Starting Out

User Stats

7
Posts
3
Votes
Michael Cox
3
Votes |
7
Posts

"Out of state BRRRRing is too risky"

Michael Cox
Posted Jan 22 2022, 11:34

My wife and I have 80K to invest in our first rental. We've been wanting to utilize the BRRRR method for some time now, however we'd have to invest out of state in an area where we've never been to. Our goal is to acquire as many rentals as we can before I retire (16 years). I've read all the books, listened to all the podcasts, and watched all the YouTube videos I could find and was HYPED to get the process started. Then a few real estate agents hit me with a dose of reality. "BRRRRing out of state for your first time EVER isn't impossible, but is pretty risky". "Not having a team already established in a market is exposing yourself to significant risk". "If I was you, I'd start with a few properties that are near turn key and rent those out." I don't know if I should listen to this advice or keep pursuing the out of state BRRRR method. Is there anyone out there that has done this (Out of State BRRRRing)? and if so could you help a dude out??

User Stats

281
Posts
329
Votes
Patrick Bavaro
  • Fort Lauderdale, FL
329
Votes |
281
Posts
Patrick Bavaro
  • Fort Lauderdale, FL
Replied Jan 22 2022, 16:02

@Michael Cox any BRRRR or real estate investment is risky. I could have a property down the street from me and if I don't pick the right contractor etc. It becomes a bad deal. Have you considered new build but through the same process? I'm currently building a new build in Cape Coral FL through a turnkey company. It's a 4/3 and total all in cost was $265k. Rents are 2300/mo estimated right now (still in construction) but the average post construction appraisal is $377k for this model. I plan to cash out refi to pull my money back out once it's done! Best of both worlds and it's a NEW property! Good luck and feel free to reach out!

User Stats

27
Posts
18
Votes
Jerryian Francois
  • Investor
  • Miami, FL
18
Votes |
27
Posts
Jerryian Francois
  • Investor
  • Miami, FL
Replied Jan 22 2022, 16:57

@Patrick Bavaro interested in the turnkey company you are doing business with sounds like a great opportunity!

User Stats

281
Posts
329
Votes
Patrick Bavaro
  • Fort Lauderdale, FL
329
Votes |
281
Posts
Patrick Bavaro
  • Fort Lauderdale, FL
Replied Jan 22 2022, 17:01

@Jerryian Francois I’ll send you a DM with the info

User Stats

5
Posts
1
Votes
Replied Jan 22 2022, 17:05

Patrick - if you could share the link with me as well, that’d be great. Newbie here with a few of the same thoughts and such as OP.

User Stats

4,755
Posts
5,092
Votes
Bruce Woodruff#2 All Forums Contributor
  • Contractor
  • Arizona
5,092
Votes |
4,755
Posts
Bruce Woodruff#2 All Forums Contributor
  • Contractor
  • Arizona
Replied Jan 22 2022, 17:28

All REI is risky. OOS investing is just more risky...

User Stats

407
Posts
200
Votes
Dwayne Poster
  • Investor
  • Van Isle
200
Votes |
407
Posts
Dwayne Poster
  • Investor
  • Van Isle
Replied Jan 22 2022, 22:07

If you dont have cost efffective resources to bring the property to market, and if you cant perform an accurate market evaluation of the property, your exposure is climbing at every turn. If you know it has inherent purchase value, your team can bring it to market, close to estimates,  and you've correctly read the rental market, it should perform well. 

User Stats

3,750
Posts
4,273
Votes
Dan Heuschele
  • Investor
  • Poway, CA
4,273
Votes |
3,750
Posts
Dan Heuschele
  • Investor
  • Poway, CA
Replied Jan 23 2022, 00:28
Originally posted by @Michael Cox:

My wife and I have 80K to invest in our first rental. We've been wanting to utilize the BRRRR method for some time now, however we'd have to invest out of state in an area where we've never been to. Our goal is to acquire as many rentals as we can before I retire (16 years). I've read all the books, listened to all the podcasts, and watched all the YouTube videos I could find and was HYPED to get the process started. Then a few real estate agents hit me with a dose of reality. "BRRRRing out of state for your first time EVER isn't impossible, but is pretty risky". "Not having a team already established in a market is exposing yourself to significant risk". "If I was you, I'd start with a few properties that are near turn key and rent those out." I don't know if I should listen to this advice or keep pursuing the out of state BRRRR method. Is there anyone out there that has done this (Out of State BRRRRing)? and if so could you help a dude out??

 I believe OOS is more risky than local.  

I do not know where you are located but question why not start local. The thing about a proper BRRRR is that it has $0 cost after refi. So the price of asset is only a temporary hurdle.

I BRRRR in one of the most expensive markets in the country. When I refinance and pull my investment, there is nothing better than having a very valuable RE (average price in my market is ~$850k for SFH) without anything invested into it other than the time to have performed the BRRRR (which are not passive).

BRRRR are not easy whether local or OOS.  Finding a good BRRRR candidate is challenging in many markets (including mine).  Rehabbing that optimizes the return and managing that effort takes time (we always are our own GC).  Even refinancing requires effort. 

Doing a first BRRRR OOS is going to have additional challenges and risks. I suggest you do your 1st couple local. It is possible, and maybe even likely, that after doing a couple BRRRR local that you I'll find your market is a good market for BRRRR.

Good luck

User Stats

1,016
Posts
948
Votes
Joshua Janus
  • Realtor
  • Columbus OH & Cleveland, OH
948
Votes |
1,016
Posts
Joshua Janus
  • Realtor
  • Columbus OH & Cleveland, OH
Replied Jan 23 2022, 03:18

Completing a successful BRRRR will require a great team around you. Find an investment friendly realtor that can bring an entire rolodex of references that will give you the tools to win.

User Stats

57
Posts
39
Votes
Michael Cross
  • Rental Property Investor
  • Smithsburg, MD
39
Votes |
57
Posts
Michael Cross
  • Rental Property Investor
  • Smithsburg, MD
Replied Jan 23 2022, 05:41

@Michael Cox What you are trying to do is not impossible and you can reduce your risk in a number of ways. If you need to invest out of state for the numbers to make sense the first steps you should take are:

1. Identify potential Locations

2. Identify potential partners

3. Identify your core four as David Greene describes - Property Manager, Lender, Contractor, Real Estate Agent.

An easy way to get started in a new location is to visit that location for a few days. Identify potential properties of interest and contact the listing agents for each of those properties to have them show you the properties. If they have tenants ask them how they like the property manager, have they lived other places in the community and did they like those property managers. If you look at 10 + properties with 5-7 Real Estate agents you will likely find a specific agent who "clicks" with your personality better than other agents. If you visit multiple properties with tenants and agents you will ask each agent and tenants for property managers they like and will certainly hear a theme.

To identify contractors in a specific area join the local community Facebook groups. Once a member of the town or community Facebook group search for contractor, plumber, electrician, hvac, foundation, flooring, etc in that Facebook group. The Facebook groups can store years of posts by members. Multiple times a year members will ask for recommendations for everything from mechanics to wedding venues to contractors for repairs. With years worth of these questions in local groups and surrounding are groups, in 2 hours you will find themes of the same people recommended over and over again. This will give you a list of contractors to try and use.

Start with something small and renovated if you are concerned. You have a 16 year horizon to invest and 80 k to invest with but you want to feel comfortable with real estate to be able to find BRRR deals. You didn't mention how much you wanted to scale or building a massive team so i will assume maybe 5-10 properties. Your first 5 years will let you get to know the area, the contractors, identify a potential partner to have boots on the ground and establish a beach head understanding of investing in real estate through real experience. The next 11 years you will be poised to scale. A 150k townhome or SFH on a 15 year mortgage that is renovated and rents for maybe 1200-1300 in middle America or secondary markets is a high quality location, higher caliber tenants, and a less risky investment. You have 80k to invest. At 20% down with a local credit union in that area you would have a mortgage of about $120,000 and a payment of about $900. The loan will pay down by 30k in 5 years. You could buy 3 and learn the area. During that time you have $90k in principal pay-down, learn the area, benefit from appreciation, learn to manage property managers, repairs, contractors and basically find out if real estate investing is right for you. By year 5 you will know your way forward and could refinance or sell your 3 properties to pull all of your money out and move forward with your overall game plan for the next 11 years to scale for retirement or let those properties continue to pay down on their 15 year mortgages.


The hardest part is getting started but no one said you have to go for a home run on your first property or try to scale immediately.


Your plans to BRRRR out of state will become easier as you develop a team in that local area or identify a partner. There are still plenty of places in America where the numbers still make sense for BRRRR with some effort but you need a team (your David Greene core 4) in place who can execute the plan which each project (property) you identify.

Good luck!

Mike

    User Stats

    1,973
    Posts
    2,197
    Votes
    Lee Ripma
    • Rental Property Investor
    • Prairie Village, KS
    2,197
    Votes |
    1,973
    Posts
    Lee Ripma
    • Rental Property Investor
    • Prairie Village, KS
    Replied Jan 23 2022, 07:03

    @Michael Cox

    I started doing BRRRR out of state and I don't do it anymore. Instead I do value add small MF. Way less risk and same result as BRRR. I talk about it on my podcast, 373. Give it a listen, I think it will help.

    User Stats

    993
    Posts
    439
    Votes
    Replied Jan 23 2022, 09:22

    @Michael Cox where are you located?

    User Stats

    7
    Posts
    3
    Votes
    Michael Cox
    3
    Votes |
    7
    Posts
    Michael Cox
    Replied Jan 23 2022, 09:36

    @Michael Cross that’s exactly what I needed this morning! You re-lit the fire. Thanks man, I really appreciate you taking the time to reply. 

    @Nicholas L. We’re in Reno, NV

    @Dan Heuschele thank you! Really appreciate the advice!

    User Stats

    994
    Posts
    835
    Votes
    Stephen Brown
    • Real Estate Agent
    • Toledo, OH
    835
    Votes |
    994
    Posts
    Stephen Brown
    • Real Estate Agent
    • Toledo, OH
    Replied Jan 23 2022, 12:22

    BRRRRing is super risky out of state but what you can do is buy something with such a discount that you at least get some of your capital back. Many people do that here in Toledo. Likewise if you buy in a cheaper market you can have a faster velocity of money and buy more properties. Therefore you're solving the two issues you address here: getting your money back out and buying as many rentals as you can in a short period of time. 

    User Stats

    15
    Posts
    8
    Votes
    Paul LaForgia
    • Investor
    • New York
    8
    Votes |
    15
    Posts
    Paul LaForgia
    • Investor
    • New York
    Replied Jan 23 2022, 12:42

    @Patrick Bavaro I am doing the same thing! But the permitting is taking longer it’s a long-term play at least over a year

    User Stats

    281
    Posts
    329
    Votes
    Patrick Bavaro
    • Fort Lauderdale, FL
    329
    Votes |
    281
    Posts
    Patrick Bavaro
    • Fort Lauderdale, FL
    Replied Jan 23 2022, 13:11

    @Paul LaForgia will be worth It! When do you purchase?

    User Stats

    15
    Posts
    8
    Votes
    Paul LaForgia
    • Investor
    • New York
    8
    Votes |
    15
    Posts
    Paul LaForgia
    • Investor
    • New York
    Replied Jan 23 2022, 14:33

    I purchased the lot already. But the permitting process is now 90-180 days due to pandemic worker shortage and demand. I at least a few months away to even started construction. How about you?

    User Stats

    3,666
    Posts
    2,684
    Votes
    Jordan Moorhead
    • Real Estate Agent
    • Austin, TX
    2,684
    Votes |
    3,666
    Posts
    Jordan Moorhead
    • Real Estate Agent
    • Austin, TX
    Replied Jan 23 2022, 18:05

    @Michael Cox all depends on your skill level and risk tolerance. I did 20 last year. You do need to have a team, doesn't mean you can't start building the team.

    User Stats

    1,543
    Posts
    3,125
    Votes
    Anish Tolia
    • Investor
    • Singapore
    3,125
    Votes |
    1,543
    Posts
    Anish Tolia
    • Investor
    • Singapore
    Replied Jan 23 2022, 18:08

    Have you ever had any work done in your home? Like a kitchen remodel maybe? How much supervision and planning did that take? And you were there all the time. Now multiply that by 10, add hundreds of miles of distance and you not being there. Add to that a crazy environment for finding contractors, inflated prices on all your hardware, trusting your contractor to do the right thing when nobody is looking, and you can judge your own chances of making any money on this deal. Plus with just $80K where is the rehab funds coming from? Hard money? Yet another huge risk.

    User Stats

    1,108
    Posts
    1,662
    Votes
    Henry Lazerow#1 Chicago Real Estate Forum Contributor
    • Real Estate Agent
    • Chicago, IL
    1,662
    Votes |
    1,108
    Posts
    Henry Lazerow#1 Chicago Real Estate Forum Contributor
    • Real Estate Agent
    • Chicago, IL
    Replied Jan 23 2022, 18:28

    100% BRRR's are hard to pull off when local even though BP makes it sound easy, from out of state its very risky. A better option is doing mild cosmetic updates, this can easily be done and managed from out of state. It helps get your rents high (high cashflow) and if done right creates some equity. I have out of state and local clients do this option often and sometimes after a year or two they end up doing a BRRR as the rents rise, area appreciates, mortgage paydown you over time get enough equity. Slowly building wealth always beats taking big risks in my opinion.

    User Stats

    602
    Posts
    552
    Votes
    Joe Funari#2 Fort Worth Real Estate Forum Contributor
    • Real Estate Agent
    • Keller, TX
    552
    Votes |
    602
    Posts
    Joe Funari#2 Fort Worth Real Estate Forum Contributor
    • Real Estate Agent
    • Keller, TX
    Replied Jan 24 2022, 07:36

    @Michael Cox Out of state investing is not that complicated. As Michael Cross mentioned in his great reply is identifying the right core. I would take it a step further by starting with the real estate agent. You can search the NETWORK section of BP to find investor friendly realtors in the market your interested in. Make sure the one you select has experience with working with out of state investors. Majority of my business are out of state investors. I do video walk-throughs on properties for my clients. Also, my team of contractors I recommend to my clients as well. No sense in reinventing the wheel when it comes to contractors, lenders, and insurance agents. Those I recommend have done work on my flips and rentals, as well as, many of my clients. So I can count on their quality of work, and investor friendly pricing. I take the approach that my team becomes your team. I want you to succeed so that you buy more rentals. Its a simple, straight forward approach. 

    User Stats

    3,973
    Posts
    2,386
    Votes
    Lane Kawaoka
    • Rental Property Investor
    • Honolulu, HAWAII (HI)
    2,386
    Votes |
    3,973
    Posts
    Lane Kawaoka
    • Rental Property Investor
    • Honolulu, HAWAII (HI)
    Replied Jan 24 2022, 11:37



    I personally would not do Remote BRRR as there is just a lot of risk with 1) risk of embezzlement with contractors 2) change orders and 3) bank doing bait and switch doing a lower appraisal and/or LTV on the refinance.

    This is especially true for high paid professionals or those with a net worth of over $300,000.