BiggerPockets Real Estate Podcast: How to Buy Your First Out-of-State Real Estate Investment (Step-by-Step)
Release Date: February 7, 2025
Host: Dave Meyer
Guest: Kathy Fecke

The latest episode of the BiggerPockets Real Estate Podcast delves into the intricacies of purchasing your first out-of-state real estate investment. Hosted by Dave Meyer, the Head of Real Estate at BiggerPockets, and featuring seasoned long-distance investor Kathy Fecke, this episode offers a comprehensive guide for investors seeking financial freedom through strategic property investments across different states.

1. Introduction to Out-of-State Real Estate Investing

Dave Meyer opens the discussion by acknowledging the rising challenges of investing in local markets due to increasing property prices. He emphasizes that while investing locally is traditionally favored, expanding your investment horizons to other states can unlock substantial financial benefits. "Buying properties hours away and managing them long distance may sound intimidating, but this is a tried and true strategy that investors have successfully used to build wealth for decades" (00:00) sets the tone for exploring out-of-state opportunities.

2. Benefits of Investing Out-of-State

Kathy Fecke shares her journey into out-of-state investing, inspired by Robert Kiyosaki's emphasis on cash flow over mere property appreciation. "In California, most people kind of fed their properties. It costs you money to own it until over time you'd probably make a lot of money on it. But... the idea of cash flow was so intriguing to me" (01:50). Kathy highlights how investing in more affordable and growing markets like Texas can provide immediate cash flow, which is often unattainable in high-cost areas like California.

3. Overcoming Fear and Embracing Information

One of the primary hurdles for out-of-state investors is the fear of the unknown. Kathy addresses this by distinguishing between paralysis by fear and using fear as a protective mechanism. "Fear is a good thing... listen to the fear. It will give us the answers we need" (06:34). She advocates for thorough education and information gathering as antidotes to fear, ensuring that investors make informed decisions rather than impulsive ones.

4. Selecting the Right Market

Choosing the right market is critical. Dave advises narrowing down potential markets to two or three based on strong fundamentals such as job growth, population growth, and affordability. "Pick two or three Markets that you like, strong fundamentals, good job growth, demographics, places that are in your price point and then go visit them" (09:13). Kathy adds that understanding local metrics like median home prices and income levels is essential to avoid overpaying and ensure sustainable investments.

5. Building Your Local Team: Agents and Property Managers

A robust local team forms the backbone of successful out-of-state investing. Kathy emphasizes the importance of collaborating with real estate agents and property managers who specialize in investment properties. "Making sure, if you have an agent, they specialize in investment property and hopefully they own it" (10:54). This ensures that the professionals you work with have the necessary expertise and insights to guide your investments effectively.

6. Underwriting and Analyzing Deals

Thorough underwriting is paramount to evaluating potential investments. Dave outlines the need to stress-test assumptions such as rent growth, property taxes, and insurance costs. "Figure out what rent growth is really going to be, what are your taxes going to be, what is your insurance costs" (19:24). Kathy concurs, highlighting the role of property managers in providing accurate financial data to inform your investment decisions.

7. Purchasing Strategies: Sight Unseen vs. In-Person

Both Dave and Kathy discuss the feasibility of purchasing properties sight unseen once you have a reliable local team. Kathy states, "once you have that team in place... I'd buy sight unseen" (30:32). Dave shares his personal experience of successfully acquiring properties without onsite visits, reinforcing the viability of remote investments when supported by competent agents and property managers.

8. Closing the Deal and Managing Properties Remotely

Closing out-of-state deals requires meticulous planning and clear communication with your local team. Dave details his process of having property managers and agents inspect properties on his behalf. "I have my Agent walk the property... I have the property manager go... three or four sets of eyes feels good enough to me" (35:42). Kathy advises maintaining regular communication and setting clear expectations to ensure smooth property management and operational efficiency.

9. Common Mistakes and How to Avoid Them

The episode highlights several common pitfalls in out-of-state investing. Kathy warns against undertaking renovations on first-time investments, advising investors to opt for turnkey properties instead. "If you've never done it before... you're going to lose money if you do it that way" (20:52). Additionally, both speakers stress the importance of understanding all associated costs, including travel and unexpected expenses, to maintain profitable ventures.

10. Final Tips and Encouragement

As the episode concludes, Dave and Kathy summarize actionable steps for aspiring out-of-state investors:

1. Pick a Market: Focus on areas with strong economic indicators and affordability.
2. Visit the Market: Experience the local environment to assess its suitability.
3. Build Your Team: Engage with knowledgeable real estate agents and property managers.
4. Underwrite Thoroughly: Analyze financials meticulously to ensure viable investments.
5. Make Informed Offers: Utilize your team’s insights to make strategic purchasing decisions.
6. Set Clear Expectations: Communicate effectively with your property managers to manage properties remotely.

Dave encourages listeners not to be intimidated by out-of-state investing: "It takes me, me, I think probably two hours a month to manage these properly. It's absolutely doable and highly encourage people to not get discouraged or intimidated by this" (40:53).

Notable Quotes

• Dave Meyer: "Buying properties hours away and managing them long distance may sound intimidating, but this is a tried and true strategy that investors have successfully used to build wealth for decades." (00:00)

• Kathy Fecke: "Fear is a good thing... listen to the fear. It will give us the answers we need." (06:34)

• Dave Meyer: "Pick two or three Markets that you like, strong fundamentals, good job growth, demographics, places that are in your price point and then go visit them." (09:13)

• Kathy Fecke: "Once you have that team in place... I'd buy sight unseen." (30:32)

• Dave Meyer: "It takes me, me, I think probably two hours a month to manage these properly. It's absolutely doable and highly encourage people to not get discouraged or intimidated by this." (40:53)

Conclusion

This episode of the BiggerPockets Real Estate Podcast serves as an invaluable resource for investors considering venturing into out-of-state real estate markets. Through the expertise of Kathy Fecke and the insightful guidance of Dave Meyer, listeners gain a clear roadmap to navigate the complexities of long-distance investing. From selecting the right market and building a reliable local team to mastering underwriting and closing deals, the episode encapsulates all critical aspects necessary for successful out-of-state real estate investments. Whether you're a novice investor or looking to expand your portfolio, the strategies discussed provide a solid foundation for achieving financial freedom through real estate.

For more detailed discussions and to access additional resources, listeners are encouraged to visit BiggerPockets and explore their extensive library of real estate investment tools and community support.