Rental Real Estate in Another State

[SVT]

Just an idea. Any thoughts on owning rental residential properties outside of the state you live in? Is this a bad idea? Obviously, you'd hire a property management company to take care of it.

I know bonnap does this. This is more of a question for someone like her.

It doesn't really seem like it would be a good idea. Although at the same time, it's not like you really need to be down the road right?

[Savoir Faire-Demogague in NJ]

It is a management issue. A small time landlord situation, say someone owning one or two properties, I my judgment would want to be able to keep an eye on them, even though you have hired a property manager to handle them.
The other issue is the cost of a property manager.

[Deleted]

Bonnap here.

Well I never set out to be an out of State and now out of country landlord, LOL!

Basically we kept properties we liked when we moved around. I was a big chicken when we moved from the SF Bay Area to the greater Phoenix area. I wasn't sure I could handle moving from 60 degree summer weather to 115 degree weather. I had lived within 5 miles of the CA coast all but 3 years of my life. So keeping that house was my ticket back to the Bay Area. I was afraid that if we sold it we would lose our prop 13 tax status and never be able to afford to buy back into the market. That was a good call as the house is still worth over double what we paid for it in 1996.

Being an out of area LL is not for everyone. Keep in mind that we plan on moving back into our properties and harvesting the gains as part of our retirement plan. Therefore I have kept strong ties within each community so I would get a call from a neighbor or friend if the tenant was tearing down motorcycles or running a bordello!

I do manage 4 of the 5 houses myself (one is in vacation rental service so it must have a manager close by). The key to success is carefully screening your tenants so you don't have problem tenants, having a good handyman who can promptly respond to repairs, inspecting the property every year and staying on top of maintenance and repairs and finally, encouraging good communication with my tenants. I also set up my leases for the two properties experiencing the most turnover in alternate years to time with an annual summer trip to the States.

I wouldn't recommend newbies buy out of state property unless they really know the area and have good contacts. I've got a good friend and had a past tenant who jumped on the out of state real estate bandwagon when prices got too high in CA. I heard stories about agents basically driving bus loads of CA investors in Oklahoma City to buy real estate. Unfortunately since the people I know didn't know the area, they paid too much, were plagued with major repairs and had iffy management for at least part of the time. They lost everything and will probably need to file BK because they used HELOCs for the down payment. HELOCs are generally recourse loans in CA. They are nice people and it's really sad. My former tenants are young enough to recover but my friend just turned 60.

If you go this route make sure you do your homework!

[8 Bit WWBG]

Paul has said that one of the BIGGEST mistakes that new landlords makes is thinking "I have to own property that I can keep an eye on". It would seem that it is much smarter to find areas where there is a high profit margin, and buy property there. If you are going to hire a manager anyway, you might as well do so where you are making more money.

Houses come up for sale in my neighborhood from time to time, but I have enough trouble affording my own. For a rental in my area, I'd need a huge DP, and I'd have to score one hell of a deal in order to be cash flow positive anytime soon. Buying somewhere that the price is much more affordable, and the rent covers the mortgage sounds much more likely to succeed.

My family has been out of area LLs when we lived overseas but owned a home in the states. It certainly allowed my parents to pay down their home quicker. But I remember Dad doing a lot of work.

[debtheaven]

SVT
Our places are about 30 min - 60 min away (depending on traffic). Most of the time they could be hours away, we go there so rarely. Since you'd have a PM, it would only be an issue if you were renovating a place. During the Trashed Rental Disaster of 2009 I would meet with the contractor twice a week, so I was glad to be only 30 min away (no appts during rush hour). But that's like the proverbial midnight call about the blocked-up toilet: it usually never happens, and if it does, it's rare. If you are considering buying out of state, you'd probably want a place that is not likely to need a reno soon. (As we did, but the tenant or somebody else smashed the place to smithereens. That was definitely not in the plans and we're still paying for that reno and will be for another five years.)

So you don't need or even WANT a place that's "around the corner". If I could afford something further away that was CFP, I'd do that. But you do need a PM that you trust, and a game plan for if there is a problem. If there was a "disaster" and you needed to get there, could you do it within a few days? Also, what does "out of state" mean? There's a huge difference between a state that's a couple of hours' drive away and a state that's a four-hour flight away. Which are you considering?

Gowron
Since you live in a very HCOLA, two thoughts. One, a condo / studio might be a good place to start in your HCOLA. That too may well be out of your budget, but have you looked at the prices, just to see what the market is like? By the way, stop being so hard on yourself. You are very young compared to most of the landlords here. I know there are some landlords your age (Gin comes to mind) but she lives in a much lower COLA.

Two, where do your parents / DF's parents live? If either / both live in a lower COLA, and you know the area (and maybe even if you don't) perhaps it would be better / more affordable to start there, even if you do need to hire a property manager or somebody in your family to manage the property? (I know Phil is dead-set against that sort of thing but it really depends on the family.)

I joke about looking at too much "RE porn" LOL but the reality is if we are thinking of selling or buying (for sure I have less experience than many others here) I have been looking / researching for so long that I know enough to jump on a bargain when I see one (or even when I don't ... I have never even seen two of our rentals, I couldn't get the time off so I sent DH and had him come back with lots of photos), then put in an offer less than an hour later.

[debtheaven]

tbird
Bonnap's an early bird rather than a night bird (like I am), she'll probably answer you (our) tomorrow.

[Tiny]

I've got rented property in another state (I've never actually been there or even seen the property - other than photos and video shot by my brother and other online resources). My brother lives near the rental and is functioning as my "management company/handy man". There's also a very active HOA so I get communications from them about the exterior state of the unit - and they take care of the public spaces/amenities.
I'm a first time 'landlord' and when i was thinking it all thru - odds are I wouldn't be going to a 'near to me' rental to fix something (I'd have a handy man or some other arrangement) so I'm comfortable with not 'being there' to fix stuff...

It helped having my brother in the area of the rental - he did alot of the leg work to find the place (it's a long story). Not sure I'd buy a place without actually going to it if I didn't have someone I trusted doing the looking for me. The internet was a valuable resource as well...

[debtheaven]

ATSiaRu, I think Miss Tequila owns out of state rentals she has never laid eyes on too LOL!

[Deleted]

"Bonnap's an early bird rather than a night bird (like I am), she'll probably answer you (our) tomorrow"

LOL, not today!

"Would you educate us on yout tenant vetting procedures?"

It ain't rocket science but you do need to spend time doing your homework. I've been involved with some form of property management since 1981, just shy of my 19th birthday. Knock on my wooden head I've never had to evict anyone I vetted but I've done plenty of evictions of tenants vetted (or not!) by others. That said I've not professionally property managed anyone else's property (other than my mother's estate) since 2003.

1. Know your market and price your rental a little lower so you have a greater choice of potential tenants.
2. Keep your property well maintained and promptly attend to repairs in order to attract tenants, retain them and to keep a good reputation (not to mention visits from the department of health!).
3. Don't over encumber your property or get yourself in a financial bind so you have to accept anyone who applies. Better to keep the property vacant longer than having the aggravation, cost and potential damage from an eviction from an unqualified tenant.
4. Make your prospective tenants fill out a rental application. Do check their references, especially the landlord before their current one as the current one may be highly motivated to get rid of them! ;D
5. Run a credit report. I'm trusting enough that if I like them I'll have them run their own free credit report. I don't have easy access to a credit reporting agency so it's a lot faster, easier and cheaper if they do it themselves. Yeah I know folks can fake them but I haven't had it happen yet. If I were professionally managing a property for someone else I would pay for a report from a third party.
5. I don't take folks with really bad credit; I think the minimum has been 650 FICO score. If they have negatives I have them write a letter of explanation. Bad things can happen to good people but if there's a pattern of victimhood then I know that I will be their next victim, intentionally or not.
6. If I like them and their paperwork looks good, before I have them sign the lease I try to set up an appointment to "drop by" on short notice and will check out how they live. If they are pigs or destructive you can bet they will treat your property the same way.
6. Use a standardized lease. I've used the lease in Nolo Press' Every Landlord's Legal Guide (a book I recommend to everyone thinking about becoming a landlord) but I prefer the leases used by the California Association of Realtors or the AZ Association of Realtors. Although most LL-Tenant Laws throughout the States have similar goals they do differ from State to State. Use a lease that's appropriate for your area. If you get into trouble it's much easier to get help if your attorney is familiar with your lease and it's been tested in court.
7. Make sure you know your your legal obligations especially with regard to giving notice, deposits, repairs (ETA) and the Fair Housing Act. Nothing sours a good relationship faster than neglecting repairs or not giving proper notice to inspect, make repairs or to show the property.
8. If your tenant starts having problems paying the rent early on get rid of them! It isn't going to get better and the longer you drag out the process the more they will resent you and the more likely they will do damage. I'll let Debt tell you her story!
9. Very few people take care of your property or money as well as you do. That's why I do my own screening and make sure I visit the property and tenants every year. I've used agents on a limited basis. Last year, for example, I paid a real estate friend $500 show a property 3x before I got into town. But I ran the Craig's List ad (from Germany) and had already pre-screened who would actually see it.
10. Do not let the tenant move in the house without the deposit and first month's rent clearing the bank. Usually I'll get a deposit check a month or several weeks in advance when they sign the lease. Then I get a cashiers check or money transfer a couple of days before move-in. I never forgot my late mother's experience of having her tenant's deposit and first month's check bounce and it taking 2 months to get her out!
11. Speaking of deposits, I collect a deposit big enough to cover 1 month's rent + the average cost to do a full house cleaning. This way if I get someone who stops paying once they give 30 days notice I can probably handle it if they take off in the middle of the night. It's never happened to me but it did happen to my folks.
12. ETA: If you get a bad feeling about someone, trust your gut!

I'm sure other LLs have their "rules" and I think Paul stated that he was writing a property management manual using LL tips from here. I'm sure he'll be happy to sell you a copy, (LOL) but since it was a collaborate effort I think he should offer it to us YMs for free!

[zibazinski]

I have 3 left that are out of the state. Like to get rid of them but they are at half their value because of the market so I will hold onto them until, hopefully, the market turns around. I owe nothing on them so I could sell them if I chose. I have family in the area so I have backup if necessary but one tenant I have had for years and the other is my builder whose wife wanted to come back to the area where she was happy and he couldn't buy the house because of not being able to sell his old one due to market downturn so he rents his out and rents mine from me!!!! The third is giving me trouble. Rent has been consistently late since November but winter is not time to be empty. They will not be getting their lease renewed come July, though.

[AgeOfEnlightenmentSCP]

I'll second what WWBG said I said because that's exactly what I said. I had houses I was paying $180,000 for, servicing the debt on them, paying $4,000 a year in property taxes on and renting them for $1,500 a month.

Now, I have houses in Northern, IN where I've paid as little as $8,000 including rehab, my property taxes are $800 a year, and I can rent them for $400/mo. to $600/mo. SO WHAT if management is $50 a month? Or even $75 a month. The houses are worth $30K to $50K, and three months rent pays management and property taxes for the year.

You have to pay attention to returns-- and yes, there's no getting around it, you're going to have to travel (all pre-tax dollars, btw-- so if there's someplace you want to go anyway-- you might look there. I take subsidized trips to grandma's now every couple months. If I ever get audited I'll just explain that I stay with g'ma while I'm traveling, but if they'd prefer I'll get a hotel room and write that off, too). Bottom line-- you'll probably have to look in on your properties no less than twice a year, and/or between tenants.

[AgeOfEnlightenmentSCP]

I would throw out there that I haven't been to Indiana to see the properties since last June. I have, however, been to Indiana to visit Three Floyds and drink some Gumballhead.

[Tiny]

I'm syncing up time this year with my brother and my tenant for a visit - there is some maintenance work that needs to be done and I want to actually see the place I'll have this 'expense' for my 2011 taxes. Should have tried alittle harder to get down there for last years taxes... but it's ok...

[shanendoah]

We're accidental out of state land lords.
When we moved the MIL up here, we intended to sell her condo. However, the real estate market has crashed so hard in Nevada (her condo is in Reno) that we would have been lucky to sell it for half of what she paid for it - YEARS before the bubble. So instead, we collect a rather ridiculously high rent (compared to what the tenants mortgage would be if they could qualify for the mortgage).
We are lucky in that that tenants are friends of the MILs, and that my mother lives near by and serves as our property manager. But the tenants also have our contact information just in case. (Like when their heater broke in January, while my mom was in Austrailia.)

In a couple of years, my mom will be retiring and moving out of state. At that time, we'll sell the property, regardless of market value. We'll most likely offer it to the tenants first, at a reduced cost (based on market value) and possibly with some down payment assistance.

[AgeOfEnlightenmentSCP]

Apr 8, 2011 11:13:34 GMT -5 shanendoah said:

We're accidental out of state land lords.
When we moved the MIL up here, we intended to sell her condo. However, the real estate market has crashed so hard in Nevada (her condo is in Reno) that we would have been lucky to sell it for half of what she paid for it - YEARS before the bubble. So instead, we collect a rather ridiculously high rent (compared to what the tenants mortgage would be if they could qualify for the mortgage).
We are lucky in that that tenants are friends of the MILs, and that my mother lives near by and serves as our property manager. But the tenants also have our contact information just in case. (Like when their heater broke in January, while my mom was in Austrailia.)

In a couple of years, my mom will be retiring and moving out of state. At that time, we'll sell the property, regardless of market value. We'll most likely offer it to the tenants first, at a reduced cost (based on market value) and possibly with some down payment assistance.

I have a Vonage number that forwards to my virtual assistant's phone. My tenants have no idea who I am- and no idea how to actually reach me.

That's the way it should be.

[AgeOfEnlightenmentSCP]

Apr 8, 2011 5:55:18 GMT -5 @bonnap said:

"Bonnap's an early bird rather than a night bird (like I am), she'll probably answer you (our) tomorrow"

LOL, not today!

"Would you educate us on yout tenant vetting procedures?"

It ain't rocket science but you do need to spend time doing your homework. I've been involved with some form of property management since 1981, just shy of my 19th birthday. Knock on my wooden head I've never had to evict anyone I vetted but I've done plenty of evictions of tenants vetted (or not!) by others. That said I've not professionally property managed anyone else's property (other than my mother's estate) since 2003.

1. Know your market and price your rental a little lower so you have a greater choice of potential tenants.
2. Keep your property well maintained and promptly attend to repairs in order to attract tenants, retain them and to keep a good reputation (not to mention visits from the department of health!).
3. Don't over encumber your property or get yourself in a financial bind so you have to accept anyone who applies. Better to keep the property vacant longer than having the aggravation, cost and potential damage from an eviction from an unqualified tenant.
4. Make your prospective tenants fill out a rental application. Do check their references, especially the landlord before their current one as the current one may be highly motivated to get rid of them! ;D
5. Run a credit report. I'm trusting enough that if I like them I'll have them run their own free credit report. I don't have easy access to a credit reporting agency so it's a lot faster, easier and cheaper if they do it themselves. Yeah I know folks can fake them but I haven't had it happen yet. If I were professionally managing a property for someone else I would pay for a report from a third party.
5. I don't take folks with really bad credit; I think the minimum has been 650 FICO score. If they have negatives I have them write a letter of explanation. Bad things can happen to good people but if there's a pattern of victimhood then I know that I will be their next victim, intentionally or not.
6. If I like them and their paperwork looks good, before I have them sign the lease I try to set up an appointment to "drop by" on short notice and will check out how they live. If they are pigs or destructive you can bet they will treat your property the same way.
6. Use a standardized lease. I've used the lease in Nolo Press' Every Landlord's Legal Guide (a book I recommend to everyone thinking about becoming a landlord) but I prefer the leases used by the California Association of Realtors or the AZ Association of Realtors. Although most LL-Tenant Laws throughout the States have similar goals they do differ from State to State. Use a lease that's appropriate for your area. If you get into trouble it's much easier to get help if your attorney is familiar with your lease and it's been tested in court.
7. Make sure you know your your legal obligations especially with regard to giving notice, deposits, repairs (ETA) and the Fair Housing Act. Nothing sours a good relationship faster than neglecting repairs or not giving proper notice to inspect, make repairs or to show the property.
8. If your tenant starts having problems paying the rent early on get rid of them! It isn't going to get better and the longer you drag out the process the more they will resent you and the more likely they will do damage. I'll let Debt tell you her story!
9. Very few people take care of your property or money as well as you do. That's why I do my own screening and make sure I visit the property and tenants every year. I've used agents on a limited basis. Last year, for example, I paid a real estate friend $500 show a property 3x before I got into town. But I ran the Craig's List ad (from Germany) and had already pre-screened who would actually see it.
10. Do not let the tenant move in the house without the deposit and first month's rent clearing the bank. Usually I'll get a deposit check a month or several weeks in advance when they sign the lease. Then I get a cashiers check or money transfer a couple of days before move-in. I never forgot my late mother's experience of having her tenant's deposit and first month's check bounce and it taking 2 months to get her out!
11. Speaking of deposits, I collect a deposit big enough to cover 1 month's rent + the average cost to do a full house cleaning. This way if I get someone who stops paying once they give 30 days notice I can probably handle it if they take off in the middle of the night. It's never happened to me but it did happen to my folks.
12. ETA: If you get a bad feeling about someone, trust your gut!

I'm sure other LLs have their "rules" and I think Paul stated that he was writing a property management manual using LL tips from here. I'm sure he'll be happy to sell you a copy, (LOL) but since it was a collaborate effort I think he should offer it to us YMs for free!

Great post. I would make a 13. If you get a great feeling in your gut and you really like the person- trust the NUMBERS, and the FACTS, and not your gut.