hey guys, it’s pretty tough to find (not impossible but challenging for sure) properties that cash flow in NJ. i’ve decided to broaden my scope and look into out of state apartment buildings. i see some areas definitely have lower acquisition costs and better cash flow. the challenge is not being local so analysis is more difficult.
how do you guys begin due diligence on a brand new area you’ve never invested in and what criteria do you look for to determine if you’ll take the plunge?
Hi Ryan! Being a real estate professional as you are, I would suggest you try to Network with other real estate professionals who may specialize in the type of property you are looking to purchase within the areas you are looking to purchase. You will likely need to find a property manager if you end up purchasing income producing property, so they would again be a great start for making the needed connections.
Income producing property really comes down to income and expenses, in addition to location, so you can really value a property using the actual operating figures. If the cash flow is there that meet your requirements for investing, then the next thing to consider is the area. Assuming you are looking outside of NJ, I’d advise that you spend some time in making a trip to the areas you are interested in to see how the area is for yourself as you always want a direct handle on your investments, particularly when you are just starting out.
Most investors would have to agree with that, because that’s the norm, no matter where they shop for deals.
Sticking with what you can drive to is wiser, especially if you’re investing in cash-flowing units. These are usually more management-intensive, and require your undivided attention every once in a while. Out of state properties purchased for cash flow is not for the feint of heart, or inexperienced.
That said, if you just have to buy out of state, because you’re not willing to go into the neighborhoods near you that actually cash-flow, then consider how many units you need to own, in order to adequately amortize both the management and the maintenance, so that you’re not donating your time and more treasure to the project.
For me, it’s a minimum of 30 units. This number has been adequate in pushing off enough cash flow to pay for everything (assuming the building is full, and the management is properly trained).
Speaking of management training, you might want to get a hold of John Reed’s book on property management. It’s my pm bible, and all my managers have a copy.