Pitfalls Of Owning Out-of-state Rentals
Sicne we want to relocate out of Calfornia someday and I am a neurotic planner (not that I consider that a fault!), we are considering purchasing rental property in the state we want to move to someday (that would be MONTANA!!) I have found a couple of real estate agents....one in particular that does nothing but preforclosure, foreclosures, REO's etc. She said she get properties all the time like the ones I have already seen from her. One in particular is on the market for $72k and rents for $1150 per month.....one unit has sever burn damage, but all the others are fine and in a nice neighborhood in a small town about 15 minutes from a university. I have to say that there are really no properties with these kinds of cash flows in California that I have found, so far...anyway.
My questions are: what are the pitfalls of owning out-of-state rentals? How often should I expect to have to physically visit the property if I have a prop manager in place? Are there any other additional expenses other than an occasional visit and management fees? Please feel free to be the devil's advocate....
[addsig]
If you eventually want to move to Montana be sure that you find a management co. that will work for your best www.interest.Make sure with out of state properties that you factor in that you may need to travel there www.periodically.Expect higher than average repair cost.
Dear Shirley,
I must say that Ripon is of great interest to me although you are having problems with industrial shut downs. They really need an agressive Chamber of Commerce and some sort of tax incentive plan. I will be up there in about 60 days.
As far as out of state ownerships. Be sure you have good on site management if they are single houses be sure the management company is on your side. Encourage them with the idea you will be moving up and then will be very active investor in the area. Whatever it takes.
I bought an apartment house in Paris and ran that well since 1942. I actualy got possession when the Germans left and Paris was liberated. My daughter lives there now and is in ownership.
I bought another house in 1945 in Tokyo Japan and I held that until about six months ago. My son enjoys it much. Of course he says he does nothing but lay around and relax. As to the lay around most certainly as to the relax I doubt. the housekeeper has been all too much super happy on my last telephone calls.
So it can be done. Mostly up to you and how you handle those that are on property.
Go for it. Montana, oh my god do you know what happens up there in the winter? Nothing!!!
Lucius
Hello Shirley,
You've sad: "I am a neurotic planner..."
This to some degree also identifies you as someone who needs to be in control and control is what you need when you manage the property(ies) remotely. Comparing to what was available decade/s ago, with today's assistance of technology this shouldn't be a much smaller problem.
What I would do is find the live-in manager who would fax me the reports every week or month or whenever you feel you'll need it to keep you comfortable. I would also conveniently install one or more internet camera on the building/s, which would allow me to monitor my properties 24/7.
if you think you'll move there, go for it. As far as the pitfalls, they always exist but for someone who will trade California for Montana, I do not anticipate the more serious side effect.
My biggest concern would be the repair costs. Even with a good PM, the PM is simply going to call a plumber or whatever, and not go out and inspect the problem themselves in all likelyhood. The subcontractor is going to pad the bill in many different ways if you aren't careful.
One way you can help to protect yourself from over exhorbitant repair bills, is to have the PM call you before they aprove any work. Then, you will want to talk to the tenant personally and get them to describe the problem in as much detail as possible. This way you call the contractor yourself. When you describe the problem, mention what you think it possibly is, and show some knowledge of housing systems, they will be less likely to try and slip something by you.
Quote:...have the PM call you before they aprove any work.
...then...talk to the tenant personally and get them to describe the problem
...call the contractor yourself. davmille,
Rental property is supposed to be a passive income activity. If I have to be that involved in day-to-day operations, then I have not hired the right professional property manager.
Before you ask, I do have several out of state rental properties in my portfolio, some I have personally visited only twice (at most) in the past nine years, and some I have never visited. The whole idea (for me) is to put systems in place that let others do the work while I do other things. With telephone, fax machine, email, snail mail, and electronic funds transfer, my systems work no matter where in the country I live.
Hi DaveT,
It sounds like you may have gotten exceptional PMs or maybe your profit margins are just high enough that the repairs don't make that large of impact overall. I still would personally have the PM call if the repair was over a certain dollar amount at the least. I will give you one example. I had a HVAC unit go out at a rental. Everyone insisted that they really needed to change out both the unit and the ductwork. They said the ductwork was old and probably leaky and inefficient. They were probably right about the ductwork. Fortunately though, I used to work for a hvac company, and I knew that I could easily seal the ductwork with about $40 material and 3 or 4 hours work. That saved me about $3000. This is at the extreme end of things, but is the type of thing that occurs if you have a busy PM who just wants the problem fixed and takes the advice of so called professionals.
I must tell you that I for years had a great source of Property Managers and that was newly retired first three graders from the military. Why? cause they are used to running things, can do almost all of the small repair work, and can even on occasion handle the biggy jobs which pop now and then. Also they are not easily alarmed and so happy to be together, husband and wife, for an extended period of time, that they are jewels. I try to match them with areas of their own ethniticity.
Lucius