{"id":131892,"date":"2020-11-13T05:00:30","date_gmt":"2020-11-13T12:00:30","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=131892"},"modified":"2021-03-16T17:05:08","modified_gmt":"2021-03-16T23:05:08","slug":"performing-due-diligence-remote-rental-property","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/performing-due-diligence-remote-rental-property","title":{"rendered":"How to Perform Due Diligence on a Long-Distance Real Estate Investment"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Imagine receiving a $20,000 check to purchase a rental property. How about step-by-step guidance from some of the most experienced <\/span><a href=\"https:\/\/www.biggerpockets.com\/rei\/glossary\/real-estate?itm_source=ibl&amp;itm_medium=auto&amp;itm_campaign=glossary\" target=\"_blank\"><span style=\"font-weight: 400;\">real estate<\/span><\/a><span style=\"font-weight: 400;\"> investors in the industry? Well, that&#8217;s exactly what the <a href=\"https:\/\/www.biggerpockets.com\/blog\/contributors\/steverozenberg-2\" target=\"_blank\" rel=\"noopener noreferrer\">Dream Investment Adventure<\/a> series is all about.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Follow along with our contest winner, Joe, and his journey of purchasing an out-of-state rental property. Through the mentorship of Steve Rozenberg, Head of Investor Education for Mynd Property Management, they learn about investing remotely. Over the next two months, the pair will research markets, build a team, purchase a property, complete a renovation, <\/span><a href=\"https:\/\/www.biggerpockets.com\/rei\/glossary\/lease?itm_source=ibl&amp;itm_medium=auto&amp;itm_campaign=glossary\" target=\"_blank\"><span style=\"font-weight: 400;\">lease<\/span><\/a><span style=\"font-weight: 400;\"> the property, and everything in between\u2014without Joe ever seeing the property in person. <\/span><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/1kJ2XQ6YA8E\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<h2>Dream Investment Adventure Recap<\/h2>\n<p><span style=\"font-weight: 400;\">So far, we have learned how to <a href=\"https:\/\/www.biggerpockets.com\/blog\/learn-invest-remotely-joining-dream-investment-adventure\/\" target=\"_blank\" rel=\"noopener noreferrer\">identify investment goals<\/a> and strategy, <a href=\"https:\/\/www.biggerpockets.com\/blog\/determining-market-invest-remotely-dream-investment\/\" target=\"_blank\" rel=\"noopener noreferrer\">determine a rental market<\/a>, <a href=\"https:\/\/www.biggerpockets.com\/blog\/find-property-manager-out-of-state-rental\/\" target=\"_blank\" rel=\"noopener noreferrer\">find a local team<\/a>, and <a href=\"https:\/\/www.biggerpockets.com\/blog\/find-real-estate-deals-long-distance-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\">analyze real estate deals<\/a>. This week, we followed up with Joe as he confirmed that his property is under contract! Let\u2019s step through the process of finding a property remotely and doing due diligence using a local investment team.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For those new to real estate investment, due diligence is the process of auditing a deal to confirm the data, information, and facts while under contract.\u00a0<\/span><\/p>\n<h2>Use Non-Negotiables to Narrow the List of Properties<\/h2>\n<p><span style=\"font-weight: 400;\">Before diving in, let&#8217;s review the final steps of finding a rental property to make an offer on.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Previously, Steve discussed the importance of taking a list of properties and entering them onto a spreadsheet to analyze. Use this to quickly narrow a list down to only the properties that fit your non-negotiable criteria. This prevents you from basing decisions on feeling and wasting time on properties that don\u2019t fit your goals.<\/span><\/p>\n<p><span style=\"font-weight: 400;\"> When faced with a lot of properties to analyze, Joe found that this technique made the decision-making process easier. Apply this tactic to your investment strategy for best results!<\/span><\/p>\n<h2>Touring Properties Remotely with a Local Agent<\/h2>\n<p><span style=\"font-weight: 400;\">Touring a property remotely is easy thanks to technology like Zoom and FaceTime. Your local agent can walk you through the property and answer questions as if you were there. Have the agent take plenty of photos and videos for you to review later. This is going to be part of the \u201crehab estimate,\u201d as these images will help to determine what fixes will be needed on the property.\u00a0<\/span><\/p>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-estimate-rehab-costs\" target=\"_blank\" rel=\"noopener noreferrer\">The Simple 6-Step Process for Estimating Rehab Costs<\/a><\/em><\/p>\n<h2>Contact Your Property Manager for a Rental Analysis<\/h2>\n<p><span style=\"font-weight: 400;\">The next step is to find out how much the property will rent for (also known as the \u201cvalue and financial estimate\u201d step of due diligence). This includes looking at income items (rental income, other income, and vacant loss) versus expense items (management fees, repairs, insurance).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is an important part of the due diligence process. Request a rental analysis from your property management company. If you are self-managing, find a way to get your hands on reliable rental analyses.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you choose the property management route, your team will also be able to give you some feedback, such as:<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">Is it the type of home people are looking for?<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Is this location good for rentals?<\/span><\/li>\n<li><span style=\"font-weight: 400;\">What are the average days on market?<\/span><\/li>\n<li><span style=\"font-weight: 400;\">What can you expect to rent it for?<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Your property manager is your expert in the rental market. Knowing this, take advantage of their knowledge and experience.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Mynd Property Management ran a rental analysis for Joe. He can expect to rent the property for $1,400 a month. Days on market for similar properties are low, so he can expect it to be rented in about 30 days. During the due diligence period, ensure that you are looking at these numbers on your property, as well.\u00a0<\/span><\/p>\n<h2>Run the Numbers Using the BiggerPockets Calculator<\/h2>\n<p><span style=\"font-weight: 400;\">Finally, try the <a href=\"https:\/\/www.biggerpockets.com\/brrrr-calculator\" target=\"_blank\">BiggerPockets BRRRR calculator<\/a>. Joe\u2019s property will exceed his minimum cash-on-cash return goal. Joe was looking for 12%, and this property is going to give him about 20%. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Calculators can also help with rehab estimates. After Joe and Steve did the calculation, they determined that this property fits Joe\u2019s strategy and goals!\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-106330\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/calculator.jpg\" alt=\"investment property, reinvestment, 1031 exchange, calculator\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/calculator.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/calculator-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Remote Rehabbing<\/h2>\n<p><span style=\"font-weight: 400;\">The next step when performing due diligence is to find out what the house needs to rehab it properly. Videos and photos of the property recorded by your agent can be a good place to start. Make a list of necessary repairs or renovations using these photos and videos.\u00a0\u00a0<\/span><\/p>\n<h3>Hire an Inspector to Gauge the Condition of the House Accurately<\/h3>\n<p><span style=\"font-weight: 400;\">Inspections that uncovered major problems saved Joe on the properties he dropped out of, so it is money worth spending. You want to know the condition of all the major systems and structure of the home including:<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\"> \u00a0 \u00a0 \u00a0 <\/span><span style=\"font-weight: 400;\">HVAC<\/span><\/li>\n<li><span style=\"font-weight: 400;\"> \u00a0 \u00a0 \u00a0 <\/span><span style=\"font-weight: 400;\">Roof<\/span><\/li>\n<li><span style=\"font-weight: 400;\"> \u00a0 \u00a0 \u00a0 <\/span><span style=\"font-weight: 400;\">Plumbing<\/span><\/li>\n<li><span style=\"font-weight: 400;\"> \u00a0 \u00a0 \u00a0 <\/span><span style=\"font-weight: 400;\">Electrical<\/span><\/li>\n<li><span style=\"font-weight: 400;\"> \u00a0 \u00a0 \u00a0 <\/span><span style=\"font-weight: 400;\">Foundation<\/span><\/li>\n<li><span style=\"font-weight: 400;\"> \u00a0 \u00a0 \u00a0 <\/span><span style=\"font-weight: 400;\">Mold<\/span><\/li>\n<\/ul>\n<h3>Get Bids From Contractors<\/h3>\n<p><span style=\"font-weight: 400;\">After compiling a list of renovations, it is time to find some contractors and get bids on the project. The <a href=\"https:\/\/www.biggerpockets.com\/forums\" target=\"_blank\" rel=\"noopener noreferrer\">BiggerPockets Forums<\/a> are a great place to find contractor recommendations. Contact investors that do rehab in your chosen market and ask them who they use. But remember, it is important to do due diligence on the list of potential contractors.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Joe\u2019s plan is to have contractors in place and ready to start as soon as closing takes place in 20 days. At this point, it looks like the ARV will be around $170,000 with rehabbing costs just over $20,000. He will have better numbers to work with once he has some bids to look at.<\/span><\/p>\n<blockquote><p><strong>Pro tip: <\/strong>Compile a list of contractors and vet them early. You want to be ready to send them into the property for a bid once you are at that point in the remote investing process.<\/p><\/blockquote>\n<p><strong><em>Related: <\/em><\/strong><em><a href=\"https:\/\/www.biggerpockets.com\/blog\/2015-09-11-step-step-guide-rehabbing-rental\" target=\"_blank\" rel=\"noopener noreferrer\">The Simple Step-by-Step Guide For Rehabbing Your First Rental<\/a><\/em><\/p>\n<h2>Know Your Rehab Budget Variable<\/h2>\n<p><span style=\"font-weight: 400;\">Rehabbing can easily go over budget. Run the numbers and know what your maximum make-ready budget is. What is the most you can spend and still make the profit levels you are looking for?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Joe ran the numbers and knows that even if the rehab costs almost twice his projection, he will still make his target cash-on-cash return.<\/span><\/p>\n<h2>Homework Week 5<\/h2>\n<ol>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Find contractors and collect bids on the rehab.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Bring options to select a contractor next week.<\/span><\/li>\n<\/ol>\n<h2>Wrapping Up<\/h2>\n<p><span style=\"font-weight: 400;\">Tune in next week to learn how to complete a rehab on an out-of-state investment. We will overview what the bidding and selection process look like.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To learn more about Joe\u2019s investing journey, gain access to investor tools and resources, and help your own remote investment journey, check out the <\/span><a href=\"https:\/\/www.mynd.co\/dream-investment-adventure?utm_source=online_partnerships&amp;utm_medium=biggerpockets&amp;utm_campaign=dream500&amp;utm_term=bp_blog_post&amp;utm_content=video\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">exclusive destination page<\/span><\/a><span style=\"font-weight: 400;\"> for BiggerPockets fans only. You\u2019ll also find a limited-time BiggerPockets <\/span><a href=\"https:\/\/www.mynd.co\/dream-investment-adventure#BP-Deal?utm_source=online_partnerships&amp;utm_medium=biggerpockets&amp;utm_campaign=dream501&amp;utm_term=bp_blog_post&amp;utm_content=video\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">exclusive offer for property management<\/span><\/a><span style=\"font-weight: 400;\">!\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-companies?utm_source=blog&amp;utm_campaign=agent_directory\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-129026\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/08\/company-directory-blog-ad-2.jpg\" alt=\"\" width=\"702\" height=\"120\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/08\/company-directory-blog-ad-2.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2020\/08\/company-directory-blog-ad-2-300x51.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/a><\/p>\n<p><em>Questions? Comments?\u00a0<\/em><\/p>\n<p><strong>Join the discussion below.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Imagine receiving a $20,000 check to purchase a rental property, as well as step-by-step guidance from some of the most experienced real estate investors in the industry&#8230; Now watch what happens when it becomes a reality in the Dream Investment Adventure series.<\/p>\n","protected":false},"author":612019,"featured_media":121858,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524],"tags":[],"class_list":["post-131892","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/131892","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/612019"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=131892"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/131892\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/121858"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=131892"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=131892"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=131892"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}