There are countless people on the BiggerPockets forums discussing and looking for information on buying investment properties out-of-state, so I wanted to share a recent remote deal with you. This deal resulted in $63,000 of total profit—and that figure may actually increase!
This property came to us via a real estate agent referral, and we put it under contract on lease purchase without ever seeing the property. We’ve spent time building relationships with people on the ground in this area. Without having done that, this deal would have never happened.
Our agent colleague referred the property to us, and we had some of our boots on the ground 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 contacts on the ground to put up signs and do the marketing.
At this point, we still have not seen the property, and we may never see it. Thanks to our contacts on the ground, we have been able to trust their findings and make a quick decision on this property. We simply ran ads in the area and attracted appraisers and builders looking for side work. We did all the work via phone, and they provided a full report.
Related: 7 Reasons I Can Buy Houses Sight Unseen (& Still Sleep Soundly at Night)
We tied up the property sight-unseen for $283,784. There was existing financing on the property, and our monthly cost was $1,818 over a 36-month term. Our systems to find buyers keep it simple, streamlined, and fairly quick, so it didn’t take long to find a buyer.
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), and this property followed that same formula. Payday #1 came in the form of a non-refundable $24,000 payment from the tenant-buyer scheduled throughout their lease term. We did receive about $11,000 of this payment up front at the time of sale.
Payday #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 take potential changes into consideration, 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’d bring in would be $18,972.
Finally, we have payday #3, and that includes the principal pay down each month, as well as the back-end profit of the premium that we set. Let’s look at the principal pay down first.
We bought this 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 the principal pay down per month is $444. It will continue to grow, of course, 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 take the possibility of extending the lease to 36 months into consideration here as well. If the lease were to extend to 36 months, this would work out to $15,984.
In order to calculate the back-end 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 #1. This tells us that the remaining premium is $22,116.
The Full Profit: $69,420
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 would be $81,072.
We did pay the agent involved a referral fee of 25% of payday #1, which is $6,000 (we will pay the agent as we receive the deposits). It’s your choice how to handle referrals like that, but a relationship with a real estate agent who “gets it” as well as rehabbers and wholesalers can mean 12 or so deals extra per year per referral source. Our boots on the ground costs total roughly $300 altogether. The buyer pays for property tax, and the buyer and the seller split the closing costs so we do not pay those either.
Not bad for a property that someone brought to us and that we never physically visited!
Working remotely is fantastic for buying properties without having to travel to see them. It’s also a great option if you like to travel and you’re going to be away from the market you want to buy in.
We cannot emphasize this enough. If you are going to buy remotely, you absolutely must have people you trust on the ground that can be your eyes and ears. It’s also important that you don’t use working remotely as a way to avoid going on appointments.
If you’re just starting out, this isn’t the way we suggest starting out but it can be a great option for seasoned investors to take advantage of.
Have you ever purchased a property remotely? How did it go?
Let me know with a comment!