So you want to build an out of state portfolio (Part I)

BUILDING AN OUT OF STATE PORTFOLIO

PART I

So you want to build an out of state portfolio. I was faced with this very daunting task not too long ago. The California market was peaking at nosebleed levels. My mentors & the smart insiders in my inner circle were raising red flags that it was time to take some chips off the table, & seek greener, safer pastures and build a defensive position. Protecting their huge wealth gains created in the last market cycle was their number one goal.

In part I, I will share a brief overview of the process used when I began this adventure. At the live FIBI Manhattan Beach panel on August 11th & in future posts, I intend to discuss, in more detail, the essentials led me to develop my guidebook (my bible) for out of state investing. I will be very frank about not just the successes, but also the mistakes I saw being made by others and by me.

Here is an outline of the steps I took to begin this process.

CLARITY OF PURPOSE

What is my purpose of investing out of state? Basically, asking myself the question, why am I even going through all the trouble of doing this?

PERSONAL INVENTORY/SWOT ANALYSIS

Strengths/Weaknesses/Opportunities/Threats

Time

Capital

Expertise

Willingness & Interest

Once those questions were answered, my next step was to create a written investment policy statement, develop my game plan, & then implementation.

INVESTMENT POLICY STATEMENT

The investment policy statement is something I learned from my previous career as an Investment Advisor for High Net worth clients. It’s a document between a portfolio manager & a client that basically outlines the rules, investment goals, & objectives.

DEVELOPING THE GAME PLAN

WHERE

Once I determined the “What” the next step was “Where”? What market(s) would I target to reposition my portfolio? What were the qualities of the market I was looking for?

WHAT

Single Family Homes, 2-4 units, apartments, or commercial, or a combination?

WHO

Who was I going to buy property from?

I had four choices at the time:

1) Buy from agents

2) Buy from wholesalers in my target area

3) Buy directly from sellers

4) Buy turnkey properties from a company with a “done for you” business model.

I ended up using 3 out of the four.

MANAGEMENT

Once the acquisition is complete, the next challenge is management. Because I was not buying “turnkey properties”, I divided this into 2 distinct roles.

Project Management (Bringing a property from acquisition into a stabilized income situation)

Property Management (Oversight of tenant property issues once stabilized)

SOME BIG TAKEWAYS

ROT- (Return On Time) Time spent must be calculated in total return.

CPR- Checklists, Procedures, & Reports (most important tools to create)

Market Selection- Where you choose to invest & the strategies you employ there are critical

Be careful reaching for yield- Don’t be careless attempting to increase return a few percentage points. Be smart about the risk of the additional “theoretical return”.

Beware of “California fever”- Almost everything looks inexpensive in other states, this is a colossal trap. You absolutely must be wary of this. Many markets will NEVER appreciate & your capital may become trapped.