When I tell people that I invest out of state, the response is typically “where?” or “why?” with a heavy dose of incredulousness in their voices.
My wife and I live in Oakland, CA, and we started investing out of state about 18 months ago. In the fall of 2017, we purchased 6 units in Huntsville, AL.
Huntsville isn’t well known and doesn’t have the allure of a smoking hot real estate market or a gleaming skyline with well known logos at the top of each building, but we learned about the city and its economy, spoke with brokers and property managers, and got a feel for its neighborhoods.
I believe that successful investing requires you to invest in what you know, so we took our education seriously and have visited Huntsville a handful of times now.
I often hear the excitement when I tell people we purchased 6 units for less than $200,000 in a rapidly developing neighborhood (complete with a craft beer mecca across the street) and that the units bring in over $3,000/mo in rents. There’s good reason to be excited. That price point is fairly accessible and typically requires a cash investment of just $50,000.
But it’s also fair to be skeptical. Money is flooding out of California toward markets that look a lot like Huntsville, and investors are learning that it’s not all fun and games and cash flow. We performed our first eviction this past summer. It ended with the tenant flooding three units the night before the sheriff was going to show up, leading to an unexpected vacancy of three units for nearly six months.
There are also markets that don’t perform as advertised. It’s easy to be attracted to places like Albany, NY, or Cleveland, OH, with high returns on paper, but do the research to validate vacancy factors and delinquency rates. When stated returns on investments look too good to be true, they probably are.
Markets away from the coasts can often provide much more cash flow compared to coastal cities, but you sacrifice–generally speaking–appreciation. Substantial wealth is more often created by the latter, so consider your goals carefully before jumping in.
We’re up to 22 units in Huntsville now, spread out over 3 properties. We’re happy with our investments overall, but boy have we learned a lot.
We plan on continuing to invest out of state, both through individual investments–likely all in Huntsville until we find another market we like–and through real estate syndications (i.e., group investments), where our relatively small investment is amplified by partnering with the right team on the right project.
We’re also looking to invest more locally in Oakland, because we want to take advantage of the higher historical appreciation that the Bay Area has to offer. We’re betting that values in Huntsville will go up (ask me why), but it’ll be hard to beat the San Francisco Bay Area.
If you have questions about investing in the Bay Area or out-of-state, I’d love to hear from you!