New to Out of State Investing - Posted by Scott B

Posted by Scott B on April 27, 2006 at 10:22:35:

Thanks for that very informative response!

New to Out of State Investing - Posted by Scott B

Posted by Scott B on April 26, 2006 at 15:03:09:

I am new to out of state investing and looking to buy my first fourplex. I’ve been a landlord of my local property here by my house and have had great luck screening tenants and collecting rents etc…

What I am considering is one, how close the state will be to my home state of California. How much each visit there will cost me in time and travel expenses. I am also considering the property taxes in these different states. So far I have considered Texas, New Mexico and Oregon. Assuming that all of these states do very well in the next 3-5 years is there any advantage of going with a state like New Mexico that has cheap property taxes versus some place like Texas with high property taxes?

I am just a little confused as to where I should be prioritizing my preferences for closer location or cheaper property taxes??

Could I expect the states with higher property taxes to also have higher rents than states with cheaper property taxes?

Get Bigger Picture - Posted by Jimmy

Posted by Jimmy on April 27, 2006 at 08:30:21:

property taxes are only one expense in a long list of expenses associated with owning real estate.

a better criteria is cash flow. for many buy and hold investors, this is a lot more important than a single expense item. Positive cash flow will allow me to get through almost any bad news the market can deliver to me. It gives me the privilege of sitting tight indefinitely, with no pressure. If the value of my properties dropped 25% in value today, I would just hold them, and continue scraping off the cash. But if I was in San Francisco, leveraged to the hilt, and the property was costing me $1500-2000 a month in negative cash flow, a 25% drop would put me under water. The last time this happened in CA was 1991-3, and a lot of investors just walked away.

another criteria important to many buy & holders is potential appreciation. and the best circumstances for this would be areas which are growing (both in terms of population, jobs, income).

You will not find a place which is off the charts on both criteria, because they work against each other. Places with the highest cash flow are usually the ones with the lowest resale values and lowest anticipated appreciation. Smaller towns away from metro areas. ans the places which can appreciate the fastest (like coastal California) offer bigtime negative cash flow.

So…what to do?

What I have done is to invest in smaller towns away form metro areas, where positive cash flow is the norm. But I buy neglected properties in need of lots of work. This way, I can add my own equity and appreciation. I do not need for my properties to appreciate at 8-10% a year for them to be solid performers. HOWEVER. as luck would have it, I have experienced some nice bumps. 2000-2002 were flat. 2003 saw everything in my market jump 20%. 2004-5 were flat. 2006 has already seen a 10% pop across the board. and all of this has happened during a 6 year period when market rents have dropped!!!