Out-of-State BRRR method to start?

Question

Hi everyone! I am a young engineer based out of San Diego, CA. I am looking to purchase my first rental property within the next 6 months, however since CA has limited options and high prices, I'm looking to go out-of-state for my first investment. Does anyone have experience with the BRRR method on out-of-state rentals? I've been looking at areas in the mid-west due to the low housing prices, but I'm not sure if it's recommended to rehab a property when I wouldn't be able to easily visit and oversee the process. Any thoughts/opinions/advice would be greatly appreciated! Looking forward to hearing from you all.

Caleb Brown · Answer

Midwest is big for this. I would build a team. Find an agent, lender, GC and PM. From there learn the area and learn what each area is expected. From there make offers.

Dan H. · Answer

I have done quite a few successful BRRRRs.  All of them local.  They take work and are not passive.  The less effort you exert, the more risk you are taking.  Building and maintaining a quality team requires effort.  Finding appropriate properties takes effort and benefits from local market knowledge.  Knowing the value modifications that will be reflected in both the appraisal and the market rent requires local market knowledge.

To be successful is not just upgrade everything.  It is upgrade the items that will result in increased return in a manner that maximizes that increased return.

I could not imagine attempting a first BRRRR that is not local to you.  I am not saying it is impossible, but that it likely is going to be more of a learning experience than a profitable experience.

If you can somehow be a protege to a local BRRRR investor to learn some items first, it would be better than nothing.

I am curious if you can find any coastal CA RE investors that did their initial BRRRR in a cheap midwest location that today believes that was their best option.  It certainly will not be many.  This is my way to discourage this route, but I am sure some/many will not follow this advice.

BTW have you considered combining BRRRR with house hacking a local detached duplex property?  You dollars will go much further at high LTV owner occupied loan.  The rent from the second unit will help your income qualifications for the loan.  You already have to live somewhere; why pay down someone else's mortgage.  Start by occupying the unit more in need of rehab and rehab it in place.  When you complete that unit, rent it at top of market rent and do the same process for the other unit.  Refi when still owner occupied to get best loan terms.  For most new investors in high priced markets, this path will be the more profitable patch compared to an OOS BRRRR.

Good luck

Nick Florio · Answer

Hi Danica, in 2020 I did my first BRRRR  and as a fellow CA resident in decided to do it out of state. I purchased a triplex in Florida and I did not have a team in the area prior to purchasing the property. Once I purchased the property I interviewed and hired the workers. I took several “vacations” to check on the property. The project had a few minor delays and did have to replace the original contractor but it was well worth the trouble.

Based on my experience I would totally recommend it. My 2nd out of state deal closed in November and I have my 3rd out of state deal under contract set to close in Jan. All while using the same money I started with. Do your homework but I say you go for it!

Allen L. · Answer

@Danica Moeller start with small cosmetic BRRRs with small discounts. For out of state I try to make 10-15% off of ARV on a BRRRs and leave 10-15% in a deal after refi. Many newbies dive in head first with like a 40-60K rehab and get burned when the cost overruns or contractor walks away. Build a team first, your problem with BRRR will likely be trustworthy contractors.

Joshua Janus · Answer

I would it can be done, and that it is crucial to develop your Core Four. https://www.biggerpockets.com/...Have you found a reliable, consistent and skilled Deal finder, Property Manager, Contractor and Lender? I'd spend a lot of time finding these people to facilitate your investment experience in a smoother manner.

Ricky Dorn · Answer

Hey Danica! I’m in the same boat. Since I’m new I don’t have a lot of advice for you other than try reading David Greene’s BRRRR book. I’m about half way in and learning a lot. But he goes over some steps and things to look for when doing a brrrr out of state.

Matthew Irish-Jones · Answer

@Danica Moeller it’s a high risk strategy and a lot can go wrong.

You will be looking for a house that needs a lot of work so you will need an agent that is willing to work for a small commission.

Or you will need to buy wholesale off market which means you will not have as many disclosures available as if you went through brokers.

Lastly you will need to rehab.  That is where it gets really tricky.  Pick the wrong contractor and you are in deep.

Best to find a company that has all these systems built in.

Wesley I. · Answer

@Danica Moeller

to my fellow engineer,

A BRRRR can be done locally and OOS, the biggest challenges would be finding the deal and finding the team to help you execute.

You will get a lot of mixed opinions about going OOS or local. As an investor who went OOS, my opinion is to start local. There are tricks to get in without using traditional financing from the banks, or you can talk to your loan officer to see how much you qualify for a primary home (value add) purchase in SD.

My biggest advice would be to keep educating yourself in RE and network. Set your goals and focus, everything else is just noise.

Best of luck.

Lee Ripma · Answer

@Danica Moeller

I was in the exact same boat as your starting out in 2017. I recommend doing value add without massive rehab. Checkout my podcast 373 on BP where I talk about it!

Ronald Rohde · Answer

Definitely can be done out of state. Add a CPA, attorney too!

Out-of-State BRRR method to start?

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