Epic Real Estate Investing - Investing Out of State! Yay or Nay? | HTH 009 | 492

Episode Date: October 10, 2018

The phrase "If you can't drive to it, don't invest in it" is a lie! Learn the advantages of investing out of state, how it forces you to change the way you operate a business, and how to determine objective criteria when buying a property. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Don't wait for appreciation to buy real estate. Buy for cash flow and wait. In other words, Hold that house. Your host's Matt Andrews and Matt Terrio. Yeah. Woo!

Good morning. Good afternoon. Good evening. And good night. And good night. Yeah. Followed us. We'll say that later.

And as we always begin our show here, It's really important to emphasize that flipping houses can make you rich. There's a whole lot of money to be made in flipping houses. But really, when it comes down to it, holding them will make you wealthy. That's where the wealth comes from. And this is the Hold That House show. I am Matt Terrione over there is Matt Andrews. What's going on?

And before we get into it today, we've got a free gift for you. We come bearing gifts. So go to hold thathouse.com where you can download for free the four-hour work month. It's the Ten Commandments to Managing Porteastern Programme. property managers. It's really, it's the key ingredient to financial independence through real estate that, that no one's really telling you about. And it's so important. It's probably the most important. And you can get that for free. You can get the most important thing to your financial independence for free at hold that house.com. All righty. Maddie, what you got going on

today? Well, today we are talking about something that you and I know a lot about, and that is investing out of state or out of your local area, right? So, I mean, if we were titling this, I guess the title would be investing out of state, yay or nay. Right? You know, good idea, bad idea. I like it. So, yeah, so that's what we're going to talk about. You know, a lot of people, when they first start out in real estate investing, and we hear a lot of people say this, you know, like, hey, I want to start investing in real estate.

I want to do it somewhere close by, you know, and they automatically just kind of assume that that's the best way to start. Right. You know, we should. Well, you hear that frequently at the Ria clubs. I mean, you'll get the guys there that have been burned saying, if you can't drive to it, don't invest to it. Right. You know, and it's, that couldn't be, there couldn't be worse. Worst advice.

I mean, you know, I know for every person that has ever made money in real estate and every person that has lost money in real estate, so that's pretty much everybody. That covers everyone. Their results had nothing to do with their investments proximity to their personal residence. Exactly. You know, it's, it had nothing to do with that. Right. You know, what would, you know, Trump and you have Trump, who invests all over the world.

Sure. Right. Warren Buffett. Yeah. You know, we could go on and... Andrews, Matt Terrio. That's right. Invest all over the world.

All over the United States. Right, exactly. We're getting there, though. I'm looking around in South America a little bit. Yeah. Definitely. But, yeah, it's probably, there's nothing wrong with it. No.

It's just really bad advice if you accept that as gospel and that's how you operate your investment portfolio from this might day forward. Absolutely. And it goes back to what's the criteria for a good cash flow property, right? And we've talked about that a lot in a lot of previous episodes. You know, what? What makes a good cash flow property? What makes a good cap rate?

We like those double-digit returns, right? Well, what if you live in an area where there are no double-digit returns? What if you're in, you know, San Jose, California where, you know, the best cap rate you could possibly get is maybe, you know, 2% or something like that in a round-off? It is a really good way to put it. I heard this from somebody, and it just made so much sense. There are anywhere from 300 to 350 markets and sub-markets in the United States. Statistically, and, you know, five to ten of those are really strong cash. cash flow market since statistically you happening to live in one of those is really unlikely.

Yeah. Exactly. So that's, I just thought of that and I was like, gosh, I wish I would have thought of that. Sure. But I'm only going to give that person credit two more times and then I'm accepting it as my own. There you go. That's yours.

That's the role. That's the rule. That's the rule. That's the rule. It becomes yours at that point. Yeah. And so, yeah, there are many criteria, or not many, but there are some core criteria that we want to look at to define what's a good market to go into.

but one of those is not, hey, it's five miles from my house. Right. You know, or hey, I can drive by it every day. That's just subjective. That's not objective criteria. You know, Donald Trump is not, like you said, not looking at, well, let's see, I live here in New York, but this awesome, you know, complex that I'm going to buy is in Texas. Oh, that's too far away. I can't drive to it.

This golf course is on the coast of California. I could never invest outside of my state, right? Sure. And sometimes I think it's a shortcut to really looking at real criteria and really looking at a property and sizing it up. because you're kind of almost like, look, I don't really know how to figure out what's a good investment. So I'm just going to get something really close so I can keep my hands right around it. You know, that's just not sophisticated investing. So I think you can kind of already tell where we fall in this yay and nay.

But let's get into kind of the benefits of each of these, right? Because there are some benefits. Absolutely. And if you live in a market where you find the returns acceptable, hey, knock yourself out. Do it. Because there are some benefits. So let's go over those benefits. If you happen to live in a market where you find the returns acceptable, what are the benefits of investment?

of investing locally. Yep, absolutely. So, yeah, some of those benefits of investing in state or in your local area is number one, you can see your property. Okay? Now, is that required? Like we said, it's not required,

but there's a comfort factor for a lot of people. It's just a self-satisfaction type thing, right? When I first started, you know, when I was buying my first rental properties, I honestly, you know, early 2000s, I wouldn't have thought of buying a property in Michigan when I lived in Florida. I just would have, you know,

I would have thought, like many people think I got to be close to it. what if something happens, you know? And of course, at the time, I was managing all my own properties. I was managing properties for others, too. And so I was very hands-on and felt like that was really the only way to do it. You know, it wasn't on my radar yet to hire a property manager to do that stuff for me. It didn't even occur to me. I was doing the blue collar thing. I was hands-on, and there's nothing wrong with that. I know a lot of people listening are, you know, kind of self-made landlords, you know, and that's a great model. But eventually, I scaled up and kind of grew out of that.

But in the beginning, that made me feel good, you know, the first property I, you know, rehabbed and flipped was 20 minutes away. The first property I held as a rental property was 10 minutes away, you know, right down the street for me. So there was like a comfort level in being able to drive by and see that property. So I guess we can call that an advantage. It's certainly not a requirement, but for a lot of beginners, that would be, you know, something, something of an advantage, I guess, right? It also, you know, another benefit is if you are, you know, your own landlord, you know, if you are the property manager for the properties you own, being close by gives you the ability to do that.

So if you are going to buy properties, you know, wherever you're buying them from, fix them up, rent them out and get good cash flow on them. And you're doing it all yourself. You're collecting the rent. You're screaming the tenants. You're doing all those things that we listed on our previous episode that a good property manager does. You're handling all that stuff. And that's your model. That's what you want to do.

Then, you know, having something close by is. It should be local. It should be local. It has to be. Right. Exactly. So if that's the model and if that's your goal to be the manager. of your own properties, then, yeah, that's a benefit, obviously, to having it close by.

And then, you know, it's easy to perform maintenance. It's easy to, you know, hire people, maybe subcontractors and meet them out there and, you know, know, be able to kind of look at the work that they're doing. You know, if somebody puts on a roof for you, you get to go and, you know, jump up a ladder and look at that roof, you know. So it does give you an element of control that you don't have necessarily if you're investing states away or on the other side of the country. Right. And those are really kind of the chief benefits. that I could think of to investing in state, you know, gives you that peace of mind,

allows you to manage it yourself if that's what you wanted to do. And it's easy to, you know, check up on maintenance that you're having done on it. But there's, you know, obviously some things that aren't good about that too. Your tenants can, you know, come find you. Right. Right. Or a lot of, you know, new landlords have checks mailed directly to their home, you know?

And so your tenant knows your address. Right. You know, and like we said, you know, not every tenant has the level of integrity. and, you know, lives the same way that you do. I mean, some people might come and knock on your door. And when I first started in this business, that's what I did. You know, I had the checks coming to my, quote, office, which was my house, right?

And so every one of those tenants knew my address. And the first time I had a tenant show up at my door at like 7 o'clock at night when at the time I had my now wife but my girlfriend over and I had an angry tenant knock on my door, that didn't make me look too good. And I thought, you know what? this is just this is foolish. Right. Yeah, this is foolish that I've done this, you know. So I immediately, you know, got a different address that all payments could be sent to. And, you know, I took care of that part of it.

But that's, that could be a detriment if you are right down the street. Even if they aren't angry. Yeah. You really don't want them stopping by just to say, hey. No. Right. Right. Exactly.

You don't know stop by to hand their work order. No. You don't really want them stopping by. You're bringing in your check. You don't want that. You don't want a process there, right? And the process should not be coming to knock on your door at night or or during the day or any other time for that matter. Now, I had a friend who, you know, was a new investor and his idea, even though I told him I didn't think it was a great idea, was to, you know, buy a duplex and he would live in one side and run out the other side. And, you know, talk about being easily accessible by your tenants. I mean, they literally could knock on the wall and say, hey, my toilet's, my toilet's clogged. Come over here and check it out, you know. And because he was so easy to reach, things that they would have normally probably taken care of themselves.

and just figured out that, that, you know, clogged toilet and plunged it themselves or whatever. They just felt like they could call him or knock on his door for everything. Right. You know? And then it turned into, hey, I've got part of the rent this week. I'll have the next part next week. And so every other day they're talking now and he's getting his door knocked on. And I was like, how's that working out for you?

Right. And he's like, yeah, dude, you were totally right. Eventually he moved out of that duplex. Kept the duplex, but then moved like 30 miles away. Right, right. You know, and so just realize that, guys, as you guys are getting started, especially newer landlords that are investing really. close to your area. There needs to be a healthy separation between you and that

tenant for you and for them. Because it's not fair to them either to think you're that accessible or to think they can do that because you're not going to be able to fulfill that for them. So it sets everybody up for failure when you do that. Please stand by. We've got overhead to pay. We'll be right back. Your portfolio

has seen better days. But this two shall pass. And the best for you is yet to come. Together, we'll get you there faster, we're turnkeyallies.com. We'd like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival. Go to turnkeyallies.com.

More building, less weighting. Turnkeyallies.com. So those are some of the benefits along with some of the, you know, some of the detriments to doing that. So let's talk now about the benefits of investing out of state. This is something you and I do a lot of. Matt, you're in 10 different markets. So obviously, you know, this is something you're doing a lot of nationwide.

So we'll talk about this. And you can really speak about this first one. It forces you to have a definitive tight process for how you're going to do this, right? So, I mean, talk real quick about, you know, if you're investing out of state and you don't have a process versus having a really tight process. Like, what are those two pictures look like? Right. Well, it's kind of very much. We were talking actually just this morning over coffee.

We were talking about rich dad, poor dads. the cash flow quadrant and the difference really between being self-employed and being a business owner. The difference between, you know, owning your job and your job owning you. And that's essentially what it trains you to do. And it's kind of an ancillary benefit. But for the long run, it really does, you know, cause your, it allows you to scale. Yeah.

It allows you to cause your investment portfolio to grow at a rate that you, you know, probably wouldn't be able to do by yourself. And that's a, you know, you create those systems and you become a business owner rather than you just created a job for yourself. Right. And I think that's a, once you've crossed that bridge, I guess, from being self-employed from owning or from having that job on you, from having a job period, to over man to end, to managing your job and working on your business rather than in it so much, you know,

once you cross that bridge, you're like, you never, ever, want to go back. Right. You can't. You can't. Your mindset changes and you can't go back. Exactly. And that's a hard shift to make, right?

At first, I mean, coming out, because you were an employee. I was an employee before either one of us started in real estate, right? I mean, I think we both had some entrepreneurial spirit, but we were working for other people. When you first make that shift, it is an easy trap to fall into to just create another job for yourself with your business, right? Right. And so, and then you end up, like we said before, getting paid, you're basically paying yourself what you would pay a subcontractor.

do that or a property manager do that. So as soon as you start doing that job, you're accepting whatever that wage is and it's just a job. It really becomes a job. And it's really hard to grow your business and manage it at the same time. And if you've got your at least one foot into the management process, your growing is going to be thwarted. Or at least suppressed significantly. Absolutely. Absolutely. And that's true in any business, especially in real estate investing for sure. So out of state, it forces you to do that. You can still do that locally. I'm not saying you can't do it locally, but out of state forces you to do that. Sure. And if you're making this transition from employee to entrepreneur, you kind of need to be

forced to do that. Sure. You just need to be forced to do that. There's a, it's a rare occasion where someone has that type of discipline or that type of knowledge going in and can do that right up front. Right. And yeah, and it almost acts as a crutch a little bit when you're investing locally because you should be setting a process, but because it's so close and because you feel like you could just drive by any time or take care of something so easily because it's 10 minutes away. You don't make that process. And that's what I like. That's one of the first things I like as a benefit about a state is that it does make you really hone in and tighten up that process. Because if it's out of control and it's four states away, I mean, you can't do a whole lot physically

to get in control of that, you know, short of getting on a plane and going and seeing it, right? So you've got to have that process. That's really, really key. It's kind of like, I just thought of a really good analogy for us. Like I've been, you know, this last year and a half, I've really taken on my physical fitness. And there's just a huge difference. You look great, by the way. Oh, thank you, sir. There's a huge difference

that when you go to the gym by yourself and you're left to your own devices to perform your workout and versus that, the alternate being when you're working out with your trainer where you're actually forced to do it. You're forced to do the certain number of sets. You're supposed to do the number of reps.

You're forced to do the right exercise. You're forced to do them in the right sequence. You know, you're forced to maintain a certain intensity level. Look at out-of-state investing, kind of like your personal training. trainer. It forces you to get your act together. Yeah. Right. Absolutely. Absolutely. It makes you accountable. Right. To yourself. Totally. And, and in some ways to someone else, like your property manager or in that example, your trainer, you know, so there's some accountability there too,

but really, mostly just accountability to yourself to make the right process. So I love it. And your biceps get bigger too. And your biceps get bigger. Exactly. Exactly. That's awesome. So, so yeah, definitely forces you to have a tight process. Another thing, and we kind of mentioned this is some of the problems with investing locally, but it's a benefit to out-of-state investing is, you know, you don't get bogged down or worried by the minutia, you know. If you've hired a good property manager, if you have a good process, you're not going to know about a toilet that got clogged one night. You're not going to know about, you know, let's say it's a multifamily property you own. You're not going to know about a tenant squabble. Right. Between two people and

that kind of thing, that could be one of the hardest things to manage when you're a manager. Right. You know, it's just, you know, two people live in. next to each other that don't like each other or have some kind of beef or, you know, this person parked in this person's space or whatever it is, you know, well, you don't know about any of that. Right. You don't have the opportunity to even sweat the small stuff. Exactly. You don't even get the chance. Right, right. And that's the way you're going to be. And how liberating and great is that.

It's amazing. Yeah. And it's good to not know what you don't know sometimes, right? Now, you want to understand if there's something affecting the value of your property, if there's something that's affecting your cash flow, well, a good manager is going to report that to you. You're going to have that information. And if you don't have that information, you're going to see it reflected in a check that isn't what it should be, right? And you'll go then figure out what happened or whatever. But you don't get bogged down with stuff on a daily basis. And when I was first investing and managing all my properties and managing properties for other people,

you know, I'd get calls all the time. I had calls going to my cell phone, you know, to my personal cell phone. And so, you know, be laying in bed at night and, you know, I'd look over and I'd have like five text messages all from the same person, angry about something. You know, that's a horrible way to try to go to bed. And tenants can find you if they want to. Sure. You know, it's, with the internet today, and if you're a business owner,

your information is probably there somewhere. Absolutely. And we have had tenants call us direct and we're like, I've never seen this house. I've never met this tenant. Right. How did you find me and how do you know my name? The worldwide web. Yes, we've had that situation before.

The interwebs. Thanks, Thor. So, yeah. You don't want to deal with that stuff. Exactly. So, you know, you don't get bogged down. You don't get worded with a minutia. Like I told you the story about my friend who owned the

who owned the duplex and the tenant was right next door. I mean, they were just bogged down by minutia all day long. That was just one tenant, you know? Imagine living like, you know, next to a bunch of your properties, you know, and just feeling like people could get you any time, you know, people could reach you any time. So that takes away from what you really should be doing. And what should they be doing?

Looking for properties. Negotiating contracts. Putting deals together. Yep. And then making sure they cash flow, you know? And so everything that takes you away from that is really kind of, stealing your money, you know, and you have to think about it that way or else, you'll just kind of let it happen. And it will just passively happen. And money will start flying out of your

pocket. And if you're not looking at it, you won't know it until a month or two months down the road where you're like, oh, wow, I've got a problem now. Right. You know, so, so that's a really, really big piece of it, not getting bogged down with the little stuff. And this is really, really big, too. Investing out of state, this kind of goes with having a tight process. Investing out of state gives you the freedom to assess the investment objectively. Okay, so like we talked about, you know, if you have three or four main objectives or criteria for why you would go into a good cash flow market or buy a good rental property, one of those is not, hey, it's 10 minutes from my house, right? That's not objective criteria. What it should be is, you know, what can I buy this for?

How much fix up does it need? What will it rent for, right? And what will that cash flow or what will that cap rate? What will my return on investment be, along with maybe some other market-based criteria, right? Looking at some of the things that we talked about on a previous episode of, you know, statistics of employment and, you know, safety and some of those other things. Yeah, will it be, what's the cap rate? And will that cap rate be consistent? Will it be consistent?

Right. Looking at those market conditions. So those are objective criteria. And you kind of rob yourself of that when you're using criteria like, I'm doing this because it's five minutes on the road. Or I'm doing this because it's in the same city, a half hour away or whatever it is. All of a sudden that becomes the most important one. That's it. And you lose sight of what this actually is.

It's an investment. an investment that's supposed to pay you and it's supposed to pay you indefinitely without any extraordinary effort on your part right? You lose all of that exactly for sure. And I'm sure you've heard that phrase you know, don't fall in love with the house fall in love with the deal, you know,

and so a lot of investors that just want to invest locally, they're falling in love with a house, so they're following in love with a neighborhood that they live in or whatever it is but what they should be doing is following love with the numbers on that pro forma. Right. You know, and so investing out of state forces you to and in essence gives you the freedom to assess it objectively and make good, smart decisions,

not decisions based on things that don't matter, you know, to the cap rate. So think about it like, we talked about like Donald Trump or like Kyosaki. Think about it like one of those guys. You know, there's no geographic boundaries in their mind. They're just looking at, hey, if I put this much money into this, what's it bringing me back? Right. Well, that's sophisticated investing, right? Not looking at is this close or is this convenient for me to do this or that or whatever.

That's what managers are for, right? So that's definitely a benefit to out of state. And then we've said this before on this podcast, you know, live where you want, invest where it makes sense. Right. Right. So, you know, if you live in the worst cash flow market in America and you're listening to advice, but you've got to invest close to yourself so you can drive by it every week,

you know, and you live in, what's a horrible cash flow market? L.A.? Los Angeles, yeah, right? So I'm sure Manhattan would be. You don't invest in L.A. at all, right? You're in 10 other markets that had nothing to do with you being able to drive by them, right? So if your criteria was that, you'd be invested here in L.A. We wouldn't be on this podcast right now because you wouldn't be a success.

You wouldn't be making money. You know, this podcast would be being done by somebody else right now. Maybe 10, 15 years in the future. Maybe. Once the market caught up with us or once you caught up with the market. Once you appreciated, but then it'd be a different show. Then it'll be a different show. How to not make money in real estate for years and years and years until it finally appreciates and you make something.

That's not a good podcast. Yeah, that's that other podcast. Nobody wants to hear that podcast. Yeah, exactly. So, you know, so that's really the bottom line guys, you know, investing in state or out of state, there are pros and cons to both. No matter what you choose to do, make sure you're making your decisions based on,

like we said, objective criteria. Look at the numbers. Now, I started investing in Tampa, Florida. It just so happened at the time that I started investing.

It was an amazing cash flow market. Now, I invested there because it was in my backyard. I thought that's what I was supposed to do. I was fortunate that I was in one of those great cash flow markets, right? But had I been somewhere else in some horrible market, I wouldn't have had the success that I had. I wouldn't have been able to go to Michigan and Indiana and Ohio and some of these other markets that I'm into now because it wouldn't have made me money.

So really, really important no matter what you guys decided to do, no matter what the market is or the location, make sure you're using those objective criteria. And keep plugged into this podcast because we're going to keep feeding you ways to look at those criteria and ways to assess properties and tools that we use to help you do that. And that really breaks it down. I think you guys can tell where Matt and I stand on this. Obviously, we like investing out of state because we want to go where the money is. For sure. We follow the cash flow. So wherever you see the cash flow going, you're going to see Matt Terrio and Matt Andrews running right after it, right?

And we know how to find that. And that's it, man. That's what I got. Super. I love it. And just to be straight, I'm not opposed to investing locally. If L.A. shifts into a cash flow market, I will shift my operation here. For sure.

Sure. It's just stay focused and remember why you're doing this. You're not buying houses for the sake of buying houses. You're buying houses for the sake of investing. And you want it to be an investment. And the definition of an investment is something that pays you back more than you paid for it. And so that is the essence of what we're doing here. And, you know, most of the time, statistically, that opportunity is not going to be in your backyard.

That's right. Right. So that's the big point. That's what we want you to walk away from this episode with. All righty. So that's it for today. Flipping houses, it can make you rich. Holding them will make you wealthy.

We'll be back next week. And until then, remember, don't wait to buy real estate, buy real estate, and wait. Hold that house. Sales pitch? Sales pitch? We don't need no stinking sales pitch. Here's the ball busting truth. You can make excuses or you can make money, but you can't do both.

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