Thirteen years and four months ago, I made my first real estate investment purchase. It was a fixer-upper single-family home on a quarter-acre lot with high-density zoning in Marysville, Washington, which is about 50 minutes North of Seattle. That investment wasn’t my best, yet it was one of the most significant financial decisions I ever made. That so-so investment was the start of my small but very profitable real estate investment portfolio that now pays for our family to travel the world and enjoy all the freedoms of doing whatever we want.
Fast forward to 2020 and we are no longer investing in our local area. Yep, you heard that right, we no longer look at investment properties locally. For those of you that have been around for a while, this might come as a surprise. If I’m being honest, it’s a bit of 180 for us because for years we were laser-focused on buying, building, and flipping locally. Investing locally is what made us millionaires at 29 years old. When I say that we were all in—we were truly all-in on investing in the greater Seattle area.
My family and I still live in Washington and we currently own properties in four states: Washington, Indiana, Tennessee, and Texas. In this article, I share my 7 reasons why I focus and now prefer to invest out of state.
Reason #1 Price Of Investment Properties
Western Washington is expensive. Just today I helped a seller sell a 1970s duplex that needed a facelift in Everett, Washington for $470,000 cash. It was rented for $3,100—or .65% of the price. We received multiple offers. Doing the math, if a buyer were to finance at 75% of the purchase price, they would earn a 2.2% cash on cash return. It gets worse the closer you get to Seattle.
Want to know what I picked up for $500,000 a few months ago in Tennessee? A nice brick 8-unit building built in 1995 with all 2 bed/1 bath units, in-unit washer, and dryer, and, the tenants pay all utilities even water and sewer. My monthly cash flow is $1,900+ per month.
You might be thinking, “but, Jennifer, you can’t compare Tennessee with Washington State, you won’t earn any appreciation because the market is not as good”.
Using these two properties as examples, the city where the duplex is located has half the population of the city where I own my 8-unit. Everett’s population grew by 15% between 2000-2017. Clarksville’s population increased by 50% between 2000-2017 and its job growth was rated 16th in the nation.
My 8-plex has also increased in value by $100,000 in eight months. I can’t say that my Everett properties have seen that level of appreciation.
So, for the price of an average duplex in Western Washington, I can get 4X the unit count and 3X the amount of rent in Tennessee. Did I mention Tennessee is a non-income tax state?
Reason #2 Cost of Renovations
My first out-of-state investment purchase was in Indianapolis in 2016, the purchase price was $155,000 for a duplex that we rented for $2,235 per month and tenants paid all utilities . What was most surprising though, was the estimates we received for renovations.
We replaced all flooring with LVP, installed new kitchen cabinets, countertops, interior paint, light fixtures, full crawl space remediation , attic remediation, plumbing repairs, and new appliances for $19,000. If this property was in Western Washington we would have easily racked up a $50,000 bill.
We had the same experience with all of our other out-of-state renovations. We spent $900 for full crawlspace remediation on our 8-plex in Tennessee, $5,000 for interior remodel on a duplex in Tennessee, $25 to fix a mailbox someone ran over in Indianapolis.
I could go on and on, but I think you get the point. Our renovation dollars go so much farther out of state, and the investors in our community love this, too. In fact, our friend and ROI Inner Circle member, Pete is on his 12th out-of-state BRRR, each deal having been purchased through our agent connections.
Reason #3 More Favorable Landlord-Tenant Laws
Sadly, being a landlord in Washington State isn’t what it used to be. Being a landlord used to be an exchange where an investor would risk capital and credit to acquire a property and offer it for rent to qualified tenants that met their screening criteria. It makes sense that one would want to review credit history, run a background check, and verify income before allowing a stranger to occupy a property worth hundreds of thousands of dollars, but it seems that every year the laws are more in the favor of tenants than they are of the individual landlord who took the risk.
Now, we are required to allow installment payments on move-in costs, issue a 14-day pay or vacate (versus a 3-day), a 60-day notice to increase rents , rental inspections, and an eviction ban . Own in the city of Seattle? It’s even worse. Thankfully, we do not own in Seattle.
We do not have these same restrictions in Indiana, Tennessee, or Texas with the exception of eviction bans due to COVID-19. Tennessee lifted this restriction on June 1st, Indiana on July 1st, Texas on May 19th.
Reason #4 Out-of-state investing requires us to be hands-off
Since I was a young kid, I liked to be the leader. Some would call this being a control freak. I like to think of myself as having expert leadership skills. When it came to investing in real estate, my husband and I were very hands-on. Our weekend plans were remodeling and painting, in the evenings you would find us driving properties and searching for our next deal. We loved it and became borderline obsessed with all things real estate.
In late 2014, baby Beadles was born. We had a new purpose in life: to spend time with family, travel the world, and create memories and adventures together. Our new obsession became spending as much quality time with our little one as we could, and this meant no more nights and weekends working on properties.
Out-of-state investing allows us the opportunity to continue to invest with a more hands-off approach. We now love to be project managers from afar. It gives us the opportunity to see the progress of a good remodel but without the dirt, dust, and icky stuff.
We have even overseen renovations while out of the country, which is really a trip. I am so thankful we have the technology to do so.
Reason #5 Diversification within the same asset class
Diversify, Diversify, Diversify. We’ve all heard this advice, but I don’t buy it. I think we are much better off investing in what we know and enjoy than trying to figure out multiple different investments.
I do, however, believe in diversification within the same asset class. For me, I approach diversifying in real estate by property type and location.
Why is this important? Well, if one market experiences a natural disaster, major employment changes, law changes, or otherwise I don’t have all of my passive(ish) income coming in from one single market.
I also like to own properties in areas that offer different benefits, such as appreciation versus cash flow.
Reason #6 Higher Returns
Linking this reason to Reason #1, it is hard to achieve high cash-on-cash returns in Washington State. Whereas on a daily basis, I can find double-digit returns on out-of-state properties in growing markets, with job growth, wage growth, etc. In fact, the last deal we closed on in January offered a 25% cash-on-cash return.
The way I see it, a dollar is a dollar, but that dollar can return me a higher percentage if invested in certain out-of-state markets. From an efficiency standpoint, it just makes more sense to invest my hard-earned benjamins where I can get more back each month.
Reason #7 I get to write off my travel expenses
I’ll let you in on a little secret, I purposefully invest in cool cities that I want to visit because I can write off the travel expenses to visit. Yup, you heard that right, not only can your rentals pay YOU to own them, but they can pay you to visit. What other investment opportunities do you know of that pays for your travel?
So yeah, if the price is right, you’ll often find me in first-class when going to check on my properties. Another added bonus: you get to personally benefit by earning points and miles for your stay, which you should definitely save for personal travel.
So there you have it folks: my seven reasons why I now prefer to invest out of state. Have I piqued your interest yet?
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