Median home prices in your home market got you down?

Feeling priced out of the market where you live?

It’s time to look somewhere else then!

There are plenty of affordable markets across the country that provide solid cash flow!  It just comes down to picking a good area and building a trusted team on the ground.

Here’s our top 7 steps for investing out of state:

#1: Why invest out of state?

There are lots of reasons people decide to invest in other markets, the main motivator being price or return on investment.

• Lower barrier to entry

• Some markets have lower home prices, which reduces your down payment and cash out of pocket, helping you stretch your dollars across more doors

• Better returns

• Investors are either looking for appreciation or cash flow, and occasionally you can get both

• Some markets are low appreciation, high cash flow

• Other markets are high appreciation, low or negative cash flow

• Depending on your investing goals, you’ll want to pick a market that has the kinds of returns you’re after

• Diversify your portfolio

• Just like investing in the stock market, it’s good to spread your investments across other markets. 

• That way at least a portion of your portfolio is protected in the case of natural disasters, industry changes, demographic shifts, and so on.

• Lower operating expenses

• Every market has a different cost of living and standard charges for repairs; prices vary widely across the nation.

• Consider markets with lower cost of living - this will save you on maintenance and repairs, utility costs, and even property taxes.

• Landlord friendly areas

• States, cities, and even counties differ in their approach to landlord tenant laws. Many investors use landlord tenant laws as a decision making factor in where to invest.
  

#2: What should I look for in a new market?

• Increasing population

• No brainer here - you want a place where people are moving to, not away from.

• Diversified economy

• If an area is overly dependent on one industry and that industry leaves, that makes your investment vulnerable.

• Example: Detroit and the auto industry - this decimated the housing market

• Growing workforce

• Look for places where younger generations of workers are flocking and contributing to a growing workforce.

• Unemployment rate

• Ideally this is at or below the national average.

• Median income

• Median income should be on the rise and reasonable relative to the average rental price per square foot.

• Good schools

• If you’re looking to attract families into your rental properties, you’ll want to look at school ratings.

• Low crime rates

• Tenants want to live in safe areas and you want your investment to be protected, so check out the crime maps for the areas you’re considering.

• Neighborhood diversity

• Every neighborhood has a different vibe and demographic. Do your research to familiarize yourself with the nuances of different areas.

• Strong rental occupancy

• This is about demand and supply. You’re looking for an area that has a steady population of renters and where the supply of available rentals is constrained.

• Example: college towns

• A newer consideration: climate change impacts

• Something that may not be on your radar currently, but it should be a consideration.

• Things to consider are water availability, natural disaster potential, insurance risk and potentially increasing prices, air quality, electrical grid stability.
  

#3: Market Connection

One place to start your search for a new out of state market is to consider where you have a personal connection already:

• Where do you have friends or family nearby?

• What other areas of the country do you know well or have you lived in previously?

You might also want to consider an out of state investment in a place you would want to visit frequently. 

If you travel there for recon before investing, and after closing there you travel there to fix up your property, the portions of travel devoted to your rental property are tax deductible!

#4: How do I analyze an out of state market?

The same way you analyze a deal in your home market! 

Below are the key metrics you’ll want to use for evaluating different markets and investments:

• Cap Rate

• Measures annual rate of return based on expected profit

• Great market comparison metric since every market has a typical cap rate

• Gross Rent Multiplier

• Quick back-of-the-napkin math

• It compares the gross annual rent income to the purchase price of a property

• Essentially it shows how fast the property will pay for itself with given annual rents

• 1% Rule

• You can do this one in your head!

• Assumes that a property should bring in 1% of its purchase price in rent each month.

• Cash on Cash Return

• Shows how quickly the cash invested in a property will be returned
  

There are plenty of online calculators that will help you run the numbers, or ask us to help you with the analysis - that’s what we’re here for!

#5: How do I build a team out of state?

The first place you start: a Realtor.

And not just any realtor you find on Google. Seriously, trust us on this one. 

You want an investor-friendly realtor - someone who ideally is an investor themselves, knows how to calculate the metrics mentioned above, and who has a pulse on the rental market - whether that’s short-term, mid-term, or long-term.

Okay, so what if you don’t know someone and aren’t sure where to look?
Ask me for a recommendation!

We’re connected with a large network of investment-focused Realtors all over the country and will gladly put you in touch with someone who can help you achieve your goals.

And remember - like contractors and insurance agents - not all Realtors are created equal. Some focus on residential, others on investments. Choose wisely.

And again, be wary of the Google Realtor search. You can do better than that. 

And we’re here to help!

Okay, now on to the rest of your team…

…and the reason you need a stellar investor-focused realtor: because the realtor should connect you with EVERYONE ELSE you need on your team!

That’s why it’s so important to start with someone great.

Your realtor should connect you with the following teammates you need to successfully invest out of state:

Lender:

• Can be local or national

• Investment Savvy

• Creative options for maximizing cash out of pocket

Contractor:

• Renovation Estimate

• Dial in Property

• Annual Maintenance

Property Manager: 

• Revenue Estimate

• Markets Property

• Tenant Interaction

Title Company:

• Investor Friendly

Attorney:

• Real estate focused

• Familiar with landlord-tenant laws

• Can draw up leases/notices

CPA + Financial Advisor:

• Investment write-offs 

• Tax Preparation

• Financial Strategy + Depreciation Tracking

1031 Exchange Accommodator:

• Your trusted ally when it’s time to sell

• Works with your CPA to defer taxes

• Holistic tax strategy for your portfolio

#6: What questions do I ask to ensure I’m getting a realtor who knows investment properties?

By no means an exhaustive list of what to ask, here are a few key questions to ensure you’ve got someone who knows her stuff:

1. What’s your investing experience?

2. How many contractor contacts can you share who are available, reasonable, reliable?

3. How many property managers do you know and work with regularly?

4. What lenders do you typically recommend to investors?

5. What can you tell me about the area’s landlord-tenant laws?

6. What is the vacancy rate for rentals in the area?

7. What is the average price per square foot for rentals / average nightly rate for vacation rentals
   

#7: How do I find a good realtor in another market?

Looking for realtor recommendations in other markets? 
Email us! 

We have a giant network of fellow investor-focused realtors across the country.

And if we don't already know someone in your market, we'll do the legwork and find a great realtor for you!

We’re here as a resource no matter where you’re buying or selling your investment properties - if it’s in Oregon, we should definitely be representing you. 

If it’s in another state, we’re your go-to team to help you source your most important teammate in any market!