I am a buy and hold real estate investor, and I live in one of the most expensive real estate markets on the planet—the San Francisco Bay area.
Real estate out here just doesn’t even make any kind of sense anymore. You’d be lucky to get a shack for a million dollars.
At the time of this writing, I have over 25 rental properties spread across the United States.
I do not just buy them in my market. I do not just buy them in one other market. I buy them anywhere—anywhere that makes sense, that is.
You see, I am a firm believer that you should invest where it makes sense for you to invest—not just where you happen to live. If you grew up in a small town with only a handful of women to date, would you give up and settle for whichever one was closest to a fit, or would you go look for the girl who you truly wanted to marry and commit to forever?
The answer is simple, but for some reason, when it comes to real estate, we just can’t wrap our head around this concept. It really confuses me.
When someone buys a stock, they don’t only focus on companies near them—you know, some company they can drive by every now and then, just to make sure everything is OK. (Are you stopping by to check the books and make sure it’s still profitable?)
There are clearly practical reasons why you’d prefer to invest near where you live. You already know the area, most likely. But is it really such a hurdle to learn a different area?
What if you didn’t have to learn the area? What if you simply had to know someone who did?
What if I told you that there are people out there who already know the areas where you could be investing—and that you’re going to be hiring them anyway?
In my BiggerPockets book Long-Distance Real Estate Investing, I detail exactly how I’ve built up a multi-million dollar portfolio of real estate, all while working as blue collar police officer. I spell out just how simple it can be, and I delve into how anyone can follow simple steps to replicate my success. I’d like to present some of the elements of that book here and help give you small sample of how my system works.
The Core Four
The Core Four are the four people I need to put a beachhead in place in order to start buying somewhere. Now, you’ll find that it’s really not any different than what you need to start buying in your own neighborhood! The key to my system is using each of these team members to find the others. As I’ll discuss later in the post, there is a secret to that, too—and it works for me everywhere I apply it.
Once you have the fundamentals of real estate down, you can apply them successfully and buy real estate anywhere. It’s all the same to me, and I absolutely love the freedom and confidence I now have to buy where it makes sense—not just where it’s convenient.
Follow along as I detail who the Core Four are, how I make sure I’m not being taken advantage of, how I find them, and more.
1. The Deal Finder
Every great investor knows the most important part of investing is finding the deal. Because of that, the number one most important member of your long-distance team will be the deal finder.
It doesn’t really matter where the deal comes from, but you need to be finding them. That’s where it all starts. For the purposes of this blog post, I will focus primarily on agents. This is because most investors use agents to find properties, and agents tend to have the most to offer when it comes to services like referrals, market knowledge, negotiation ability, and being involved if you choose to sell the house after rehabbing it.
It’s pretty obvious why you need a deal finder. What I’d like to propose is that your deal finder can find you more than just deals; they can find you the other three members of your Core Four. We’ll talk more about that later.
When you’re in a market you’ve previously been unfamiliar with, your agent will serve as your eyes and ears. They are like your guide who is going to help you navigate new and unfamiliar terrain. For a long time, out-of-state investing’s had a bad rap—and for good reason. It was like gambling!
Related: The 7 Indispensable Team Members of a Property Management Company
Investors from out of the area had no idea what they were buying. Trusting the advice of a stranger, they were often taken advantage of. Out-of-state investors were routinely misled, misinformed, and taken advantage of.
A lot of that changed with how far the internet has come. Now there is so much information online. Whether the property is on my street or across the country, I can learn a lot about it. When you pair all this information with a boots-on-the-ground real estate agent who provides comparable sales, appraisal numbers, the amount of properties available for sale, and local neighborhood expertise, it suddenly becomes a lot less like gambling and a lot more like informed investing.
Now, of course, not all agents are created equal. If anyone knows this, it’s me. Finding a good, trustworthy agent is crucial. I’ve been able to do that. And in my book, I share how you can, too.
2. The Property Manager
After the deal finder, you need someone who can take care of your baby once it’s yours. That’s the property manager! Many investors like to invest in their local market solely because they can manage their own properties.
I, for one, do not want that job. In all of real estate investing, I have to say I think managing properties is the absolute worst job of them all.
If you’d like a great reason why you should always underwrite a property manager in your deals, check out this post from experienced real estate investor and BiggerPockets legend Brandon Turner. He makes a pretty compelling case for why we shouldn’t assume we will manage our own properties.
Now, based on the fact alone that they are willing to do this job for only 6-10%, I would highly recommend using a property manager. But also keep in mind that they can provide you with even more value than that! Property managers don’t just collect rent and send you statements; these guys are highly knowledgeable, intimately connected business people who literally make a living working with real estate investors.
Let that sink in for a minute. A lot of us are missing this. We all see the value in going to meet-ups, attending real estate club meetings, finding mentors, getting ourselves to conferences, etc. Why? Because we know we can network with other investors. You know where that next deal will come from.
So, why wouldn’t you think a property manager would be the best resource on the planet to find your next deal?
Property managers know which landlords are tired of being landlords. They know which properties are having trouble. They know who wants to sell, why they need to sell, and if they want to avoid putting the house on the market. Trying to sell a house with a tenant inside, especially a problematic tenant, is tough. Selling a house like this to another investor, however, may not sound so bad.
Avoiding real estate agent commission and selling to someone who knows how to handle an eviction? This could be a win-win. The property managers know first about these deals.
As if this isn’t enough, I still haven’t even covered what might be their most valuable trait of all: These guys manage properties in the neighborhoods you’re buying in and know exactly which areas are problematic and which are not.
Too many people miss the value in this. A property manager doesn’t just collect rent. They are your adviser on which neighborhoods are good to buy and hold in and which you should run screaming from.
When you’re investing long distance, you need this. Even if you aren’t investing long distance, you still probably need this.
My property manager means everything to me. When I’m looking into which areas I should be in an unfamiliar city, I make sure I find a top-notch property manager who can afford to be picky about which houses they’ll manage. Once I find them, I make it clear that if they don’t want to manage in that area, I don’t want to buy in that area.
I do not believe in investing in war zones. Property managers know what is enemy-occupied territory—and where to find allies. I run every single deal by them, without fail, to make sure that’s a place I want to own a rental and they want to manage a tenant. Having a top-notch property manager on my team gives me the confidence I need to buy in any state, anywhere, at any time.
If you want to put together an out-of-state dream team, you need a good property manager.
3. The Contractor
I refer to this role as “contractor,” but it really doesn’t have to be. It could just as easily be called “the rehabber.” Whether a licensed contractor or a handyman, you’re going to need someone who can fix up the properties you buy and get them ready to rent or sell.
Of all the pieces of the team, the contractor might be the hardest one to find.
Every experienced investor knows how hard it is to find an experienced, reasonably priced, skilled contractor who can finish the job on time. The problem is, as soon as one gets good at their job, they start to find themselves very busy. As soon as they get busy, they can start charging more. Once that happens, your reasonably priced contractor becomes expensive.
This is great for the contractor—and not so great for the investor.
Because of this, you need to always be looking for your next contractor. You can never assume because you’ve got one that you’re good on this front. Contractors get busy, get expensive, or get scooped up by bigger investors. In addition to this, you also have to consider as you grow as an investor that your contractor needs will grow, as well. In time, you’ll have more jobs than your current crew can handle.
You can usually find contractors through referrals by other members of your Core Four. Sometimes you can get another investor to recommend one, but many investors don’t want to because they know how hard these can be to find.
Sometimes I look to start investing in an area simply because I know I have a good contractor, and I can build the rest of my team around them! They are that important. Good contractors allow you to pay more than your competition but still make more profit. They allow you to finish early and pull your money out early, so you can recycle that money again.
Always be looking for new contractors. Ask everyone you know who they know that you can use. When you find one, treat them well and make sure they know you’ll always be taking care of them.
In my book, I go into more detail than I’m able to here about how I find them, how I keep them, how I incentivize them, and how we come to terms over the bid. If you want to be a good investor, you need to get experienced at finding and managing rehab talent.
It separates the big dogs from the puppies.
4. The Lender
The lender is the person on your team who allows you to use other people’s money to buy properties. I know this may seem like an easy person to find, and it can be—that is, until you get more than 10 properties, start investing in a state where you don’t live, or don’t have a 720 credit score.
A lot can go wrong once you get more than a house or two, and finding lenders gets tough fast. I personally spend more time looking for lenders than I do looking for deals.
This is sad. It shouldn’t be this way. But until I find a lender I can bring onto my team and repeatedly use, that’s the way it is.
Lenders operate by different guidelines. Depending on the institution they work for, they have different regulations and restrictions. Finding a lender who will work for your specific situation is crucial to create a system and replicate it consistently. Good investors should be looking for deals, not someone to fund them.
You can find lenders many ways, but the most efficient are through people who will have had the same needs as you. Other investors and investor-friendly agents are some of the best ways you can find a lender who will work with you when you’re not buying for a primary residence.
Related: 20 Must-Have Team Members for Real Estate Investing Newbies
Portfolio lenders are lenders that will carry your loan on their own books. They don’t intend to sell your loan to another party, so they don’t need to conform to lending standards that will ensure the loan can be insured. If you want to make an impact in an area and start buying there, it’s best you have a portfolio lender who will let you borrow again and again. These relationships make your job so much easier and allow you to concentrate on what will make you money—finding deals.
Many newer investors don’t make an effort to build relationships with different lenders until it’s too late. Loans can be very easy to get in the beginning, and it’s easy to think things will stay that way. If you want to play the long game, start seeking lenders who will work with you once you’ve acquired more than 10 financed properties.
Having a few of these on your team will make it much easier to repeat the process once you’ve got the rest of your system in place and are routinely finding deals.
How I Make Sure I’m Not Taken Advantage Of
The question most people ask when they hear I buy houses out-of-state (other than “You don’t go see them?”) is almost always, “How do you know you’re not getting ripped off?”
This is a great question. It should be your number one concern when dealing with people you don’t know and trust yet. The answer is pretty simple: I make sure each member of my team is looking over another member’s work.
The best example I can give is when a contractor has claimed they finished part of their work and is asking for the next draw (payment). If you’re working with someone you don’t already know, it can be very easy to be taken advantage of when the contractor knows you aren’t from the area and can’t see what they’ve actually done.
My solution is to have someone else from my team make sure the work was actually done. The trick is to find someone on your team whose interest aligns with yours.
For instance, if I am renovating a house to rent out, I have the property manager stop by and make sure the contractor has done the work they said they’ve done. My property manager isn’t likely to mind this because they don’t want to have to track down the contractor and make him finish the job once he’s moved on. When my tenant moves in, this becomes the property manager’s problem.
These guys don’t get paid enough to deal with these kinds of problems.
If the property manager can catch the leaky faucet, non-working outlets, squeaky floors, and stuck windows, they can have the contractor fix it before the tenant complains. This is the best way to ensure it gets done quickly and efficiently. (If you’ve ever tried to track down an already-paid contractor to come fix some work, you know how difficult that can be.)
The same goes for the real estate agent if I’m flipping a house. The agent has to sell it. They don’t want to try to sell a house that isn’t finished and ready to go. If they can catch errors and make sure the contractor did their job right before the house goes on the market, you can bet they’ll be willing to help you out and make sure everything got done.
This principle doesn’t just work for contractors. It works for every member of the team.
Why This Works
Each member of your Core Four is responsible for something that at least one other member will have additional knowledge of. For instance, your lender is giving you an interest rate, but your agent sells houses every month and sees what rates the other investors are getting. If something is grossly inaccurate, they are going to spot that.
I leverage each member of my team as much as possible to get the very most value out of them that I can. If I’m going to be paying them anyway (and I will be, whether it be through a percentage of rental income, rehab costs, commissions, or closing costs), I might as well get the most I can for my money! Most investors have no clue how much more you can get out of the members of your Core Four than just their basic job descriptions. In my book, I go into a lot more detail about that.
For now, a few more examples of what I mean:
Your property manager is going to get paid by you to manage the property. Since you have this fixed expense, why not get the most out of it? Confirm with them before you buy anything that it’s in a neighborhood you want to own in. This is one of the most valuable things a property manager can offer, and most investors never even bother to include them.
Your property manager wants you to keep buying properties. They know you need to rehab them. Guess what? They work with other investors who have this same problem. Ask your property manager for contractor referrals or skilled handymen. They are likely to know several.
Your agent wants you to continue buying properties. The more you buy, the more they make. This is what makes the relationship mutually beneficial, and those are always the best relationships. So, what can you do to make sure you’re able to keep buying? Ask them for help in the areas you need!
Ask your agent to ask everyone in their office what lenders they know that will lend to investors. Who has handymen who can perform specific tasks? Who has experienced, trustworthy property managers whose wisdom you can leverage? Your agent wants you to keep buying properties. Tell them what you need in order to be able to do so.
Your lender wants you to keep buying properties. That’s how they get paid. Ask them which real estate agents sell the most. The more an agent sells, the more experience they gather. The more experience they have, the more experience is available to you. Why spend all your time looking for the pieces that someone has already gathered?
Your lender can connect you with the rockstars you need to know, who in turn will know the people you need to know. Tell them that’s something you expect from them if you’re going to continue to give them business.
Your contractor works the same way, as well. They want you to keep buying houses. Ask them who can find you more properties. What wholesalers are in your area, which agents work with investors, who do the other investors use? If you can keep your contractor working, they’ll be happy. Tell them what you need to make them happy.
Rockstars Know Rockstars
When it comes down to it, this is just how life works. We all tend to be drawn to those we feel are most like us.
- Successful people hang out with other successful people.
- Musicians and artists tend to flock together.
- Shady, dishonest, sneaky people tend to hang out with others of the same character. They don’t feel as comfortable with stand-up folks.
- Wealthy people like to hang around with other wealthy people.
- Athletes often seek the company of other athletes.
- And Dungeons and Dragon players, well, they seem to find each other at conventions pretty well.
You get the point. If you want to be around the people who are the absolute best at what they do, you need to start hanging around and getting to know others that are, too!
I’ll take this one step further. If you want to start rubbing elbows with rockstars, maybe you need to start living and acting like one, too.
Rockstars got to where they are because they did something right. If you start doing something right, there’s a good chance you’ll find yourself drawing these kind of people into your world. When you find yourself around them, you know it’s only a matter of time before you start to meet more of them.
That’s when your world will start to change.
Jim Rohn is credited with saying, “You are the average of the five people you spend the most time around.” Based on who you have around you now, what does that say about who you’re becoming?
I have confidence I can invest anywhere I want because I’ve learned what I need to find in order to start, and I’ve learned just how to make sure I can find them. It’s my desire to share that information with you.
It all starts with the person you are and the kind of people you’ll attract.
Are you interested in real estate investing but there is nothing to buy that makes sense where you live? Are you tired of seeing the amazing success of others investing in markets better suited for buy and hold real estate and wish that could be you? Do you want to take advantage of wealth building opportunities but are frustrated by the fact there just isn’t any way to do that until the next market crash?
If so, I encourage you to read my book Long-Distance Real Estate Investing.
Do you have a solid Core Four on your real estate investing team? Which of these roles has been hardest to fill for you?
Leave your input below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.