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How to Buy an Investment Property Out of State
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Why invest out of state?
I live in Phoenix, AZ. Rentals don’t cash flow as well in Phoenix compared to other parts of the country. We are out here to get money. Investing where you live is easier. But investing out of state is not that hard since almost the entire buying process is done online now. The process for buying property 5 mins away compared to out of state is very similar.
Finding the Deal
Some investors mail letters or send out mass texts to find off market deals. I don’t think you need to get that crazy. Most people list their home online. Go on Realtor.com and type in the area you are looking to buy and your criteria. Realtor.com is nice, because it lets you search for houses in an entire state, as opposed to searching city by city. This makes it quicker to determine which areas cash flow. Once you pull up houses that meet your criteria, call or text the listing agent and ask them what the house currently rents for. Sometimes the rental income is in the property description, but usually not. You can go to this post on how to evaluate a property. If the property cash flows well, get pre-approved by a lender (me), put an offer in with a realtor, get your offer accepted, do an inspection/appraisal, and get to the closing table. Congratulations! You now own a rental property out of state. There are a few more steps, but it’s not super complicated.
The most important part of buying investment properties out of state is your team. The two most important members of your team are the realtor and property manager. When I bought my first duplex in Kansas, I didn’t know any realtors or property managers. The realtor I use now was the listing agent for the property I purchased. We reached out to him directly to buy the property. Now he does all my deals in the area. Luckily, this realtor is very knowledgeable and has done a great job. I wouldn’t always use the listing agent as my realtor. I feel most realtors are pretty hands off, but they can help you find deals in the future. It’s important to find one that does lots of business and has good reviews. You can go to Zillow.com/professionals/real-estate-agent-reviews/ to find realtors in your area.
Team member #2 is the property manager. Getting a good property management company is key. Poor property management will end you. Property management companies usually charge 10% of rent every month to manage the property. This eats into cash flow, but it’s well worth it. Property management is a legit job. If you manage the property yourself, you are getting a 2nd job. I wouldn’t be able to manage my properties and work my full-time job. Nor do I want to get calls from angry tenants to fix the dishwasher at 1am. Real estate is beautiful, because it can be passive.
How to Choose a good Property Management Company:
Google property managers in (city you are investing in), look up reviews, and call several of the top ones to interview them. Be wary of property managers that do business in terrible areas.
BiggerPockets has a good list on questions to ask a property management company: https://www.biggerpockets.com/blog/property-manager-questions
That list is massive. You probably don’t need to get that crazy. This is a shorter list:
Important questions to ask:
1. What percentage of rent do they charge to manage the property?
2. What other fees do they charge?
3. How do they screen tenants?
4. How do they handle evictions and maintenance/repairs?
5. How long do units typically stay vacant after the tenant moves out?
Do I have to visit the property before buying?
No. I haven’t been to any of my properties. I did a walkthrough on FaceTime with my realtor. A dishonest realtor could present the rental property through a rose-colored glasses filter. The good thing is an inspection is done once you are under contract. The inspection will bring up any issues with the house. In my experience, sellers agree to fix a lot of what comes up in the inspection report. If major fixes are needed, you don’t have to buy the house.
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