BiggerPockets Real Estate Podcast

BiggerPockets Podcast 211: Investing in Out-of-State Rentals and Notes with Bob Malecki

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What’s the best way to invest in real estate when the numbers don’t make sense in your backyard? Today on the BiggerPockets Podcast, we sit down with Bob Malecki, a real estate investor who started by purchasing local rental properties but quickly shifted gears into two other niches: out of state rentals and mortgage notes. In this episode, Bob explains why he chose to make the switch and walks listeners through the step-by-step process for getting started investing outside your backyard!

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This Show Sponsored By

We just waRealtySharesnted to give a shout out to our podcast sponsor on today’s show: RealtyShares. RealtyShares is a crowdfunding platform that allows you to invest in professionally managed properties without leaving your living room!

Learn more by visiting RealtyShares.com/biggerpockets!

Fire Round Sponsor

patchoflandWe just wanted to give a shout out to our podcast sponsor on today’s show: Patch of Land. Patch of Land is a Peer-to-Real-Estate (“P2RE”) lending marketplace that matches accredited and institutional investors seeking high-yield, short-term, asset-collateralized investments to borrowers seeking more timely and consistent sources of funding for rehabbing properties across America.

Learn more by visiting Patch of Land!

In This Episode We Cover:

  • How Bob got started in real estate
  • What a ROTH IRA is
  • What to do when you’ve got a chunk of money to invest
  • How to choose the right turnkey company
  • Thoughts on using leverage to acquire properties
  • Why he decided to transition to notes
  • What exactly non-performing notes are
  • A discussion on notes vs. rentals
  • The risks of investing in notes
  • What you should know about due diligence
  • Where to find notes to invest in
  • The value of building relationships
  • What the future looks like for Bob
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

  • “Nothing in the world is guaranteed.” (Tweet This!)
  • “Assume nothing and document everything.” (Tweet This!)
  • “If you don’t take actions, you can’t take a risk and you won’t make mistakes. Mistakes are necessary.” (Tweet This!)

Connect with Bob

Show Preview

Real strategies that work for real people seeking to build wealth through real estate investments. Co-hosted by Brandon Turner and David Greene, this podcast provides actionable advice from investo...
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    Jason Duprat Rental Property Investor from Jacksonville, FL
    Replied about 3 years ago
    Great Show! You briefly mentioned needed a “non-recourse” lender to leverage the IRA to purchase real estate. Do you have any more information on such lenders? Thank you!
    Zach Lemaster Rental Property Investor from Denver, CO
    Replied about 3 years ago
    Jason, I have non-recourse & non-traditional lenders that can do as little as 10% down (most are 30-50% down with a min of $80K). Connect with me to get more info. Zach RentToRetirement.com
    Elizabeth Blazina Investor from Seattle, Washington
    Replied about 3 years ago
    Hi Bob , Brandon and Josh, Great podcast! Two questions. How are you able to turn your Note profits in your Roth ira into passive income? Essentially you are taking income but paying taxes on the withdrawals. Just clarifying. Second is there a limit to how many notes you can hold in a Roth Ira? Bob always learn so much form you.. Thank you !
    Elizabeth Blazina Investor from Seattle, Washington
    Replied about 3 years ago
    Hi Bob , Brandon and Josh, Great podcast! Two questions. How are you able to turn your Note profits in your Roth ira into passive income? Essentially you are taking income but paying taxes on the withdrawals. Just clarifying? Second is there a limit to how many notes you can hold in a Roth Ira? Bob always learn so much form you.. Thank you !
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 3 years ago
    Hey Bob, Loved the episode! And they weren’t kidding, you did a great job explaining notes. In fact, you shouldn’t have explained the note business so well, now everyone’s going want to do it! 😉 Best, Dave
    Ben Vandorn Investor from Anchorage, Alaska
    Replied about 3 years ago
    Hi Bob, Great interview about notes! Outside of IRAs, I understand income generated from notes is taxable as ordinary income. Are there any ways of sheltering this income, or are you stuck paying whatever your marginal tax rate is on it? Thanks, Ben
    Eric Egeland Specialist from Long Grove, IL
    Replied about 3 years ago
    Great podcast…very useful information.
    Andy H. Investor from Stockdale , Texas
    Replied about 3 years ago
    Excellent podcast! What are the pros/cons of buying notes through a SDIRA vs buying them outside of one? Why not just buy the note with regular capital instead of using the capital to fund the IRA and then buying through the IRA? Or perhaps your IRA was leftover from a previous employer and already funded and you were trying to get a better return on that money without paying a penalty for taking it out early…
    Zach Lemaster Rental Property Investor from Denver, CO
    Replied about 3 years ago
    Andy, connect with me to discuss this. I believe in just using regular capital to purchase investment properties as your income should be tax free if you have the right CPA & you can ultimately avoid capital gains through 1031 exchange. Plus you can use the income as you wish immediately…ideally to reinvest in more property. I think where the benefit of using an IRA/401k to buy (as in Bob’s case) would be when you already have funds in those accounts and you would like to roll them into another investment class vs being penalized by taking them out of the retirement account. Connect with me if you want to chat more. Zach RentToRetirement.com
    Inderpal Chadha from Issaquah, Washington
    Replied about 3 years ago
    Hello Bob Great show and tons of education. Thanks Regards Inder
    Booz Celestin from Miami, Florida
    Replied about 3 years ago
    This was epic. The guest provided clarity when it came to note investing.
    Sonny Ruckstuhl Investor from Reno, Nevada
    Replied about 3 years ago
    Bob, Thanks for taking the time for the podcast. I appreciate all of the perspectives across the podcasts and always enjoy hearing of yet another direction for RE investing. Your explanations were very well done and I look forward into digging more into notes with my SD401k. Josh and Brandon, You guys are great interviewers.
    Julie Marquez Investor from Seattle, WA
    Replied about 3 years ago
    At first I thought, sweet, this guy is from my area. But then I realized it doesn’t matter where you live to have great investments across the country. Great information jammed packed in this episode!
    Pari Thiagasundaram from Fremont, CA
    Replied about 3 years ago
    Awesome Podcast Bob ! @Brandon Turner, On this webpage, “Bob’s BiggerPockets Profile” points to someone else’s profile. Can someone fix this?
    Ben Huisman from South Elgin, Illinois
    Replied about 3 years ago
    Bob, Great show. I found it to be very relate-able, and you did a great job of explaining everything. I am currently looking to invest in rentals with my self directed 401k, and I am looking at turnkey providers. Memphis Invest is one of the companies that I am interested in. You mentioned another turnkey provider in the Memphis area that you ultimately ended up investing with. Can you tell me who that company is? What was your deciding factor? Was it the price point? Thank you for taking the time to take us through your journey. Ben
    Zach Lemaster Rental Property Investor from Denver, CO
    Replied about 3 years ago
    Also, I don’t know if one of Josh’s first questions was fully answered. What is the benefit of using a self-directed IRA to invest in RE? Also, did you look into rolling over your funds into a Solo 401(k) where there is no UFDI?
    Zach Lemaster Rental Property Investor from Denver, CO
    Replied about 3 years ago
    Also, I don’t know if one of Josh’s first questions was fully answered. What is the benefit of using a self-directed IRA to invest in RE? Also, did you look into rolling over your funds into a Solo 401(k) where there is no UFDI?
    Lisa Caro from Monroe, New York
    Replied almost 3 years ago
    A quick question… If I live in NY State, and want to purchase a note from a lender in Illinois, do I have to register my LLC in Illinois (much like you do when you have an out of state rental)? Thanks for the podcast and thanks in advance to anyone who picks up my question :).
    Zack Banks Investor from Vancouver, Washington
    Replied almost 3 years ago
    I’m looking at a SOLO 401K to avoid the UDFI when leveraging.
    Katie Rogers from Santa Barbara, California
    Replied over 1 year ago
    Presumably the gain to a lender is the interest on the loan. So a borrower borrows $65,000 from Lender A. Lender A gives that $65,000 to the seller as part of the sale.proceeds. Down the road you bought that note from Lender A for $29,000. Why should you be construed as having lent $65,000 to the homeowner since you only “lent” $29,000. If Lender A is no longer interested in $36,000 of the original principal and is satisfied with front-end interest already received, why shouldn’t that amount or at least some of it be forgiven the homeowner as well? Why should you get that extra $36,000 plus the interest since you never lent that money?
    Brett Chien from Irvine, California
    Replied over 1 year ago
    purchased note @ $29000, sold and net $32360, how did he get 111% profit?