Not in California:
Years ago I was looking to expand my physical real estate investments outside of my local coastal area in southern California. After first glance, buying less expensive out of state rentals seemed like a good idea. The problem was I know nothing about investing in real estate outside of California.
I found a few properties and multi-unit listings in Minnesota, Missouri, and Indiana via different property search web sites. However I kept reminding myself how little I knew about this type of investing. Also, I had one on-going concern about these investments. Specifically, how would I identify a good deal, purchase, manage, and rent out a out of state property? The short answer is that it would require me to build a business and trust relationships outside of my area- definitely not my strong point.
The prices for some of these out of state smaller homes were between 40k - 60k with only "nominal" renovations required. I continued to research the idea of owning out of state properties. Early one morning before work one day I looked for my own listing on Zillow and left my phone number with an agent who was selling a property in a similar location I had researched previously.
My Own Agent:
One independent agent from Indiana told me that he could help find an agent who could locate and solidify tenants and manage this small house for me. However for this effort to be worth their time I would have to commit to purchasing approximately five or more properties, as the property management fee for one property would be too small to obtain a commitment from his real estate team. When I got off the phone I realized that hiring the services of local real estate professionals dealing with a out state transactions would be the way to go if I wanted to purchase out of state properties. However, the process of buying and managing out of state properties would require more research and the creation of a process that I didn't currently understand.
No out of state deal for me:
In the end I decided to keep to my real estate interests in my area, and fully abandon the idea of buying out of state. In my case, it came to too much complexity outside of my comfort zone. I know my local area's real estate market. The general rule I use for buying properties is to always by within twenty to thirty minutes driving distance from my residence. This type of proximity allows me to manage and view the properties my self with minimal effort. Put another way, I drive nearly two hours a day round trip for my primary job, so no reason to create a second job that requires me to drive another hour. That's not the post corporate job life I am aiming for.
If you are planning to purchase real estate outside of your area, make a commitment to travel to that area in person, view the properties, pay for inspections, and talk to independent real estate professionals. Also, I wouldn't recommend using retirement money that already exists in a tax advantaged account without a clear understanding the process for doing so. Yes, it can be done, but will require additional work to implement that kind of strategy.
Note that I am not a financial or legal professional, nor am I licensed to sell securities, or any other financial instruments. Given this statement, I strongly recommend that you consider this blog as entertainment value. Although, I sincerely hope that I can motivate you to learn to build your own financial knowledge and wealth.
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