Buying a rental property out of state

[treehugger]

A friend recently moved from San Diego to Albuquerque New Mexico, she owns a house in North County (Vista) and it currently rents for $700 over mortgage. She wants to buy in Albuquerque, she is currently visiting and staying at my house and we got into a real estate discussion. She had eyes on a $450k house and was planning on selling her house in Vista to cover costs of new house I convinced her to look at houses closer to $200K (she can afford to put 20% down in this price range) and keep her house in Vista as an investment property since house prices in the area keep climbing and she has good rental income. Yesterday we saw a really nice house online in Albuquerque for $230k so I told her to call her realtor and throw in an offer, knowing she will be back next weekend and has enough of a contingency to walk if she dislikes house when she sees it in person. She did and today her offer was accepted.

I seem to be getting into these discussions a lot and wondering if I am giving bad advice? We own a house and have a rental condo, with positive cash flow. My husband wants to sell the rental condo (high HOA fees really are making me consider this), but we can’t afford to buy anything locally to replace.

I am fascinated by Albuquerque real estate and considering purchasing investment property out of state, specifically Albuquerque in the $200k range with 20% down and rental potential in current market of $1500/month, seems reasonable and with my friend there I am going to go out in a few weeks and check it out.

Wondering if any thoughts from the good folks on this site?

[Coronita]

Find out if her total cashflow is really net positive…. Aside from mortgage, how much is her property tax, hoa, insurance… Is that more or less than $700/month.

Second, she needs to be honest with herself if she wants to be a landlord and especially a landlord that doesn’t live in SD. Some people don’t want to deal with being a landlord. If that’s the case, then she needs to find a good property manager. People like to focus on how much money one can potentially earn. My suggestion is consider how much pain in the ass you can tolerate. Example: I had 3 plumbing breaks on 3 separate condos over the past 8 months. I don’t mind and I’m use to dealing with it, regardless if it’s my fault or the condo next to me’s fault. Is your friend someone that is afard to deal with PITA things?

For the sake of your friendship, don’t volunteer to be her full time property manager, unless you are a real estate person yourself. No good will come of this. You won’t be happy in the long run, and if you don’t do that well, she won’t be either. Friendships more important than that. Being short term help =ok, being long term property manager can be a PITA.

Lastly, if she sells her home, she can get up to $250k in capital gains tax free. If she has no plans of moving back to SD, it might make sense to do it. $250k, she can do a lot with that in NM.

I remember back in 2005/6, I was considering buying homes in Albuquerque too. The prices there in better parts of two were around $200kish too and the rent I think was around $1500/month…I wasn’t ready to be a remote landlord… I guess you need to ask yourself if you are..

[outtamojo]

Might be useful if someone could weigh in on the cost of upkeep for a house in states with 4 seasons…I have no clue myself.

[gzz]

Keeping a current rental when you move away is one thing.

But buying in another state seems like a bad idea. So many possible downsides.

Also, 200k/1500/mo… I am skeptical. That’s almost 10% cap rate. If rents really were that good, prices would be higher. But local experienced landlords didn’t touch it at that price.

[spdrun]

Net cap is probably more like 7-8% once you factor taxes, insurance, etc in there — that’s normal for much of the US. Landlords want to make a profit, and 7% isn’t that much above mortgage rates of 4 to 4.5%, especially when downtime for vacancy, repairs, etc are considered.

[barnaby33]

Tenant quality in NM is going to be a big concern. NM is a poor state, with lots of poor people. They tend to be hard on things.
Josh

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