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“Out of Sight, Out of Mind”— Real Estate Investing from Afar

by Engelo Rumora on July 26, 2014 · 26 comments

  
Real Estate From Afar

Ever since I started my real estate investing journey, I’ve come across numerous investors–myself being one of them, who decided to invest in properties that weren’t located in their “backyard”.

I strongly believe that investors shouldn’t invest within close proximity of where they live, if better returns can be found elsewhere. It will just come down to the investors comfort level, the risk-to-reward ratio they are willing to accept and the established relationships on ground.

Don’t Get Caught in the Minutia!

After striking many conversations at real estate seminars and expo’s, I have found that most novice property investors share the exact same approach when analyzing deals.

They tend to get caught up in unnecessary online research involving stats and demographics of a specific area they are interested in. Although I do believe the stats and demographics to be somewhat important, they should not be the main tool used when analyzing to purchase investment properties in another state or country.

I have witnessed on numerous occasions investors who are solely focused on purchasing the “best” house in the “best” street with the “best” growth prospects, only to experience financial loss, while entrusting their lifetime savings with incompetent and unprofessional people on-ground that lied to them and were dishonest.

From current and previous experience, I have learnt that one of the most important things to successfully invest in Real Estate from afar is to establish trust and relationships with key people on-ground, in the particular areas of interest.

Related: 18 Minutes: Find Your Focus, Master Distraction and Get The Right Things Done (Book Review)

Why the Most Important Things are Trust and Relationships

Trust is built over time and not over one phone call, email, or meeting. Spend that time interviewing and conducting your due diligence, with the main focus being on property management. Property management has been known to make or break a good investment.

Avoid succumbing to any pressure tactics or sale gimmicks enforced by certain operators, as there will always be another good opportunity around the corner.

A great way of eliminating these non-genuine individuals is by informing them that you have no interest in doing any business in the area they work in for at least twelve months. You will be surprised at the lack of responses received. Most of these shady operators will never have your best interest at heart, as they are only looking for a quick profit before they can move on to their next “victim”.

Related: Our Simple Strategy for Closing More Deals Through Relationships

It took me over 18 months to establish trust and relationships with the right people in the US before I bought my first property and later on made the move here from Australia in late 2012.

While I was evaluating where and how I wanted to invest, the individuals I was interviewing were more than happy to go out of their way in meeting all of my demands and answering any questions I had.

Once establishing such relationships, you will find that these individuals aren’t greedy and are looking at building a long term business synergy, while at the same time always having your best interest at heart.

By continuing to network and staying active via email and phone, you too will eventually encounter trustworthy people that can assist you along your real estate investment journey.

Before pulling the trigger and investing from afar— it is crucial to establish long term relationships, due to the complexity of the many micro markets located here in the US. It is amazing to see how the quality of properties in an area can decrease within such a short proximity.

For example here in Toledo, Ohio, where I am based- you can purchase 100yr old properties for $30k that are situated in high crime areas and within half a mile down the road you will be able to find 10-20yr old waterfront mansions selling for $300k.

It is vital to have a trustworthy local expert on-ground, who has years of experience in the field and also owns investment properties in the area himself.

He will be able to distinguish the good, the bad, and the ugly-in an instance. Unless you have resided in the area of interest or travel there regularly, it is very difficult to make a successful investment decision relying solely on online real estate platforms.

Establishing trust and relationships with key people on-ground to be your “eyes and ears” will enable you to have a worry-free, and successful “Out of Sight, Out of Mind” property investment portfolio.

Do you have a story where someone did you dirty in real estate?

Be sure to leave your comments below!

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{ 26 comments… read them below or add one }

Lucas Peczek July 26, 2014 at 1:00 pm

Great article Engelo,
I’ve also moved from Australia to take advantage of the undervalued property market. I base myself out of Phoenix and have been here since 2011.
Trust as you put it is such a major factor and why I’ve been very slow and cautious to move into other markets. I’ve found that even once you do establish that trust, you need to qualify and do your own due diligence on every deal before pulling the trigger. I’ve been led down a path that was underperforming once or twice only because I had complete trust in my advisors, only to find that they made a mistake that I would have probably picked up on if I had double checked the data myself.
Now, with systems I’ve implemented here in Phoenix and several big time investors I help find great deals for, I’m looking to venture into other markets that are not as competitive as Phoenix.
I look forward to more articles from you!
Cheers,
Lucas.

Reply

Engelo Rumora July 27, 2014 at 1:05 pm

Hi Lucas,

Thanks for your comment and kind words. It is great to receive a comment from a fellow Australian who has ventured into the “unknown” world of US Real Estate- just like I have.

You have raised some very valid points as when first starting, I have also had a few minor hiccups with trusting “advisors” that made mistakes. It is all part of the learning experience which makes us better investors moving forward.

As they saying goes “If it was easy, everyone would be doing it”

Please feel free to email me on [email protected]

I would be happy to connect with you over the phone and talk Real Estate.

Thanks for reading and have a great day.

Reply

Stephen July 26, 2014 at 1:59 pm

Engelo,

First, I would like to thank you for the article. It was well written, insightful and informative. I work commercial real estate but recently tackled several residential projects. Over the yers I established trusted relentionships in the commercial realm but not so in residential. Unfortunately, I had a few bad experiences with people I did not have a long working, established relentionship. Real estate is a local business and trust is critical. Thank you for sharing, I look forward to the next article.

Stephen

Reply

Engelo Rumora July 27, 2014 at 1:16 pm

Hi Stephen,

Thanks for reading and your kind words. I am very fortunate to have a great team of people around me that assist with composing and writing my verbiage.

As I mentioned to Lucas, the mistakes we made will only make us better investors moving forward, as long as they are not repeated again.

When it comes to people I also like following my intuition. Its like a little voice inside giving me feedback on a certain person or scenario. Most of the time it tends to be right.

Thanks and have a great day.

Reply

dorothy smith July 26, 2014 at 5:24 pm

Thank you for that wonderful blog, thank you for taking time to share good insight of things you have observed and learned from. This is especially helpful to the new investor, for we not been to one of those rei meetings yet. There are not many of them in the midwest. Our first property was a nightmare we hope we can prevent from ever happening again. Our windows were broke on our first turnkey property, so out of desperateness, we went with a contractor that we did not know and had not been referred to. He did not complete the jobs properly, we had to spend more money to finish what he did not complete correctly. He tried to overcharge and charge us twice for the same job. He was rude and threatened us daily. We just told him to leave everything as is, we dont need his services any longer. After that we had the property manager arrange for his contractors to complete the work. We learned not to go with anyone you dont know, even if they say they are the jack of all trades, if you have not had someone reference them to you. The little xtra to have it done right the first time, cannot be explained in words. Save yourself the nightmare. I will continue to read more of blogs, they have such good topics. thank you for sharing all your experience:)

Reply

Engelo Rumora July 27, 2014 at 1:26 pm

Hi Dorothy,

Thanks for your detailed comment and kind words.

I probably get contact by investors with similar stories to your 2-3 times every month. They mostly tend to be foreigners that got screwed over in a very similar way that you have. I am very sorry to hear about your experience and I also went through similar issues when first starting but was able to respond quickly and rectify them, only loosing a small amount of $$$.

Even to this day, I sometimes have issues with contractors when looking at buying property in a new area. I like to consider myself as a test dummy, where I will commit personal funds and happily loose them in order to find the right group or individual that I know will look after our investors and my best interest.

I like this saying “It doesn’t matter how many times your wrong, as long as your right once and when it counts”.

Thanks and have a great day.

Reply

Glenn F. July 26, 2014 at 6:00 pm

In my case, I am getting better returns investing locally. I have established relationships with different trades personally and if I was investing afar I would have to trust a property manager who wouldn’t screen and shop vendors as good as I would. I can also do many small things myself. This has dramatically increased my return. Now in some areas it doesn’t matter if you did everything yourself it would still be better to invest elsewhere, such as many CA areas.

Reply

Engelo Rumora July 27, 2014 at 1:33 pm

Hi Glenn,

Thanks for your comment.

Nothing can beat investing within close proximity of where you live. Unfortunately as you mentioned in your comment, sometimes the figures just don’t make sense and the risk to reward ratio is much better elsewhere.

For example. The median house price today in Sydney, Australia (where I’m from) is just over $800,000.

The monthly repayments and expenses on taking out such a loan even with a 20% down payment would be much higher that the rents generated.

In my opinion this is very risky and not a sustainable way of investing.

Thanks and have a great day.

Reply

Mike McKinzie July 27, 2014 at 9:38 pm

Glen, with all due respect, sometimes Property Managers can screen and shop vendors much better than any of us ever could. For instance, my Texas PM manages over 5,000 SFRs and can get deals that few of us could ever get on our own. And if the vendor wants continued business from them, the work is of excellent quality and at a good price
It is a MYTH that an investor thinks they care more about their property than a PM. It is a MYTH that a PM will fill a personal vacancy before they fill an investors. Yes, there are bad PMs, just like their are bad auto mechanics, bad dentists, bad gardners, etc… But a good, professional PM will take care of your property just like a good, professional mechanic will take care of your car.

Reply

Ziv Magen July 26, 2014 at 7:23 pm

Completely agree. Unless you only have one or two properties, and are dedicated to doing it all yourself, it doesn’t make any sense to limit yourself to your own backyard – other cities, states, countries and continents are all readily available, and in any case, beyond the first few properties, the skills required from a savvy investor have less to do with property management, and a lot more to do with people management – i.e picking the right team, listening to the right experts, conducting the right due diligence on professionals and making the right decisions – the world’s our oyster! ;)

Reply

Engelo Rumora July 27, 2014 at 1:36 pm

Hi Ziv,

Thanks for your comment.

Its great to hear from you. I hope your still having much success in Japan.

As you mentioned, the world really is a small place and picking the right people is crucial.

Thanks and have a great day.

Reply

Eric July 26, 2014 at 9:57 pm

I have 24 renters, all within 8 miles of my house. I do all my own management and maintenance. I like local properties.

If a distance property has a decent return, I would say go for it. But, it is exponentially more risky, and you need much more cash flow to get the same return.

In the case of a 100 year old property for $30K, I would just cash flow the heck out of it and view it as a disposable property.

Reply

Christian July 27, 2014 at 10:11 am

There’s really no such thing as a “disposable property.” When it’s time to dispose of it, that property will cost you at least $10,000 to demolish and clean up, and you’ll still have to pay property taxes on the vacant land (which is probably unmarketable).

So let’s assume that you’re buying an asset that gives free cash flow of $300/month for $40k, with zero exit value. That means you’d have to operate that property for 133 months without incident, or 11 years, *just to break even*. I don’t think the 30k neighborhood is going to be any better in 11 years…

Reply

Engelo Rumora July 27, 2014 at 1:48 pm

Hi Christian,

Thanks for your comment.

Just to add, that if a property is purchased for $30,000 an insurance policy of $50,000 can be taken out to cover any cost of a demolish or clean up if it indeed does occur.

Most of the areas that $30,000 properties can be bought in have very low annual taxes and the land can also be donated to certain organizations.

Thanks and have a great day.

Reply

Engelo Rumora July 27, 2014 at 1:44 pm

Hi Eric,

Well done on building such a large portfolio.

I have also started building my portfolio locally here in Toledo but am in the process of making sure that if I ever decide to leave, the investments of others including my own will be left in good hands.

I refuse to self manage as I believe I can better leverage my time elsewhere.

Thanks and have a great day.

Reply

Brad Benski July 27, 2014 at 3:27 am

As someone who is working in India and has property in Texas and CA the property management is the largest part of the equation. I’ve got a property manager I love, gets things done, doesn’t have high costs and provides timely communications. Other property managers ran high costs, or had no communications. Definitely took several tries to find a good one, but once you do, you will notice the weak ones even more. To me, that’s the biggest thing, especially for buy and hold as you plan to establish a long long relationship.

Reply

Engelo Rumora July 27, 2014 at 1:54 pm

Hi Brad,

Thanks for your comment.

Yes and Yes.

Property management is crucial.

A big thing that I look for in a PM is the communication. Communication is the only way that out of state or country investors can find out about whats going on with their properties.

A response of within 24hrs is a must and if someone says they are too busy, well that’s great as it means they have enough revenue coming in and can take on more staff to respond quicker lol

Issues do arise in Real Estate and just by knowing whats going on at any given moment will put most investors minds at piece.

Have a great day.

Reply

Mike McKinzie July 27, 2014 at 10:28 am

Owning a property from afar is NO MORE RISKY than owning locally. Bad tenants can appear any where! My worst damaged rentals were all local. A tenant can be good for ten years and then all heck breaks loose. As for making my own repairs, I don’t make repairs on my personal residence so why would I do it on a rental? If I could make a better return on Mars or Saturn, I would!
Do you remember the fear before you bought your first rental? That is very similar to the fear an experienced investor feels before they buy their first non local rental. Sometimes you make a mistake and sometimes you succeed! But if a new investor fails with their first purchase, we don’t tell them to quit, we tell them to learn from it and move on. The same can be said for a first non local rental. If it doesn’t work, learn and move on!
Local rentals are fine if your return is good, but the average price in my local area is $707,000 and the average rent is about $2,300 a month. There are war zone properties in my area but I don’t want to have to “carry” to collect rent. Class A only for me!

Reply

Engelo Rumora July 27, 2014 at 1:57 pm

Hi Mike,

Thanks for your great comment.

I have nothing to add as your comment sums it up better than I could have lol

Thanks for reading my blog and have a great day.

Reply

Tiffany J. July 27, 2014 at 5:53 pm

I completely agree. My first investment property was out of state, and that has been a great experience. I have rentals in California and Washington now, and I’d like to continue buying, but prices are high in the areas I’m familiar with. Can you tell me what resources you use to locate good investment cities? Thanks!

Reply

Engelo Rumora July 28, 2014 at 6:37 am

Hi Tiffany,

Thanks for your comment.

I always tend to start off with establishing a relationship with a certain individual in an area of interest. If I feel there is enough synergy between us, I will then start looking into the numbers offered on the properties. If the relationship develops and the numbers work, then you can start to build a team around the person. Its a lengthy process but its worth going through.

Stay active via phone, email, forums, seminars, expo’s, meet ups, etc… Eventually you meet people and 1 things starts to lead to another.

Find the right people before the area.

Thanks and have a great day.

Reply

Rick August 14, 2014 at 1:28 pm

Lord Rumora,

Although I agree with the general thrust of your article, I disagree with stats and demographics not being at least one of the main tools. Investors must take into consideration not only the location but the local demographics and the housing obsolescence in the area as well as the proximity to University and highways.

Willie “Famous” Amos once said, “Some people just research things to death.” I’m not suggesting jumping in without some knowledge but get the low-down as well.

“Main” is so a subjective word, but best used with many other tools of course.

Demographics and other stats (traffic patterns, the amount of foreclosures in the area, the backlog of papers being served, the amount of shadow properties headed it’s way, crime stats, etc.) are all extremely important to know. They give a very good blueprint of the area. They must be included in one of the “main” tools to use. Especially when investing out of state or country.

Peace.

Reply

Engelo Rumora August 28, 2014 at 5:45 am

Hi Rick,

Thanks for your comment.

Your opinion and contribution is much appreciated. Personally, I disregard many things you have mentioned that should be taken into consideration.

How to pick stocks like Warren Buffet has a chapter called “Avoiding the Chain Link of Errors” that can back up why I choose to disregard so many variables.

Have a great day.

Reply

Wendy Noble August 15, 2014 at 6:09 am

I’m also an “out of sight, out of mind” investor. Thanks for the great reminder that building relationships is key. In the market I invest in, a person’s word is a commitment, people take great pride in their work and in being ethical. So far, I haven’t had any bad experiences.
Everyone has a different perspective on what is, or isn’t risky, for them. For me, investing locally would mean I would get more emotionally involved. At a distance, I allow my (excellent) property manager get on with her job and wait for the checks to hit my bank account.

Reply

Engelo Rumora August 28, 2014 at 5:48 am

Hi Wendy,

Thank for your comment.

Well done on establishing such great relationships. This is the hardest to achieve and can also take the longest. I always encourage others to NOT invest until they have full confidence and feel comfortable with the team they have established.

Have a great day.

Reply

Rick August 15, 2014 at 3:28 pm

No, don’t do that. You’re right. Don’t get emotionally involved. You’re setting yourself up for huge disappointments that are inevitable. They are there. I promise you.

Reply

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