With the appreciation of the last few years, you have considered trading into a building out of state. Is it right for you? Well, it depends on a number of things. What kind of property will you buy? Who will manage it? What are the long-term prospects for this investment?
WHY DO INVESTORS LOOK OUT OF STATE?
Many investors are concerned about California rent control. With additional concerns, such as the moratorium on evictions in Los Angeles City and County, some investors are looking for greener pastures.
HOW LARGE OF A BUILDING CAN I PURCHASE?
If you are going to consider a building out of state, it should be newer, in a great area with substantial demand for rentals and a year-round economy. Some places experience more of an exodus during the year because of extreme summers or winters. It should be large enough to support a bonded management company. Saving a small amount per unit, may not be worth the risk.
OTHER FACTORS TO CONSIDER
We have property taxes in California which are based on the last sale price. Usually, about 1.25% to begin. There is no reassessment until the property is resold. Other states have a higher percentage. Texas, for example, is around 1.8% at the start and some even higher. New Jersey at 2.49% is the highest.! Another problem is that in most states, your building can be reassessed anytime. That may cause another increase which would adversely affect your cash flow.
OTHER OPTIONS
There are group investments-Real estate syndicators purchase large buildings and raise money from investors to purchase. They then manage and usually, improve the property, hold it for a few years, and then sell it. These investments may not be as liquid but may be safer for smaller investors. There are also REITs (Real Estate Investment Trusts) which are usually publicly traded, like stocks, allowing for more liquidity. Also, DSTs (Delaware Statutory Trusts) may help defer taxes if exchanged.
Always consult with your CPA and your real estate attorney before making a move into a new type of investment. It may suit your needs now or possibly in the future. It is always good to know your options.
What we at PRS PROPERTIES CAN DO. We can discuss with you the current rents in your area and supply you with comparable rental prices for similar properties. Before you hire a manager, make sure the compensation is fair to you! We can also look at your building for changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.
We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.
Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.
Remember – KNOWLEDGE IS POWER!
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