Buying out of state

Hey guys,

I’ve been lurking for a while and have decided to finally come out with a couple of questions. I am interested in a buy-and-hold cashflow approach with multi-family apartments (graduating as quickly as possible to apartment complexes for obvious profit reasons).

I’ve heard a lot of comments about “if you are from out of state, you’ll have problems” but living in the Seattle area has me somewhat stuck since I don’t have the capital to start buying up properties around here and the market is still in a bit of a crazed state with constant articles about “It’s always a great time to buy in Seattle”.

I have looked into properties in some other states (especially flyover ones I’ve seen mentioned) and the possibilities there are nearly endless.

Assuming that I do the due dilligence, is there a serious upkeep issue even if I hire a property management company to deal with the day-to-day as well as finding tenants? Obviously, it would have to be factored into the cash flow analysis (I’m currently using a 50% of gross rent figure).




The rental property business is a hard business. The vast majority of people who start a rental property business fail within a short period of time. Investing long distance greatly increases the difficulty because you are no longer in close contact with your property. You are not in direct control.

If you buy at a big enough discount to provide positive cash flow, that is a big step in the right direction. However, if you have a property long distance, you must also find a property manager that will do things right. It is absolutely necessary that you manage the property manager. You also should make occassional trips to your property to inspect it, as that is the only way that you’ll actually be able to see what is going on.

Finally, it is also extremely important that you understand what the property manager is charging you (directly and indirectly). Do they charge extra for placing tenants? How do they arrange for maintenance? Will it cost you $75 in labor every time there is a leaky toilet? A property manager is spending YOUR money, not theirs and there is very little reason for them to be efficient.

Good Luck,


I have owned a lot of properties in other states (still do), using property management to handle them.

The first issue you will have is due dilligence. When I bought mine I was in a position to be able to physically inspect them myself and eyeball the property, interview the property management and have everything set up. Being in Seattle you are talking about buying in flyoverland - you won’t be able to do that - since flying out to check out a $50k property is an unreasonable expense - unless maybe you come in to pick up 3-4 at a time. You will have to contact contractors and inspectors and property managers over the phone which is not the best situation - possible, but not ideal.

The second issue will be completely on your property manager. If they are a good one - then you are fine. I had one in Tacoma, WA I wish I could have cloned. I placed three properties in her care and she took care of them like they were her own for 6 years. There were issues she communicated with me - and sometimes needed to explain a situtaion for me to authorize an expense for, but otherwise I simply got a monthly check. This was truly passive income.

If not, well, you can’t just swing buy on the weekend to make sure there isn’t a tenant in your reportedly vacant house with the PM pocketing the rents because they can (happened to a friend of mine).

Or the PM might never inspect the house so one day you get a report your house has been siezed for being a crack house (your responsibility as owner for making sure that doesn’t happen)

Or the PM hires shoddy handypeople who charge premium proces for awful work you have to tear out because a building inspector checking next door happened to see some new work that wasn’t to code (happened to me).

So if you can find an effective and honest PM - it is possible. But if you can’t put absolute faith in the PM (and about 85% of them should fall into this category) then it is a disaster waiting to happen.

The biggest problem with out of the area property: It is extremely difficult to find a good property manager. On top of that, sometimes you don’t really know if you’ve found a good property manager for a year or two.

You are legally liable for what your property manager does and says. He’s your representative, and if he does something stupid or illegal, you are the one who is going to get sued over it. So you must be very careful about who you hire.

No one will take care of your property like you do. You need to be in a position where you can check on the property and check up on the property manager.

If you buy out of area, you really have no way to know the local market. There are some areas where real estate is cheap because there is a steady loss of jobs and people are moving out. That means prices go down, rent goes down, and if you want to sell, you can’t.

My personal opinion? Seattle is a good place to invest. The new economic powers in the world are in Asia, and they send their goods and business through Seattle and Portland. That means money flows into the area.

If you really want real estate, buy close to where you live, put a lot more money down, and buy smaller properties.

Hmm, it looks like I underestimated the difficulty of finding a good property management firm and was just thinking that it would always be like Salverston’s “best case” scenario.

Thanks for pointing out the fee schedule differences Mike, I will definitely need to look at that (rather than just the monthly fee) when comparing the PMs.

The problem with buying in Seattle is that I cannot see any properties around here that can cashflow. Even in the cheaper Tacoma, you get these properties advertised as “investor-friendly” but that turn cf-negative with anything less than a 30% downpayment, which produces horrible CoC returns. Not to mention that being 22, I am just starting to accumulate capital (30k so far, saving about 30k/year)

Looks like we need a wiki of good PMs by area… Anyone have some sort of list already?



I definately agree with that. I have used a number of different firms and everyone is a bit different. I’m in the process of parting ways with one prop. mgmt co. for the simple fact that the head guy retired and his assistant who stepped intot he job is not getting it done.

Building a team in an area is a very time consuming process so if you are going to do it, then you really need to consider doing it for several properties. The amt of effort for having 1 or 2 properties scatterred in various locations is not worth it.

Also, if you are a newbie, you needs to start close to home. Property mgmt is hard enought and trying to start with an out of state property is just another level of difficulty.

Don’t get overly hung up on the fee schedule. The more important is their ability to get GOOD tenants and maintain your property is a cost efficent manner.

FWIW - If you are going to buy/hold out of state I highly recommend you get a several trusted referrals before picking a management company…

There is a site, someone recommended to me for finding property management companies.

it lists types of properties and management companies by area. I am sure they will also provide referrals.