Real estate is changing, and so is the world of real estate investment. These aren’t small changes either. Major overhauls are shifting and altering the way real estate investments are done in general, and rentals in particular. And for those who know the San Francisco Bay Area market and own rental properties, these can become a life-changing opportunity.
I will discuss the San Francisco Bay Area market, but it applies to many other high-demand markets in the country. If you’ve owned a rental property in the Bay Area for years, you may be interested in having a lot of equity and wondering how to put this equity to work. If you plan to invest in a rental property in the Bay Area, you will have to put down significantly more in your down payment to achieve a positive cash flow, which will lower your return. It wasn’t that long ago when the prospect of buying out-of-state rental property made little or no sense, but things have changed.
I found myself in this situation in 2000. I couldn’t find rental properties in the Bay Area that had a decent return. Some investors invested a few hours out of their local market, but I was not willing to regularly visit my properties. Out-of-state opportunities only made sense at the time if you had a partner or family member on location. Now, though, it’s a different game entirely. Let’s start with a rundown on the things that have altered the out-of-state real estate investment market.
Technology Changes Everything
So what was the biggest game-changer? Simply put, technology. Start with the widespread acceptance of electronic signatures for real estate transactions around 2003. In 2004, Zillow was launched and made real estate data available to everyone for free. Prior to that, if you wanted to find a property for sale, you had to talk to a real estate agent. We have a couple of real estate agents as part of our team today, but their role is much more strategic than they used to be. Then we had the first release of the iPhone in 2007 really got things moving. Suddenly investors were no longer limited to managing a team in their local area. They could consider more lucrative markets and communicate with their team on the ground just as easily.
These three key technological innovations brought us to “Amazon thinking” for real estate. Suddenly it became possible to apply the same comparison shopping principles that people use for online buying to real estate. Bay Area investors could compare prices and, more importantly, return with out-of-state rentals. Geography was no longer a limitation. In fact, for those using the right approach, it actually became an asset. These technologies made it possible for me to invest out-of-state.
The returns can be impressive. Bay Area investors who were used to returns of five percent or less have seen their returns triple, and go as high as 15 percent! Investors often point out that the Bay Area’s high appreciation rate makes up for the lower return on the cash flow. While the appreciation may be higher, it is not significant enough to make up for the difference. The appreciation in Cleveland, Ohio, where I invest, saw 16% appreciation from January 2016 to January 2020, while San Francisco saw 22% during the same period (According to Case-Shiller Home Price Index).
How Do You Get Started?
The formula is simple enough: find a solid property in a good market where the laws are favorable to landlords. Then set up a team to manage it. But there are still issues with going it alone, so let’s look closer.
To be a successful real estate investor in the out-of-state market, you need to find the right market, the right location, and the ideal neighborhood; and there is plenty of data online to help you in your research. But data doesn’t give you the nuances, dynamics, and flavor of a market. You also need a good realtor with the expertise to work with investors. The property will probably need at least some work, which means you also have to find a reliable contractor to get it done quickly and responsibly at a fair price.
After that, of course, you’ll need to find tenants and a property management company to take care of the property and protect your investment. This could be overwhelming to set up and control, so investors often partner with tunk ey rental providers.
Why Turnkey Makes the Most Sense
Even as technology advances and offers new possibilities, using a turnkey provider is one of the best ways to buy an out-of-state rental property and build a solid portfolio of rentals. These turnkey providers know the real estate investment market and have the resources to serve as a one-stop-shop for those looking to invest in out-of-state properties. Moreover, some of these companies are expanding to offer properties in multiple markets, making it possible to get excellent returns in more than one market.
MartelTurnkey is one such provider that sells rental properties that have been renovated, rented out, have property management, and generate positive cash flow from the one. MartelTurnkey makes introductions to lenders, insurance companies, and property management.
If you are going to go this route, though, it’s important to know how to assess these companies. That means studying the market, knowing the tax laws, and being aware of the local economy’s ins and outs where you’re investing. Speak with your turnkey providers and ask about appraisals, inspections, repairs, property taxes, expenses, etc.