BiggerPockets Real Estate Podcast - 909: 6 Expert Tips for Out-of-State Real Estate Investing

Starting point is 00:00:00 This is the Bigger Pockets podcast show, 909. What's going on, everyone? This is David Green, you are host of the Bigger Pockets Real Estate podcast, and we have a mini-sode for you today. Our goal is to give you the best information in the shortest period of time so that you can spend more time,

Starting point is 00:00:16 taking action, making money, and building that life of your dreams. That's right, Dave. And today we're going to be giving you six tips for out-of-state investors. If you want to become one, if you want to do it better, then this show is for you.

Starting point is 00:00:27 So let's get straight into it. All right, let's get into this. Tip number one, choose a market that meets your needs as an investor. Now, Rob, you are primarily a short-term rental investor, so you probably want to pick a market that you would actually want to visit. What do you look for in a market? When I got into this game, that was the dream, right? My whole goal getting into real estate was buy one house for every month of the year. My big grand goal is if I could have 12 houses that allow me to go to a different house every year, that's the goal because not only with short-term rentals can I cash flow and cash flow quite a bit

Starting point is 00:00:56 over a long-term rental, but other people pay for it, and I get to take vacations at these places instead of having to spend $2,000 or $3,000 on an Airbnb. Yeah, great point, right? So you're always in the sunshine. I think, depending on what your strategy is, this is something you should think about. I've had that same thought. What if I just had Airbnbs all across the country, and I stayed at a different property depending on what I was into and I just moved my family along when I get one to all these properties. Now, not everybody thinks like that, though, right? I tend to think about let me buy in the market where I think I'm going to get the most growth. So I'm going to take more of sort of a cerebral impact. I'm going to look at where are people moving to, where's the opportunity, where are jobs moving,

Starting point is 00:01:34 where's growth going to happen. So this all comes down to your strategy as an investor. If you're looking to build long-term growth, you're going to pick certain markets. If you're looking to build cash flow ASAP, you're going to pick certain markets. And if you're looking to build a lifestyle type portfolio, you're going to pick different markets. Anything to add there, Rob? So one of the other things I say, in addition to places that you actually want to visit, because that's not going to be applicable to a lot of the long-term rental investors out there. Also try to find a place with the familiarity. For me, I went to school in Austin, Texas. I know that city like the back of my hand. And so when you have a little bit of familiarity with like a municipality, a county, a city,

Starting point is 00:02:07 it's a lot less scary to buy a house out there. And it's not quite as risky in my opinion when you know the town a little bit. Again, this all starts with strategy, right? So check out Dave Meyer's book on that topic. Pick your market and move along. Tip number two, find a market with strong fundamentals. I love this stuff. What do you think about that, Rob? Yeah, big fan of this too. I mean, obviously, I have done a little bit of everything in the real estate space, but for me, I'm always looking for really strong tourist destinations. Now, there's vacation destinations like Orlando, where there's Disney World or Disneyland. There's also like Lake towns, Mountain Towns, ski towns. I like investing in places where I know people are consistently going to go,

Starting point is 00:02:49 but if you want to step that up a little bit further and be a little bit more recession, resistant, I'm a big fan of investing in or around national parks, simply because I call those Mother Nature's Disneyland, and millions of people will visit those cities every single year. I don't have to market it. I don't have to worry about too much of a decline in general. This is a great point. If you're thinking like a traditional investor, you typically just look on rentometer or the bigger pockets rent calculator and say, hey, rents are X, my expenses are Y, problem solved. But if you're going to be a short-term rental operator, a medium-term rental operator, you need to think about where people are going because it doesn't matter how much you think that you can get on the property.

Starting point is 00:03:27 You actually have to have people staying there. It's much more like running a hotel or a hospitality business. Now, that's going to help with the cash flow, but the value of the assets completely different. This is a whole new set of analytics you have to look into. What's the housing supply like there? What's the wages like there? Are prices going up? Our wages going up? Is there demand for housing or are there too many houses and not enough people? So you sort of got the equity side and the cash flow side that live independently and you ideally want to pick a market that has a good balance for your needs as an investor. Okay, that all makes sense to me, David. Can you put this in perspective for maybe someone more on the long-term side of things? As a long-term investor, you're looking at two things. Supply and

Starting point is 00:04:05 demand and demand and demand of that housing. And how much supply of rental properties are there and how much demand are there for those rentals. So rents will go up if there are not enough rental properties and wages are increasing. So that's what I look at from the cash flow side. And then The value of the real estate will go up if there are people that want to buy houses and wages are going up so they can afford to pay more for the house. This is why South Florida has exploded in prices because business has moved in there primarily from Wall Street, New York, big money. And with that comes high wages, but there's a constricted amount of housing. Boom. We have an explosion in both rent and in both housing prices because people in New York are used to paying those high prices.

Starting point is 00:04:47 Austin, Texas out there in your hood, Rob, I know you're in Houston, but same thing. Tech industries moved in there. There wasn't enough places to build more houses, rents went up, and values went up. So if you're a multifamily investor, you're looking at metrics like this very, very significantly and purposefully. And if you're a residential investor, it's good to start thinking along these terms. Yeah, so let's get into tip number three, which is to make sure you invest in a market that actually supports your goals as an investor. What does this mean to you, David? Well, there's a lot of people that are investing in real estate because they just want to get out of their job. They were looking at how much cash flow can I accumulate ASAP. Well,

Starting point is 00:05:21 Maybe they want to go by somewhere like the Midwest where there's more properties that work with price to rent ratios that are solid. You have a higher chance of finding cash flowing properties and you could get them quicker. And you probably have more burr opportunities because there's a little bit less competition for you out there. It's easier to get the houses. It's easier to add value. There's still people that want them, but there's less than in somewhere like Southern

Starting point is 00:05:42 California or Austin, Texas or Seattle, Washington, where you have these markets that have crazy demand. Other people like me tend to think a little bit more like delayed gratification. right? I'm still going to work right now, so I don't need cash flow as much. I make money through starting businesses. So how do I set myself up to buy properties in the best locations where they're going to appreciate more overtime? And then when I retire from working, I have higher rents and higher values to make retirement easier. Yeah, I'm pretty much on that page too. I think for me, my goals are higher equity plays and areas that I know are going to appreciate. That's not quite as

Starting point is 00:06:15 important as cash flows as it was at the beginning of my journey. But for you out there, if you're listening, if your goal is just to get started, you don't have a ton of money to buy these $500,000 or million dollar homes, that's fine. That just means that you have to find a market that you can actually afford, maybe something in the Midwest, maybe something that's a little bit more of a base hit. And as you grow your portfolio and you can start pulling some of that equity out to reinvest into other properties, you can start looking at other markets that might be bigger hitters for your portfolio. You love to say bigger hitters. It's like one of your favorite things. Do I say that often?

Starting point is 00:06:46 You say it pretty often, yeah. Now it's my mission to say that as many times as possible on the show. All right, stick around because we've got more tips for you and your friends and your family and your pups, your dogs, your friends, your second cousins, right after the break. A lot of property managers think their job is answering tenant emails and coordinating repairs. That's not the job. The job of a property manager is protecting and growing your operating income and earning your trust while they do it. And that comes down to three numbers, occupancy, delinquency, and net promoter score. If those numbers slip, your income slips and your trust slips too.

Starting point is 00:07:23 And most PMs don't hold themselves to performance standards. They focus on activity, not outcomes. Mind is different. They obsess over the metrics that actually grow your cash flow. Go to mind.co slash show me to see how mine performs and get a month of management for free. Because if you're going to hire a property manager, hire one that manages your investment like an investment. Managing properties can feel like a full-on circus.

Starting point is 00:07:51 You're juggling vendors, tracking payments, chasing approvals across multiple properties, and maybe a few HOAs, all while trying to keep tenants happy and owners confident. One delay can throw everything off, and suddenly your day is all clean up, no progress. That's why hundreds of property managers rely on bill to streamline their finances. Bill for property management lets you add all your properties, assign permissions, pay bills, and receive payments quickly and efficiently without the usual bottlenecks. It syncs with platforms like QuickBooks,

Starting point is 00:08:23 Zero, NetSuite, and Sage intact, so your accounting stays aligned. You can automate bulk payments across properties and HOAs. Choose flexible payment methods like Same Day ACH, international wires, card or check, and set custom roles in approval policies. There's even a dedicated bill inbox for each property to keep everything organized.

Starting point is 00:08:44 Ready to simplify your workflow? book your free demo at bill.com slash bigger pockets and get a $100 Amazon gift card. That's bill.com slash bigger pockets. Real estate investors, the April 15th tax deadline is coming fast. If you own rental property and haven't done a cost segregation study yet, you could be handing thousands of dollars to the IRS that you don't have to. These studies let you write off as much as 25% of your building and generate huge tax deductions.

Starting point is 00:09:14 Costsegregation.com is an online, self-guided software that makes cost segregation fast and affordable. So it finally makes sense for smaller rental properties purchased for as low as $100,000. With pricing under $500 and an average savings of over $25,000, it's just a no-brainer. What's more, audit support is included by the number one cost segregation company in the U.S., but you must complete it before the tax deadline. Go to costsegregation.com and use code tax deadline to get 10% off your first report. Don't overpay the IRS.

Starting point is 00:09:47 Head to Costsegregation.com before April 15th. If the new year means getting rentals back in order, listings are a good place to start. Avail, part ofrealtor.com makes it simple to list a rental for free and get it in front of millions of renters. One listing, one click, post it across 24 top rental sites. Avail even helps generate listing titles and descriptions to save time. More visibility means fewer days sitting vacant and getting your property rented quickly.

Starting point is 00:10:12 It's a fast, free way to find renters without the usual hassle. Get started at a Vail. sale.co slash bigger pockets. That's A-V-A-I-L-C-O-Sash bigger pockets. Here's why savvy real estate investors are obsessed with bonus depreciation. It lets you take that rental property or commercial building you own and depreciate most of the cost against your income. Legally, 100% IRS compliant. That's instant cash flow improvement. Cost segregation guys is the number one firm nationwide, specializing and identifying these faster depreciating assets in your property. They've completed tens of thousands of studies across all 50 states from

Starting point is 00:10:51 remote cabins to apartment complexes. So if you own investment property, this is a no-brainer. So visit costsegregationguise.com slash BP for your free proposal and find out how much you could save this tax season. And welcome back, you beautiful investors. We hope you brought your pups, your dogs, your friends, your family, and everyone else to recap our first three tips for investing out-of-state are, number one, choose. a market that you actually want to visit or that meets your needs. Number two, find a market with strong fundamentals. I like to put the fun in fundamental.

Starting point is 00:11:24 And number three, invest in the market that actually supports your investing goals. Let's jump back in with tip number four. Well, you know, number four is really going to be a big hitter with the audience, and that is to know the local law and regulations. This is a really big one, and I can say from personal experience, I've made this mistake somewhat recently. I had a 1031. I bought a lot of real estate out of the 1031.

Starting point is 00:11:45 I bought into grade A locations. I bought really good real estate. I paid really good prices. I did everything that I knew to do well, and I was very happy with how it worked out. In fact, at the end of the day, after I bought all this real estate, I had added $1 million to my net worth simply from the difference of what I paid for the real estate versus what it was worth. What I did not anticipate was how many people were angry about short-term rental operators

Starting point is 00:12:11 and how the neighbors would gang up on me and get the city to hate me. So in many of these states where I bought properties, they were landlord friendly. They can't come in and tell you that you can't run a short-term rental. However, the local municipalities who control the permitting process can make your life hell. And that's what happened. So there was a bunch of tiny little laws. Just like when I was in law enforcement, the vehicle code is huge. And we just sort of pick and choose when you actually apply it.

Starting point is 00:12:36 If you see a reckless driver, that's when you pull them over for knowing a vehicle code violation. But if somebody's driving safely and they have a tiny crack on their windshield, that doesn't mean they're getting pulled over. every time. The same can be true of these local laws and regulations. There's often little things that you're not paying attention to that cities can use to jam you up if they don't want to be issuing permits. If the neighbors make a big stink about it, if you start the construction on a property and people complain about the noise and that particular municipality is politically against short-term rentals. So this is something that you need to be aware of because if you run a foul of the law, like I did in this case, they have more things they can use to make your life hell. I don't know that

Starting point is 00:13:14 I've heard you get into this situation, Rob. I think that's awesome that you have. And I wouldn't wish this on my worst enemy. So your experience has been a little different. You know, I researched quite a bit. And typically there's what's actually written in the law or the ordinance for that city. But in relation to short-term rentals, and we'll talk about long-term rentals here in a second, it's not just a matter of looking what's on the website and what the official language is.

Starting point is 00:13:36 Oftentimes, if I want to find out the regulations for a city, I'm typing in, let's just say use New Orleans as an example. I'm going to go to Google and I'm going to type in New Orleans Airbnb lawsuit, Airbnb court case New Orleans. And I'm basically trying to see what types of lawsuits or what types of court cases have come around the topic of short-term rentals. And that's how I find out what's either brewing or what's happening or what has happened. And then I also researched the actual code itself in the municipalities like website and everything like that. So I think there's kind of like a two-tier approach because something can be very legal on the website. but you can see that there's regulations on the forefront, and when I see that type of stuff, I typically shy away.

Starting point is 00:14:16 Now, I want to turn this conversation a little bit more to the long-term side of things. You mentioned the idea of landlord-friendly states. Obviously, that typically pertains to the world of long-term rentals. Is there a way to even find out, like, if a state is a landlord-friendly state? You hear it pretty often back and forth, you know, people that say, oh, I'll never invest in California. But, like, is there an easy way to find out if a state is friendly or not? It's not all the state.

Starting point is 00:14:42 I think it's the local municipalities where I found myself in trouble. Because like in Arizona, for instance, where we bought our property, there are laws on the books that say you cannot tell a person who owns a home in Arizona what they can or can't do with their own home. So if they want to run it as a short-term rental, there's literally legal protection for homeowners in Arizona that they're allowed to. But then you get areas like Paradise Valley where the local municipality has fought with the state, even though there's a law.

Starting point is 00:15:10 place and try to say that those people can't run out their home. So in Paradise Valley or PV, as they call it, if you happen to live in that area, they only let you rent your house out that way for six months out of the year, which is going to blow up your numbers if you're trying to be a short-term mental investor. So that's a case where you could have looked at the state laws and felt safe, went and bought into Paradise Valley, which would have looked like a great deal because there's way less competition. You're seeing the ADR is really high because you don't realize you can only do this for six months out of the year. You go buy this really nice property, then you find out that the local municipality is going to be the one jamming you up. Now, long-term traditional

Starting point is 00:15:45 real estate investors, they don't have to worry about this as much. The issue that you have to look at there is rent control. That's what you really want to study in some of the areas where we help clients like San Francisco, Oakland, you can buy properties. They'll let you rent them out. I don't know of any municipality that stops people from renting out properties, especially if they're on year-long leases. The problem is when they prohibit how much you can raise the rent by and you have a tenant in a property in an area like San Francisco where market rents are $6,000 a month and the properties cost $2 or $3 million, but you can only charge that tenant $1,200 a month because of rent control protection. So if you're planning on being a long-term real estate holder, which most of our listeners are,

Starting point is 00:16:28 you probably want to avoid the areas where they have super strong rent control prohibitions, and you want to understand what those are at a very high level before you buy. if you're going to be house hacking, though, it's not as much of a worry because most of these municipalities don't hold you to the same standard if it's your primary residence that they do if it's an investment property. Yeah, one final tip here for everybody, just going one step further than local law and regulations, look at your HOA. There are lots of HOAs out there in gated communities and stuff that may not even let you rent to a tenant for less than six months. I come across this all the time. HOAs can be prohibitive to your rental journey as well, so make sure you look at your

Starting point is 00:17:05 CCNRs, which stands for Credence, Clearwater Revival. What does CCR stand for? Covenants, codes, and restrictions. There you go. And your HOA bylaws and all that good stuff. All right, let's hit number five. Number five is make sure that you have boots on the ground and a way to verify that they are doing the work that you need them to. In long distance, Rales and investing, I talk about the importance of having a competitive advantage. And boots on the ground certainly gives you that. When you have people there that can check on your property, it makes things a lot easier. Case and point, I've got a property. just north of Fort Lauderdale and Florida that I'm dealing with the city like I was just telling you about. We're finally after like 22 months getting to the point where they're willing to clear up the tags that they put on the property.

Starting point is 00:17:47 Side note, this is stuff that was in the property when I bought it. I didn't even do any of this work and they came in and they jammed me up. And there was a bigger pocket solicitor that was able to go to the house yesterday and go take a video of the property that we could give to the people on my team that are trying to figure out how are we going to design this thing. That's a massive benefit that if I was like, what am I going to do? Am I going to fly all the way out there to do it myself? So when you have contractors, handymen, design people, resources like that, it makes long distance investing so much easier. This goes back into what I was talking about with tip number one,

Starting point is 00:18:18 which is having some familiarity. And for me, I feel comfortable investing in Austin, Texas because I have a network there. So that goes into this whole idea of boots on the ground. Is there someone in this city that can help you pick up the slack? Is there someone you can pay? Maybe it's an uncle. Maybe it's an old roommate. maybe it's a buddy that lives in this town and you can say, hey, we go check on this renovation

Starting point is 00:18:37 for me or we just drive by this property to make sure that my pipes didn't burst during the freeze. That kind of stuff gives you so much peace of mind as an out-of-state investor. Yeah, that's a great point. So look at where you can either build a team or where you already have pieces that you can use to assemble a team and prioritize markets where you have that competitive advantage. Awesome. So let's move to the last tip here. That's to go and visit your property or properties yearly. Now, this to me, Matt, matters a little bit more on the short-term rental side. I find that when I go and finally vacation at my properties, I'm always working and just trying to fix it and working on every aspect. And it's

Starting point is 00:19:12 because I don't feel like we have enough of a checklist or routine maintenance. I'm always disappointed. I'm always like, why am I working so much at my own properties? And it's probably because we could be visiting these properties and sprucing them up and inspecting them and maintaining them a little bit more often. I imagine that there's probably a little bit more deferred maintenance on the long-term rental side of things, right, David? Or are you usually generally impressed with the state of your portfolio many years after owning it? This principle applies to everything in business. I mean, and that's why you have to make it a routine habit, just like you said, Rob, of checking in on whether it's a property or it's a business or it's a task in that business at routine times, because

Starting point is 00:19:48 you find that things weren't like you thought in your head. I know you visit our Scottsdale property sometimes. I do too. I don't think I notice it quite. You have a level of detail that maybe I don't when I go look at the property and you see things I don't. But what are some things you've seen when you visited our property that weren't what you were expecting? It's usually something like a broken chair that the cleaners didn't throw away. And it's like in eight pieces. And they've kind of put it together in like this Jenga, Tetrisi way that makes it look like it's working. And then you like breathe on it and it falls apart. And I'm like, why didn't they just throw this away? So it's usually deferred maintenance on furnishings, anything of that nature. So I'm going to take

Starting point is 00:20:24 tip number six a little bit to the next level. I'm going to say maintain quarterly, visit yearly. It doesn't have to be you that visits it, but have someone come in and inspect and tighten the screws a little bit on your property because if you don't, it will end up being a lot more costly once the items actually break, whether it's furniture or just very basic maintenance things in your home. Now, if this is a traditional rental, you're probably not going to check it until a tenant moves out. So you might have somebody in there for three or four years and then they leave and it's like,

Starting point is 00:20:52 what on earth has happened here? which in that case I have my property manager walk the property every single year. We typically do it at a slow season when they don't have as much going on. They take a video of the property and they show what the appliances look like, the condition of the bathrooms, what the faucets look like. And then they kind of like get the HVAC in the garage. And it helps you see one, are too many people living in the property that are not on the lease and two are there holes in the wall?

Starting point is 00:21:20 Do you have a mold issue going on? Are there leaks? Is there problems with the roof? because those are problems in and of themselves you want to know about. But like a roof leak isn't the end of the world unless it happens for four years and you don't know about it. Oh, I have a bonus tip before we wrap up. Can I give the bonus tip? It's a tip seven.

Starting point is 00:21:36 We're going to still title at six. But tip seven is going by David's long distance investor book. You can head on over to the Bigger Pockets Bookstore to buy that. You can use promo code Rob 10. Just kidding. Just kidding. Go buy that. Seriously, that is the Bible for out of state investing, long distance investing.

Starting point is 00:21:52 If you want a guide for how to build out systems, and processes and who to hire and when to hire them, this book will teach you everything you need to know. Thanks for that, Rob. I appreciate it. Anything else you want to add for our listeners that you've learned in your experience that they should consider when picking a market and investing in other markets? Yeah, don't cheap out on the people that you hire to manage your property.

Starting point is 00:22:10 Every time I negotiate someone's rate, they end up doing the negotiated rate version of the work versus what I want them to do. That's some great advice right there. Sometimes you win the battle, but you lose the war. Thanks, everybody. If you like today's episode, please go give us a five-star review. Wherever you listen to your podcast, we love and we need those. And let us know if you're watching this on YouTube in the comments,

Starting point is 00:22:32 what you think about these minisodes. Do you like them? Is there any tips that you think we left out? And do you want more content like this? This is David Green for Rob Little Hitter Abas Solo. Signing off. That's a little tiny baseball bat. Hitting a baseball out of the park, baby.

Starting point is 00:23:08 Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico content. And editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter,

Starting point is 00:23:33 please visit www.biggerpockets.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 909: 6 Expert Tips for Out-of-State Real Estate Investing

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.