Investing in property out of state is trending big time on the BiggerPockets forums, with tons of people discussing and looking for information on the topic. So, my company and I are here to share one of our most recent remote deals with you.
This deal has resulted in a $63,000 profit—so far! That figure may actually increase in time.
We became aware of this property through a Realtor referral, and we put it under contract on lease purchase without ever setting eyes on it. How’s that possible, you might wonder?
We’ve spent time building relationships with people on the ground in this area. Without doing that, this deal would have never happened.
We received the referral, and then had some of our boots on the ground go take a look at the property, write up a report, and send that information back to us. Once we decided we wanted to purchase the property, we were able to tap into our local contacts to put up signs and do the marketing, too.
Even today, no one in our home office has seen the property—we may never see it. But thanks to the trust we’ve established with our contacts on the ground, we were able to make a quick decision on this property.
We simply ran ads in the area and attracted appraisers and builders looking for side work. We handled everything via phone, sent in the workers we hired, and then they reported back to us.
Finding a Buyer
We tied up the property sight-unseen for $283,784. There was existing financing on it, and our monthly cost was $1,818 over a 36-month term. Our system to find buyers is intentionally simple, streamlined, and fairly quick, so it didn’t take long.
We sold the property for $329,900 on a 24-month lease. Our buyer agreed to pay $2,345/month for 24 months.
It’s important to stage the buyer term earlier than the seller term in case more time is needed. With most of our properties, we create three paydays (cash now, cash monthly, and big backend cash-outs when sold). This property followed that same formula.
Structure of the Deal
Payday No. 1 came in the form of a non-refundable $24,000 payment scheduled throughout the lease term of the tenant buyer. We did, however, receive about $11,000 of this payment up front at the time of sale.
Payday No. 2 comes from the spread between what we’re paying to the bank on our loan for the property and what we collect each month. This spread works out to $527 per month for 24 months, which brings the total to $12,648.
We always like to be prepared for potential changes, so we ran the numbers to show what would happen if we needed to extend the lease to 36 months. If this were to happen, the total spread we’ll bring in will be $18,972.
Finally, we have payday No. 3. This includes the principal pay down each month, as well as the backend profit of the premium that we set.
Let’s take a closer look at this one.
We bought the property on a lease purchase, which means we took over all responsibilities including the mortgage. We have the benefit of principal pay down, and at this time, that equates to $444 per month. However, it will continue to grow, as with most conventional mortgages.
That $444 per month over 24 months works out to a total of $10,656. Of course, it’s important to consider the possibility of extending the lease to 36 months, as well. If the lease were to be extended, this would work out to $15,984.
In order to calculate the backend revenue of the premium we set, we need to take the sale price ($329,900) minus our purchase price ($298,783) minus the $24,000 we’ve already collected in payday No. 1. This amounts to a remaining premium of $22,116.
If we take all of these paydays into account, the total profit of the 24-month term lease works out to $69,420. Should we need to extend the lease to a 36-month term, the total revenue will be $81,072.
We agreed to pay the Realtor involved a referral fee of 25 percent of payday No. 1—or $6,000. We’ll pass this along to them when we receive the deposits.
It’s your choice how to handle referrals, but a relationship with a Realtor who “gets it,” as well as finding trustworthy rehabbers and wholesalers, can mean 12 or so extra deals per year per referral source for a company like ours.
The costs incurred from having boots on the ground in the area totaled roughly $300.
The buyer is responsible for paying the property tax, and the buyer and seller split the closing costs, so we don’t have to worry about those.
Not bad for a property that someone brought to us and we never had to physically visit!
Working remotely is so common these days. And as you can see here, it can even be done in the realm of real estate!
But if you like the option of traveling for work, the industry is fantastic for that, too! You can visit other markets and do the “boots on the ground” part yourself.
We can’t emphasize the importance of having high-quality people in place if you are going to buy remotely, though. You absolutely need people you trust in the area to be your eyes and ears.
And as a forewarning, buying out of state isn’t the best idea if you’re just starting out. But it’s a great option for seasoned investors. We encourage you to take advantage of it!
Have you ever purchased a property remotely? How did it go?