Opinion on first deal being long distance
Layton, UT · Member since 2018 · 20 posts · 6 votes
How does everyone feel about someone who is a first time investor investing in long distance SMF rentals due to the rental market in local area being dismal? (Northern Utah)
The Real Estate Guys always say "live where you want to live and invest where it makes sense" There is enough education out there with books like Long Distance Real Estate Investing written by David Green that it is very possible for your first investment to be out of state. The key with any investment is going to be the team you build, whether its close to home or thousands of miles away. I would get educated on any market find someone who knows and understands it, find a good property manager that you can trust and stay in contact with. I think you are more likely to succeed with an out of state investment and a good team than an investment close to home with a negligent team. Good luck with whatever direction you take.
@Zayne Ruth If your local market doesn't fit your objectives then you really don't have any choice. Personally, I don't think that you should invest in a sub optimal market just because it's close. Choose the market that is going to give you the best chance to succeed.
@Mike D'Arrigo what about house hacking? Should I think about dropping that idea because of the local market? Or do you feel it would be okay if I got into a duplex that wouldn't necessarily cash flow but maybe break even and pay for repairs out of pocket as they come? Then while living in that duplex that breaks even, invest in a market OOS?
@Zayne Ruth if you're breaking even and someone else is paying your living expenses, it might be a good strategy.
@Zayne Ruth Lots of good advice in previous posts to try investing in your local area first. If you can find a deal that works, it's a great way to get started. Are you going to the Northern Utah Real Estate Investor (NUREIA) meetings? First Tuesday of each month in Ogden.
If you decide to invest out of state, it's probably going to cost you a little more in expenses and it feels risky at first. Good property management is crucial.
After doing one flip in Utah (spent months looking for a deal), my son and I started investing in Indianapolis. We've had a 12 unit for ~3 years now that's doing well, and I just bought a 33 unit last January. Just make sure that you plan on spending time in whatever city you decide to invest in, you have to build relationships and learn the area. Also, don't buy cheap properties in bad neighborhoods, it usually doesn't work out well for out of state investors.
@David Ripplinger Congrats on your first Indianapolis property. I'd be interested in hearing more about that deal if you didn't mind sharing?
@Bill Boudreau I actually wasnt aware of these meetings. I would love to go, are you willing and able to send me some information about those meetings? The priority is to find a good house hackable property close and then maybe invest OOS. Thanks for the response!
@Bill Boudreau Yeah, I'm happy to share! It's a duplex in the neighborhood Christian Park. We (my brother and I) bought it for $65k plus closing costs from Mainstay Property Group, which is a pretty impressive wholesaling operation run by the Manship brothers. The ARV is estimated at around $100k, and this property strangely needs very little work done. We're planning on putting somewhere around $2500 into it. One side is currently renting for $500 and the other side is vacant. We bought with my cash (which I got from taking a HELOC on my primary residence), and we're going to BRRRR it.
@Zayne Ruth My two cents...yes, it's really hard to find deals in Northern Utah that work. Always buy for cash flow, not appreciation. Appreciation is nice but it's "gravy." If it a deal doesn't cash flow from day one, don't do it.
I have a couple SFH rentals in Utah and am happy to have them and will hold them for appreciation (and cash out refinances)--but they had to cash flow first. I doubt I'll buy any more in Davis County or SL County any time soon. I buy out of state now in better rental markets.
BUT if you're dying to buy locally, I think the best idea is one already mentioned above: Find a modest SFH with a walk-out basement and turn it into two units. (Or an existing MIL apartment. And/or also house hack it!) I would do that if I were willing to get my hands dirty and deal personally with rehabs. But I'm not. ;) Make sure to ensure city zoning will permit it though, as part of your due diligence.
It may not be quite as lucrative as BRRRR, but I absolutely favor finding an established turnkey company (with in-house property management) and making it easy and less risky to buy OOS. I believe in leveraging other people's systems and skills, not reinventing the wheel myself!
@Zayne Ruth jumping in a little late here, but I love the ideas in this thread about purchasing a househack locally to offset most if not all of your housing expense, then investing in a market where it makes sense... and it sounds like out of state is it. And there are no qualms about it being your first investment either. Here are a few steps to take to make that transition smoother:
1. What is your investment strategy? Cashflow, appreciation, a little of both.
2. What investment type meets this strategy? Turnkey, BRRRR, flipping, etc.
3. Then pivot to research markets that have low vacancy, low unemployment, job growth, job diversity, are landlord friendly... essentially stacking as many investing cards in your favor.
4. Start researching the pockets in those markets that have your investment type that meet your investment strategy.
5. When you find a place that aligns, build your team, verify everything and start investing!
PM me if you have questions... this is what I do :)
@Emily Hall this is awesome information! I have always been curious about turnkey companies and have always thought they would be a great idea but people dont seem to use them as much as I would expect. Why is that?
@Whitney Hutten I'm here for all the help I can get, late, on time or early! Cause I know I need it. So, thanks for the response. :) this really helps give me some guidance, thank you so much!
@Zayne Ruth
Unless markets within reasonable driving distance (you decide what that is) are absolute garbage I would do the first one near home. The problem with that is that you’ll be spending 100’s of hours analyzing neighbourhoods and streets and property types and building a local team etc then may pick up shop and do deal #2 elsewhere ... meaning you’re doing the same work twice. I guess I’m just more conservative than some folks. I don’t believe in over leveraging, or writing cheque’s for crap I’ve never seen, or jumping on the latest band wagon.
Definitely buy in Utah first. House hacking has so many benefits before getting into the education you'll get and visceral experience of purchasing and owning real estate. And hopefully you don't have a tenant who trashes the place.
Utah is still very attractive fundamentally. I know dozens of people who are flipping in Davis and Weber counties (so someone's making money in your back yard). Interest rates are still the best ever and are that much better for owner occupants. There are various rehab loans for owner occupants. HUDHomeStore and Homepath both give first looks to owner occupants that investors can't bid on. The list goes on.
Tell your agent to send you everything in your price range in Davis and Weber counties. Get out there and drive to these listings. Make lots of offers. You will find something.
At the end of the day, you will understand--first hand--what key elements are required in the real estate acquisition process. You will be able to start investing in your own residence while holding on to your cash. And if you buy in Syracuse, Perry, Plain City or anywhere else in northern Utah (that isn't a 7000sf mistake with a swimming pool) you'll be fine.
And definitely take @Bill Boudreau's advice and start coming to the REIA's where you will find off-market deals, wholesalers, and real estate agents who know how to help investors get properties even in this tight market.
Good luck!
@Emily Hall this is awesome information! I have always been curious about turnkey companies and have always thought they would be a great idea but people dont seem to use them as much as I would expect. Why is that?
@Zayne Ruth: My own observation is that BP is primarily for the DIY real estate investor. There's a sense of pride in doing everything yourself. And that's great, nothing wrong with that! But there are many different ways to make money in real estate. My style is not the DIY/rehab way. I still manage two properties myself but will stop eventually/get property management even for the local ones, and I plan to continue buying turnkey in other markets.
My strategy is to use real estate to achieve financial independence, to buy back my and my husband's time. Not create more jobs for us. Buying turnkey is the best way for me to do that. There's a fear factor at first (to buying nonlocally, no matter how you do it), but do your due diligence, ask tons of questions of the provider, shop around, ask for referrals from others who've done it. The fear subsides when the rent checks start rolling in. (But always keep a reserve, things can and will come up!)
Let's face it, being an active landlord really stinks at times! And I imagine managing your own rehab is no piece of cake. I say there's no shame in buying turnkey.
I can buy twice as many properties in say Memphis or Indianapolis as I can for the same money in the Layton area. Again, it all depends on your personal preferences and strategy. I would say don't try everything at first; find a niche and get good at that. Then when you have pools of money you can dabble in other areas of REI.
@Zayne Ruth I completely agree with @Emily Hall. Everyone has a different strategy and approach when it comes to owning property. For example, for us, Memphis is a great market for us to own SFR while in Utah we only own commercial flex warehouse. We have chosen a niche in each market that makes sense for us and what our goals are.
Turnkey is great option but you're going to pay for convenience, that being said humans are creatures of convenience haha The Turnkey organizations typically have a solid investment product and their is value in that. If you've got the resources and time, then we would recommend building your own equity and making your own opportunity rather then going the Turnkey route for SFR.
I would be so careful in your purchase and in your rehab in Indianapolis. When you are an out of state investor or a remote investor, you have to do your due diligence, especially with rentals or flips in Indy. Be careful of project managers and GCs as well. Best wishes!
I join the recommendation for the David Greene book on investing out of state. I live in New York City and purchased my first investment (triplex in Philadelphia) over the summer. Just closed on a 2nd property also in Philly. it's a 2 hour drive for me so close enough for me to go to the inspections and manage the properties. Investing in a different state doesn't have to be across the country, it can be somewhere close enough for you to travel if needed, like NY-PA for me.
How does everyone feel about someone who is a first time investor investing in long distance SMF rentals due to the rental market in local area being dismal? (Northern Utah)
Long distance can and does work. Just remember there are a bunch of fly over markets with low pricing and you can make or loose money in any of them. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
@James Wise this is great insight, thank you! I'll definitely keep all of this on mind
are you a single guy? Or maybe married without kids? If so, I would house hack in Utah in a heartbeat!
We bought a home in North Utah county last March to house hack. We are in a very nice area, right next to Alpine. 8 minutes away from Silicon Slopes. We searched for almost 1 year to find our home. We had some very detailed criteria because we have 4 kids. We wanted to house hack a 1 bedroom basement rental, but still have at least 4 beds, 2 baths, and 2 Family rooms for us. We also wouldn't take a house with the walkout in the backyard (kid safety). And we wanted all this for under 400k. And we wanted to stay in Alpine school district. Talk about demanding! Ha!
We actually found several good deals for house hacking (if we didn't have 4 kids), all on the MLS. They are out there, but it takes lots of sorting.
Our house: 6 bd/3bath/3family spaces. 3100 sq ft. original listing $420, after 2 months on market we offered $380. paid $390k, they paid closing of $6k. Spent 10k rehabbing basement (electrical, drywall, sound dampening insulation, adding laundry, new shower, etc). We rent half our basement as a 1 bd/1bath apartment for $1000/month. If we were a no kid couple and could live in the apartment, we could be living for free by renting the main house area for $2300 ish. Mortgage is $2250. BTW, a neighbor house sold in August for $460, some SQ feet, but some nicer fineshes, but no apt. We could turn around and sell this house for at least that price because of desirable area and by adding the apt. So yeah...good deals are out there.
if I could start over as a young person, I would live in my own basement apt while renting out the main house in a heartbeat. This is what I will encourage my kids to do.
*Everytime I hear noise from downstairs (which is not often, we have a young couple who work and go to school) all I hear is "half my mortgage, half my mortgage..." 😂
Also, I would house hacking Utah because you can get into a house for only 3% down. So long as you're renting out the main portion for your entire mortgage, whatever you're currently paying to live, you can be saving and putting towards an out-of-state rental in a year or two. Plus if your house in Utah appreciates, you have that going for you also.