I did, in one of the best cities to invest in real estate. San Antonio investment property is excellent for cash flow.

How To Find Out Of State Investment Properties and Under Market Value Properties

Now that you know which market to buy your below market value investment properties, how are you going to locate that house? Most investors I know do it two ways:

  • They find a good real estate agent investor who is hooked up with excellent contractors, property inspectors, title company, real estate attorneys.
  • They find a good turnkey property provider. The house has been totally rehabbed and usually has tenants or buyers in place.

Which of these routes you go with will depend upon your investing goals again. Some out of state property investors want to have absolutely no headaches or management worries, so they just buy turnkey properties. Other out of state investors think that method is too expensive, so they manage their own rehabs and property management.

If you decide to find your own below market value properties in your chosen market, here’s what you’re looking at:

Buying Below Market Property Yourself

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Advantages

  • You’ll get the house at a low price
  • High cap rate or ROI

Disadvantages

  • The house will not be producing income during the rehab and the time it takes to find a renter or an owner finance buyer
  • Rehab costs could shoot up if you don’t have reliable partners
  • Harder to manage the rehab and management from a distance
  • Difficulty in controlling material costs

Buying Turnkey Property

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Advantages

  • Totally rehabbed
  • Tenant or buyer may already be in place
  • No work for you
  • Cost of material more predictable and stable
  • You know the quality of work you will get
  • Whole investment team is in place

Disadvantages

  • Higher initial cost
  • Lower ROI or cap rate

How big a difference are we looking at between buying a run down under market value house and buying a turnkey? Let’s take a look:

  • Run down property: Estate sale, $30k purchase, $30k in rehab – will produce 13% ROI with owner financing or renting.
  • Turnkey property: $80k purchase price, no repairs, will produce 9-10% ROI with owner financing or renting.

So which will it be? Most people would say you obviously go for the better ROI with the under market value property you do yourself. But remember, you are going to have to do a heck of a lot more work – at a distance – with the fixer upper property. A turnkey property will earn lower ROI, but it a lot less stress. At the very least, you might consider a good turnkey property if you are a beginner in real estate investing. That way, you can make some good positive cash flow as you develop your own investment property team.

It all boils down to how you look at investing in real estate. Investing by definition means using something to get some type of return. You just have to decide if you want to use just your money to get a return, or use your time AND money to get a potentially higher return.

Choose wisely based upon your personal investing goals, and you will hopefully be able to be financially retired on your time table.

Personally, if I were a usual buyer of California investment property, San Francisco investment property, Los Angeles investment property or San Diego investment property, I would strongly consider buying out of state investment property. Investment property is all about real estate cash flow…..it’s something you can rely on year in and year out, unlike hoping for appreciation.

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How To Retire Young With Under Market Value Properties

Hello investors and ‘maybe’ investors! Thanks for visiting my little website about under market value properties in San Antonio TX. It is these little bitty affordable homes that allowed  many people to retire young. You can, too!

#1 I Discovered an Inexpensive, Stable Real Estate Market

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Before investing in San Antonio, many of our investment property investors considered Austin, but that’s an expensive market, even years ago. But San Antonios is only an hour south and is a great market for owner financing.

During the market crash of 2008-9, the prices of these homes dropped, and and many investors were able to pick up a dozen at 50% under market value. That also helped to grow our investors’ real estate portfolio.

Lesson Learned: Steer clear of real estate markets with high entry costs. Lower cost cities are much easier for investors with limited capital.

#2 We Found Reasonably Priced Private Money

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After you get your first house or two, you may not have any more cash. But where should you look? One way to do it is to just make phone calls looking for private money. Another is to go to investor meetings and get to know people with money.

Eventually, through all phone calls and networking meetings, some  investors found people willing to loan money at reasonable interest rates. When you can find that source, it makes everything a lot easier.  However, you also can borrow money from your own home or IRA, if you have a good under market value deal and keep the rehab reasonable.

Note – many of us prefer to invest all cash, but there ARE other options. You can, for example, buy nicer houses for $75,000 or so and do 20% down conventional finance, and then owner finance them. Cash flow is ~$300-400 per month with no maintenance.

: Be prepared to do a lot of work and make a lot of phone calls to find private money. It’s easiest of course if you have family willing to loan you money on reasonable terms. If not, get on the phone, and go to real estate meetings every week.

#3 Become A Real Estate Market Expert In Your City

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One of the keys to success is to buy houses many other investors run screaming from! You can buy houses that don’t look that great, do some minor rehab, and owner finance the investment property to a willing buyer.

Other investors early in their careers rehabbed homes themselves and got to know the market in the city. This helps you get a great idea of what homes in many parts of San Antonio are worth. Then, you know how much a San Antonio fixer upper needs in rehab and what to spend without overspending.

You also can earn your real estate license, and spend many hours studying prices of houses. One of the most important parts of being a successful investor is getting a house at least at 20% under market value.

Lesson Learned: Study your local market so you can buy houses under market value. Can’t find those kinds of deals? Consider working with an expert real estate investor in your market who can help you find those deals! Offer to help him or her with their business in exchange for turning you on to good, under market value deals.

#4 Find Good Real Estate Mentors

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Getting started in real estate without successful mentors is like going fishing without fishing tackle! Every beginner real estate investor should work with very successful and experienced mentors. You can find mentors at real estate meetings in San Antonio and also at real estate conferences in other cities.

Lesson Learned: Find mentors and real estate partners who have done several hundred deals and have done well in both boom and bust markets. Working alone in real estate as a rookie is a recipe for disaster.

#5  Invest in Cash, for Cash Flow Only – With Owner Financed Real Estate

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One of the most important lessons some of use learned from our mentors is to owner finance many properties instead of rent them out.

Under the advice of our mentors, we stopped rehabbing and renting out houses. In many cases, we used an owner finance model only.

Today, we buy a San Antonio investment property for cash for about $50,000 or $60,000, do $10000 in rehab, and then resell the property with owner financing to a qualified buyer. There are no overhead costs or property management costs associated with this exit strategy.

(You CAN do owner finance with conventional financing, 20% down, and still earn $300-$400 per month in cash flow.)

Lesson Learned: Consider investing strategies other than renting out property. Owner financing houses is less stressful and is clearer cut in terms of monthly cash flow.

Want to learn more how to do make real estate cash flow on San Antonio investment property? Contact me at jmpickett@gmail.com.

And remember, most of our out of state investment property investors used to buy California investment property, San Diego investment property, San Francisco investment property, and Los Angeles investment property. Here in San Antonio, they usually make 12-15% ROI for great real estate cash flow – without maintenance costs.