Out of state investing (Newbie)

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Out of state investing (Newbie)

Zack Hellman
Accountant · Norristown, PA · Member since 2019 · 4 posts · 2 votes

Hi,

I'm a complete newbie to this whole real estate investing thing.  I am currently reading "Long Distance Real Estate Investing", by David Green (published by Bigger Pockets) and decided to apply some of the analysis to a currently listed deal on NORADA.  The deal I chose was somewhat at random, but also looking at price points and neighborhood ratings I thought would be good for a first investment.

Below is my attempt to break down this deal.  I feel like I must be missing some key components in my analysis of the property.  I was also wondering about the NORADA site as a whole.  I see a fair amount of positive feedback on the site, but most of it seems to be several years old, do people still find this to be a good place to look?

When looking this property up on Zillow (one of the recommended steps in the book) I see they estimate the value of the property as $28,965.  This is roughly 35% the listing price, I get that they must have rehabbed the property some, but this seems extreme.

I looked at another site, Trulia, and looked at the neighborhood.  It shows the properties in this neighborhood range from 22K-70K, which would make this property 17% above the high end of the market.

The projected renal income also seems to be a bit high, but if the property really is at the top end of the market (like the pricing would suggest) this might be accurate.

If you assume the above rental estimate is accurate that would take this property from being above the 1% rule to below.

Overall I get that on a listing you would want to be aggressive, but the price seems very aggressive.  It puts this property considerably above the top of the market, would that really make sense for a rental property?  I think the more likely scenario is that it is drastically overpriced.  If that is the case is that a one off or in general is that the impression of NORADA?  Or, the final option is that I am missing some components in analyzing this deal (more then likely as this is a very early attempt to analyze a deal).  The only factor I was able to find that supported a relatively high price and rental estimate, it that it does appear to be in a lower crime part of the neighborhood (relative to the rest of the neighborhood).

Thanks in advance I appreciate any feedback on either the NORADA site, or other things I should be considering when analyzing a potential rental property that is out of state.

Thanks,

Zack

1Reply
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
7y

Norada deals strictly with turnkeys, and turnkeys are typically sold closer to market value. That's pretty standard. I can't speak for this deal in particular, but you'll always pay more for turnkeys-- trade-off for not having to do any work.

The only thing I see in the deal is Norada didn't include estimates for vacancy and repairs, and I would never analyze a deal without including those. They are inevitable expenses, and there's already so much room for error on projecting numbers, better to stay conservative. Although in the case of vacancy and repairs, it's not about being conservative, it's about being realistic. 

For turnkeys, most providers use 7% of the monthly rent for vacancies (but double-check that with the area the property is in) and 5% for repairs. Add those into the expenses and recalculate that Cap Rate. And then too if you're financing, be sure to run the Cash-on-Cash to see what your real return is expected to be.

I started as an investor with turnkeys and have worked with them ever since. If you have any questions about them, reach out anytime! I can also give you info on running those numbers too if you aren't familiar with the equations.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y

    Norada deals strictly with turnkeys, and turnkeys are typically sold closer to market value. That's pretty standard. I can't speak for this deal in particular, but you'll always pay more for turnkeys-- trade-off for not having to do any work.

    The only thing I see in the deal is Norada didn't include estimates for vacancy and repairs, and I would never analyze a deal without including those. They are inevitable expenses, and there's already so much room for error on projecting numbers, better to stay conservative. Although in the case of vacancy and repairs, it's not about being conservative, it's about being realistic. 

    For turnkeys, most providers use 7% of the monthly rent for vacancies (but double-check that with the area the property is in) and 5% for repairs. Add those into the expenses and recalculate that Cap Rate. And then too if you're financing, be sure to run the Cash-on-Cash to see what your real return is expected to be.

    I started as an investor with turnkeys and have worked with them ever since. If you have any questions about them, reach out anytime! I can also give you info on running those numbers too if you aren't familiar with the equations.

    5Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    7y
    0Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    7y
    Originally posted by @Zack Hellman:

    Hi,

    I'm a complete newbie to this whole real estate investing thing.  I am currently reading "Long Distance Real Estate Investing", by David Green (published by Bigger Pockets) and decided to apply some of the analysis to a currently listed deal on NORADA.  The deal I chose was somewhat at random, but also looking at price points and neighborhood ratings I thought would be good for a first investment.

    Below is my attempt to break down this deal.  I feel like I must be missing some key components in my analysis of the property.  I was also wondering about the NORADA site as a whole.  I see a fair amount of positive feedback on the site, but most of it seems to be several years old, do people still find this to be a good place to look?

    When looking this property up on Zillow (one of the recommended steps in the book) I see they estimate the value of the property as $28,965.  This is roughly 35% the listing price, I get that they must have rehabbed the property some, but this seems extreme.

    I looked at another site, Trulia, and looked at the neighborhood.  It shows the properties in this neighborhood range from 22K-70K, which would make this property 17% above the high end of the market.

    The projected renal income also seems to be a bit high, but if the property really is at the top end of the market (like the pricing would suggest) this might be accurate.

    If you assume the above rental estimate is accurate that would take this property from being above the 1% rule to below.

    Overall I get that on a listing you would want to be aggressive, but the price seems very aggressive.  It puts this property considerably above the top of the market, would that really make sense for a rental property?  I think the more likely scenario is that it is drastically overpriced.  If that is the case is that a one off or in general is that the impression of NORADA?  Or, the final option is that I am missing some components in analyzing this deal (more then likely as this is a very early attempt to analyze a deal).  The only factor I was able to find that supported a relatively high price and rental estimate, it that it does appear to be in a lower crime part of the neighborhood (relative to the rest of the neighborhood).

    Thanks in advance I appreciate any feedback on either the NORADA site, or other things I should be considering when analyzing a potential rental property that is out of state.

    Thanks,

    Zack

    0Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    7y

    Hi Zach!!  I kept trying to response but my phone was giving me difficulties but anyways I was going to say that when you buy a turnkey property you were buying at market value somebody else has already done the flip. If you use a lender they will do an appraisal to make sure you’re not overpaying market value for a property that is turnkey. 

    Also when you’re looking at the Norada deal the front page only shows the basic numbers when you click the analyze this button it will take you to the page where you can add in the assumptions for vacancy and also the mortgage . 

    0Reply
  • Zack Hellman
    OP
    Accountant · Norristown, PA · Member since 2019 · 4 posts · 2 votes
    7y
    Originally posted by @Ali Boone:

    Norada deals strictly with turnkeys, and turnkeys are typically sold closer to market value. That's pretty standard. I can't speak for this deal in particular, but you'll always pay more for turnkeys-- trade-off for not having to do any work.

    The only thing I see in the deal is Norada didn't include estimates for vacancy and repairs, and I would never analyze a deal without including those. They are inevitable expenses, and there's already so much room for error on projecting numbers, better to stay conservative. Although in the case of vacancy and repairs, it's not about being conservative, it's about being realistic. 

    For turnkeys, most providers use 7% of the monthly rent for vacancies (but double-check that with the area the property is in) and 5% for repairs. Add those into the expenses and recalculate that Cap Rate. And then too if you're financing, be sure to run the Cash-on-Cash to see what your real return is expected to be.

    I started as an investor with turnkeys and have worked with them ever since. If you have any questions about them, reach out anytime! I can also give you info on running those numbers too if you aren't familiar with the equations.

     Hi Ali,

    Thanks for taking the time to respond.  When you say you have worked with them ever since are you referring to turnkeys in general or Norada specifically?  I'd assume you have found it to be financially worthwhile to work with turnkey properties.  I know the specific market is a factor, but are their key numbers or ratios (like the 1% rule) that you have found to be meaningful or helpful, obviously the numbers would be different for a turnkey vs rehab.  I'd love to see how someone who has been successful in the industry views things so anything you are willing to share I'd appreciate.  Its one thing to ready about hypothetical scenarios and ideas in books, but I think something more real world would be helpful.

    Thanks,

    Zack

    1Reply
  • Zack Hellman
    OP
    Accountant · Norristown, PA · Member since 2019 · 4 posts · 2 votes
    7y
    Originally posted by @Melissa Nash:

    Hi Zach!!  I kept trying to response but my phone was giving me difficulties but anyways I was going to say that when you buy a turnkey property you were buying at market value somebody else has already done the flip. If you use a lender they will do an appraisal to make sure you’re not overpaying market value for a property that is turnkey. 

    Also when you’re looking at the Norada deal the front page only shows the basic numbers when you click the analyze this button it will take you to the page where you can add in the assumptions for vacancy and also the mortgage . 

     Hi Melissa,

    I appreciate you taking the time to respond.  I understand that you wont be getting a "deal" with turnkey, but I think what I was concerned with was that the listed price was well above what Zillow/Trulia suggested that property specifically was worth, and the range of prices for that neighborhood.  Is there another source you have found helpful to evaluate listing price for out of state properties (I see you specialize in out of state).  I guess the appraisal you mentioned, but it'd be nice to get a sense of that before getting that deep in the deal.

    Thanks,

    Zack

    0Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    7y

    @Zack Hellman Norada is great! I'd reach out to them with your questions! You can also ask them to connect you with the provider directly and ask all of those questions! 

    1Reply
  • Zack Hellman
    OP
    Accountant · Norristown, PA · Member since 2019 · 4 posts · 2 votes
    7y

    Hi @Kiera Underwood,

    Thanks for taking the time to respond. I appreciate your feedback on Norada.

    Thanks,

    Zack

    0Reply
  • Wei Jie Yang
    New York City · Member since 2018 · 161 posts · 75 votes
    7y

    I've talked with a few PM people before and in a lot of market's when people use rentometer, the rule of thumb is to look at the top range on the 80% column for newly renovated turnkey properties. So $900 would be accurate in most markets providing that the renovation are good.

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    7y
    Originally posted by @Zack Hellman:

    Hi,

    I'm a complete newbie to this whole real estate investing thing.  I am currently reading "Long Distance Real Estate Investing", by David Green (published by Bigger Pockets) and decided to apply some of the analysis to a currently listed deal on NORADA.  The deal I chose was somewhat at random, but also looking at price points and neighborhood ratings I thought would be good for a first investment.

    Below is my attempt to break down this deal.  I feel like I must be missing some key components in my analysis of the property.  I was also wondering about the NORADA site as a whole.  I see a fair amount of positive feedback on the site, but most of it seems to be several years old, do people still find this to be a good place to look?

    When looking this property up on Zillow (one of the recommended steps in the book) I see they estimate the value of the property as $28,965.  This is roughly 35% the listing price, I get that they must have rehabbed the property some, but this seems extreme.

    I looked at another site, Trulia, and looked at the neighborhood.  It shows the properties in this neighborhood range from 22K-70K, which would make this property 17% above the high end of the market.

    The projected renal income also seems to be a bit high, but if the property really is at the top end of the market (like the pricing would suggest) this might be accurate.

    If you assume the above rental estimate is accurate that would take this property from being above the 1% rule to below.

    Overall I get that on a listing you would want to be aggressive, but the price seems very aggressive.  It puts this property considerably above the top of the market, would that really make sense for a rental property?  I think the more likely scenario is that it is drastically overpriced.  If that is the case is that a one off or in general is that the impression of NORADA?  Or, the final option is that I am missing some components in analyzing this deal (more then likely as this is a very early attempt to analyze a deal).  The only factor I was able to find that supported a relatively high price and rental estimate, it that it does appear to be in a lower crime part of the neighborhood (relative to the rest of the neighborhood).

    Thanks in advance I appreciate any feedback on either the NORADA site, or other things I should be considering when analyzing a potential rental property that is out of state.

    Thanks,

    Zack

     Hello and welcome!

    One of the first things I always suggest is NEVER look at the estimated price on Zillow. They have NO IDEA what a property looks like on the inside. It is just an algorithm. Never trust it. Ask an agent to use the MLS or get an appraisal done.

    0Reply
  • Jonathan Oh
    Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes
    7y

    @Zack Hellman

    Zestimate - Don't rely on these figures - sometimes it's accurate other times it's way off. Try looking at nearby comps of decent homes not fixer uppers.

    Rentometer - I never found these to be accurate. I found it a little more accurate to look at rental listings in the area. In fact, I did a quick search for you on that Meadow Forest Dr and saw few rental listings for 3+ beds, 2+ bath homes that are smaller than 1898 sqft. The rents for these ranged from $825-$850. There's a chance you won't get $900, but if you're worried about not even hitting 1% rule, I think you'll be ok.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y
    Originally posted by @Zack Hellman:

    Hi Ali,

    Thanks for taking the time to respond.  When you say you have worked with them ever since are you referring to turnkeys in general or Norada specifically?  I'd assume you have found it to be financially worthwhile to work with turnkey properties.  I know the specific market is a factor, but are their key numbers or ratios (like the 1% rule) that you have found to be meaningful or helpful, obviously the numbers would be different for a turnkey vs rehab.  I'd love to see how someone who has been successful in the industry views things so anything you are willing to share I'd appreciate.  Its one thing to ready about hypothetical scenarios and ideas in books, but I think something more real world would be helpful.

    Thanks,

    Zack

    Definitely. The less hypothetical, the better. No, I've never worked with Norada, just turnkeys in general. Shoot me a message and we can chat. Happy to help anytime.

    0Reply
  • David Kanarek
    Member since 2023 · 65 posts · 52 votes
    2y

    see Facebook group:

    Norada Capital Default Notice:

    If you are one of the investors, please see Facebook page with agencies and links to file complaints !

    0Reply
  • Najma Osman
    Real Estate Agent · Columbus, OH · Member since 2023 · 161 posts · 217 votes
    2y

    Hi @Zack Hellman, 

    Zillow and Trulia rent and property value estimate can be very off at times. I would be careful relying on those in your analysis. Instead, rely on comps that sold nearby for value and look at more trustworhy rental data softwares like rentometer. A realtor that works with investors in the area should be able to provide this data! 

    0Reply
  • David Kanarek
    Member since 2023 · 65 posts · 52 votes
    2y
    Thank you for your email I was made aware this weekend by one of the investors on our Facebook group that Marco Santarelli on June 18th, 2024, held a "web seminar" again soliciting investors. This would be 2 days before he announced in his June 20th email (which I believe you have) that he was suspending payments to hundreds of investors because of financial problems.He did not disclose anywhere in the webinar (48 hours before the email) the difficulties that his business was experiencing which was laid out in the email 2 days later. This would appear a blatant disregard for disclosing to would be Investors information that would have been needed to make an informed investment decision.Perhaps you already have this YouTube video. I was sent the link yesterday and here it is:https://m.youtube.com/watch?v=8QPipxwcGMg&feature=youtu.bePlease let me know if I can be of further assistance.

    Quote from @Najma Osman:

    Hi @Zack Hellman, 

    Zillow and Trulia rent and property value estimate can be very off at times. I would be careful relying on those in your analysis. Instead, rely on comps that sold nearby for value and look at more trustworhy rental data softwares like rentometer. A realtor that works with investors in the area should be able to provide this data! 


    0Reply
  • Melanja K Jones
    Member since 2024 · 9 posts · 9 votes
    1y

    Beware of Norada and their recommendations.

    I live in Southern California and bought an investment house in the midwest through their recommendations.

    Several takeaways-

    1. the ProFormas are complete fiction, listing 5-10 percent for vacancy and repairs and on the flip side, steady growth on appreciation and rent increases. One tenant turn after a year and a half completely destroyed all cash flow for those two years and the next 5 years. When the initial tenant broke the lease (after not paying rent for a month and a half) the PM advised me to lower the rent instead of raising it as advertised in the initial proforma.

    2. Property management. I cannot stress enough how important a trusted PM is out of state. Norada told me over and over that this PM was "one of the best in the business." However the tenant was constantly late with rent, the lease was written so that the PM kept all late fees (thus incentivising late payments), and after being assured that this was a good tenant on renewal, 6 months later I was handed a $3500 repair bill for the initial tenant turn. Then the website for the PM company crashed just as my property was to be listed for rent and their main point of contact left town. Paperwork and billing was poorly explained and often incorrect. At that point I had enough and moved my property to another company, first having to pay a $500 early termination fee and an imaginary cleaning fee to ransom my property. The new PM found several other essential repairs that had not been handled by the Norada approved company (leaking pipes, non- grounded electrical outlets) so there was another huge repair bill. The new PM did rent the property for more money. Three months after I left the first PM, I started receiving emails that they were being investigated for fraud and dissolving the company because so many of their clients did not receive rent distributions. Looking back on the sketchy documentation for the initial repairs I feel was scammed. $780 to repair one window? In a house that only rents for $1095? Clearly Norada does NOT vet the out of state managers and I cannot emphasize enough how stressful and difficult this has been because of that. Every month there was some kind of disaster

    3. Mis-represenation of tax benefits. As I was exploring the idea of buying a property through Norada, they extolled the out of state tax benefits because I live in a high income tax state. THERE ARE NO TAX BENEFITS UNLESS YOU ARE ABLE TO PROVE TO THE IRS THAT YOU ARE SPENDING MORE THAN 750 HOURS ON REAL ESTATE. For most people you will only save a little money on any PROFITS if you have a loss the first year. If the property loses money, you just.. lose money.

    4. Lack of a exit strategy. So now what? Now that I have owned this property for almost 2 years and lost thousands and thousands of dollars, what is the next step? Norada has no guidance or infomation on that.

    I was really excited to buy my first investment property because of the high price of entry on the coast but I would have been better off taking that money and buying eggs or lottery tickets.

    0Reply
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