I think 4plexowner and I went through this whole discussion on the pros and cons of out-of-state real estate investing awhile back. Suffice it to say that there are many aspects that cannot just be posted in a website and that you really have to do your homework, research, time, and probably an important part, patience.
Different real estate markets act in different ways. If you want high appreciation, there are the southern states – North Carolina, South Carolina, Georgia, Texas. These places are going up on the real estate cycle (although North Carolina might be near or at its peak). These places, however, do not cash flow or at least do not do it well. I have a property in South Carolina that basically cash flows, but that is because it is on an interest only loan. Still, it is doing well, has had a few vacancies, but is fully rented now.
If you are looking for more cash flow and modest to low appreciation, you will have to look at Idaho, Alabama, parts of Louisiana, Tennessee, Missouri.
Typically the areas that are doing well right now are areas where people are moving to in mass droves. No brain science there. Also, every other month, money.cnn.com will have a real estate article about where the best places to live are or where the cheapest real estate prices are, etc. I hang the listing on a wall and see if there are any good properties in those areas.
I have a personal contact in Utah so I know that market isn’t doing particularly well right now. It hit its peak and is going down. I am avoiding Utah right now.
Some of the rules that I follow however regarding real estate investing in these markets:
1) Invest only in major cities or at least close suburbs
2) Try try try to buy a four plex or more. Most of the problems real estate is having right now is in SFRs and condos. Also, buying multi-units allows you to use economies of scale and lower per-unit costs. Also, most real estate action is SFR/condos or high end commercial properties. There is less competition for properties with four units and 20 units (too small for big companies, and too large for the small fry).
3) Use ROE calculation to get properties that return 25% to 30% or more.
4) If using borrowed money as downpayment, try to get Cash on Cash of (interest rate + 4%).
5) Keep per unit cost down, under $175k (many places have per unit costs of around $30k, which is terrific, to $70k or more, which is where it starts to get expensive).
6) Avoid places where there are a lot of investors. Of the places I listed above, Missouri fits that designation (you can still get decent numbers from it though and it hasn’t gone to a bubble like Arizona has).
7) Avoid California, Florida, Arizona, New Jersey, New York, Nevada (and other bubble areas).
8) Use loopnet.com to find multiunits in various locations in the country.
There are more and I could go on and on and on.
Regarding property management, I have three property managers and they have to varying degrees done well. One probably required more management than anything, but it is very necessary to use property managers when doing out-of-state investing, but it is also necessary because you want to spend your time researching properties and not dealing with tenant problems. The more you deal with the tenant, the less patience you have for real estate investing in general. Still, I was able to choose good property managers and they have not given me truly bad headaches. Of course it helps to choose good property managers, but also to choose good properties that minimize problems.
Despite many comments here to the contrary, I do believe real estate on a percentage basis returns better and makes your money work harder than the stock market. I invest in real estate not because the dollar is going down or it’s not a bubble or any other reason that has popped up recently but because it creates more opportunity for wealth than any other investment vehicle.
Still, I do invest in both the stock market and real estate market but that’s more to diversify and lower my taxes than for any other reason. If nothing else, seeing your taxes go down to zero because of real estate is a powerful enough reason to consider real estate investing.
But like I said, real estate investing is more like individual stock picking and it does require more work than the stock market. Ultimately, however, time and demographics are on your side. There are more people coming and being born into the U.S. and they need a place to stay. It is difficult and expensive to build a house. It’s difficult to get a loan to buy a house (supposedly). And now people are being foreclosed and they have to find a place to stay. To me, that means investment real estate has a lot of potential.
