The cash flowing real estate market is speaking and is telling you to invest out of state! Today, we are talking just about that, about the reasons why investing in the hot markets is a good idea, regardless of their proximity to your primary residence. Learn how technology transformed the real estate, why the out-of-state properties produce higher returns and cash flow, and what the benefits of diversification are.
What You Will Learn About The Cash Flowing Real Estate Market is Speaking:
- How technology offers infinite opportunities for real estate investors
- How investing out of state allows people to start accumulating wealth sooner
- Why the out-of-state properties produce higher returns and cash flow
- Why you should diversify
- The difference between managing people vs. managing properties
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- Also, check these out:
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Speaker 1: This is Theriault Media.
You want to be a real estate investor, but you don’t want to do the work. If there were only a way where someone else could do it for you. Now there is. Tune in here each and every Tuesday on The Epic Real Estate Investing Show for Turnkey Tuesdays, with your host Mercedes Torres.
Mercedes Torres: Hello and welcome. Welcome to Turnkey Tuesdays. This is Mercedes Torres, your host of Turnkey Tuesdays. I am lucky enough to be Matt Theriault’s partner in crime. Matt Theriault created The Epic Real Estate Investing empire, and I am lucky enough to be his partner.
For those of you who are joining us again, welcome back. Good to see you again. Make yourself comfy, because we are about to embark on a great episode about cash flowing real estate. For those of you who are new to our program, welcome. I would like to share with you that one of the reasons that Matt and I created Turnkey Tuesdays is because we saw that there was a growing demand in a small niche in our market called turnkey real estate investing.
This show caters to that busy person who understands the importance of real estate, really wants to get involved, but just doesn’t have the time or the desire to learn every single detail there is to learn about acquiring a real estate investment property, specifically a property that they’re going to buy and hold for long term.
We created this show to help you not only identify that you are that busy person that understands real estate, but to help you and guide you through the process of acquiring a investment property that cash flows, perhaps using a turnkey operation, so that you’re not left out in the cold, so to speak. Awesome.
That brings me to this episode of which I’ve titled The Cash Flowing Real Estate Investing Market is Speaking. Specifically, I get asked all the time, “Why do you guys live in California and invest out of state?” Well, I’ll tell you why. It is extremely difficult to cash flow in California. It’s not impossible. It’s just very, very difficult. The model that Matt and I often share is where we say, “We live where we want to live, and we invest where it makes sense.”
Why is out-of-state investing so popular? Why should you consider an out-of-state investment? Why the hype, you might be thinking? Well, it’s simple. At any given time, there are about 350 to 400 markets in the United States. Of those, there are probably about 30 or 40 hot ones, hot real estate cash flowing markets. The likelihood of you living in one of those hot markets is slim. What do you do, not invest? Settle for lower performances that are just around the corner from your home or are in your backyard? Or do you leverage the expertise, the effort, and the time of others and then in the interest of getting your money to work harder for you than you do for it?
Now, we live in a new age. That is not a secret. The technology available today allows people to work all over the world remotely. I mean, regardless of the business they’re in, they literally can work remotely. That has shrunk the world that we live in. It’s created infinite possibilities. Real estate is no different. It’s just another business that has access to all of the technology that any business has.
Because of this, real estate investors can now invest where it makes the most sense for them. They get to live where they love. They get to live by their family or, in our case, by the ocean, and they get to invest in a market that makes more sense. Again, Matt and I often say we live where we want to live, and we invest where it makes sense.
Here are the advantages of investing in hot markets regardless of whether they’re close proximity to your primary residence. First, let’s talk about lower prices. Lower prices. Everybody likes lower prices. Lower prices are not a suggestion that the property is cheaper, or that even cheaper is better. Every market has its own price ranges of high and low properties. Every market.
For example, the median cost of a three-bedroom house here in Santa Monica, California will differ quite a huge difference from the median price house in St. Louis, Missouri, or Indianapolis, Indiana, for example. This allows people with limited investment capital to start working on their wealth sooner than they otherwise would be able to. This dynamic enables investors to increase their cash flow, their rate of return, their equity build, even the size of their portfolios.
Now, you often hear me talk about even if you could just acquire one cash flowing property per year, it makes a huge difference. In California, to acquire that one cash flowing property a year, it requires a substantial investment, a substantial down payment, so to speak. Well, if we compare that to the down payment required for a property in, for example, St. Louis or Indianapolis, that figure changes dramatically, allowing a person to be able to afford cash flowing rental property that’s not in their backyard. Okay. That’s number one.
Second, higher returns. When it comes to the rent-to-purchase-price ratio of the market around the country, you will quickly see that many markets are overpriced in terms of the property values related to their rental income generated by the same exact property. The result is sluggish money, so to speak. I mean, if we look at one of these homes that I was sharing with you in Santa Monica, where I live, Santa Monica’s homes are priced at around $800,000, and the rent for that property would probably be about $4,000 a month. Now, this is a proven fact. Check it out all over, just to make sure that my numbers were accurate.
Now, that’s going to bring you a 1% to 2% cash-on-cash return, honestly, if you could even get that positive cash return. Likely in California, you may have to come down, or you may have to come in with a bigger down payment. Likely not. Might as well leave your money in the bank for that matter.
Now, you do have a greater potential of appreciation in a market like Santa Monica, but that’s a different type of investing if that’s what you’re interested in. However, the reality is you are banking on appreciation and, well, we all know what happened in 2007, 2008. The reality is nobody has a crystal ball. We don’t know if the market is going to appreciate. If this was to happen, that is actually called negative cash flow gambling. That’s what I like to call it, anyway.
Third, a higher cash flow. When you look into other markets, you flip the equation and produce a considerable cash flow return. For example, in Indianapolis, a single-family residence, three to four bedrooms, two baths, about 1200 square feet, you can find that property for about $120,000. That’s the whole property in itself, the cost of the property, $120,000. That property likely rents for $1200 per month. Now, I’m saying this because I own several of these properties myself.
These are generating for me somewhere between a ballpark of 9% to 11% cash-on-cash return. What’s going to get you to the finish line faster, a negative cash flow property or one that can produce a 9% to 10% cash-on-cash return? Seriously, that’s not a trick question.
Next, why would you consider an out-of-state property that’s not in your backyard? Diversification. Through real estate investing, there are out-of-state markets that get you access to lower prices, higher cash flow, and risk mitigation strategy that hasn’t always been available to the average real estate investor until our current era, and that risk management strategy is diversification.
You’ve heard of the term diversification likely from your financial planner. You’ve heard me say it often before. I am a huge fan of diversification. But you don’t hear the term used when it comes to real estate a whole lot, outside of our podcast and our world. The goal of diversification, regardless of the investment, is to reduce the overall risk of the investor. Diversification in real estate is easily achieved by purchasing income-producing properties in different price points across different markets, and even across different locations within that same market.
By creating a real estate portfolio of income-producing properties across multiple markets within different price points, you reduce your exposure to both natural and economic risk that can impact each of your markets, which ultimately, if you’re investing in those markets, can impact you.
An inherent benefit of investing out of state or in a remote market is it forces you to manage people as opposed to managing properties. That’s how you’re going to experience passive income. It’s the difference between a couple of hours a day managing properties and a couple of hours a month managing property managers. Big difference. The difference is so big that you should consider or, dare I say, embrace.
I often talk about the property management team. I repeat that ad nauseam because I have lived the importance of having a strong management team on the ground. What makes that management team even stronger is you overseeing your property manager. If you are on top of a team that’s on top of it, it makes a huge difference. This helps in the diversification of your cash flowing portfolio. After all, you’re in this to escape the rat race, aren’t you?
Well, you don’t escape the rat race by managing properties. You do it by managing people and investing in areas outside of your comfort zone, which may be your own backyard, that forces you to do this. Again, technology makes this so much easier. That’s the goal. Investing in a turnkey company may be an ideal fit. Make sure you vet that company out.
Now, let’s look at this equation with some transparency. The word turnkey. The word turnkey has been thrown around in the world of real estate investors for many years without any formal definition of what it really means. Now, turnkey investing is often used to describe properties that are rent-ready or tenant-occupied. Now, this is unfortunate and often misleading because it’s a narrow definition of the term.
It’s like saying that a new car is a turnkey vehicle. Certainly, the car has been built for you. It’s been shined up for you. After the purchase, all you do is you insert the key and, if you turn the key, it will certainly start. But someone still has to drive the vehicle. Someone still has to fill up the gas tank every week. Someone still has to change the oil and rotate the tires from time to time.
Now, if you were to do all of the work, that would make you a landlord. There’s work involved there. Or simply you can hire a chauffeur to drive you around and a mechanic to maintain the car, and that would make you an investor. There’s still work involved here, but instead of driving and maintaining your car, you check in from time to time and make sure your chauffeur and the mechanics are doing their job.
There is a huge difference between several hours a day that is required by a chauffeur and a mechanic to a couple of hours a month that would be required for managing your property manager. Understand that the word turnkey and passive income, or passive, they aren’t literal terms. Turnkey passive investing doesn’t mean uninvolved investing. Done wrong, it could certainly be frustrating and probably one of the most expensive experiences of your life. Done right, turnkey real estate investing and passive income go hand in hand, and they can produce financial freedom faster than anything else available to the average person.
Do your homework. Do your research. Set your own expectations appropriately. Really know what your goal is to achieve financial freedom. When I say goal, I’m not just talking about a broad goal. I’m talking about a really specific number, whether it’s a number that replaces your job to get you out of the rat race, or whether it’s a number of properties. Perhaps you want to buy two houses for your newborn child so you can pay for their education in 18 years. Whatever that number is, know it. Understand it. Embrace it. Then set your expectations appropriately as a turkey real estate investor.
You have a lot of options available to you, but they’re not all created equal. Do some of this homework and start the momentum in the right direction. I can certainly help you. Go to cashflowsavvy.com. Download The Frustrated Investors’ Guide to Passive Income. Or reach out to me. Send me an email. I am really good about answering emails. You can email me at [email protected].
Grab your Frustrated Investors’ Guide to Passive Income and just keep moving at the speed of instruction. Keep your eye on the big goal. Remember, as Matt always says, travel as far as you can see, and when you get there, you’ll see further. Who knows? Right now, maybe traveling as far as you can see is doing a download, or sending me an email. Whatever it is, travel there and you’ll see further once you get there.
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