Getting started and out of state considerations

10 Replies

Hi all,

I'm trying to get started and would love to tap this community's wealth of information on potential best strategies for getting the first deal and thoughts on where I'm leaning so far. 

Little background on where I'm at: I currently live in San Francisco working a well paying but stressful W-2. This has left me with some capital to deploy but a very difficult market to work with (difficult state really). Also limited time to explore other potential markets.

So I'm leaning towards out of state and looking at Turnkey at the moment. I'm particularly interest in the new construction build to rent (currently looking at Rent to Retirement and their offering in Cape Coral) as it seems like good potential in equity growth and low maintenance costs. 

A few questions I would like to hear some thoughts on:

  • General advise for getting started - particularly looking out of state for cash flowing opportunities
  • If you where just getting started, what market would you choose? Why?
  • Thoughts on going with Turnkey to begin with? I realize that I will lose out on a lot of potential gains that the turnkey company capitalizes on, but weighing that against the time factor which I don't have a ton of.
  • Thoughts on going with new construction?

Really appreciate any and all thoughts on the questions above.

Hi @Logan Murdock ,

You hit the nail on the head with your third bullet point of the turnkey company capitalizing on your shortcomings. Starting out, you're going to want to minimize those detracting factors. So, although the turnkey properties are great at face value, it's not exactly a scalable business model. What most people don't realize is that a good agent in any market should be able to near completely fill the gap between needing the things a turnkey company provides, but not having to pay them extra for it.

New construction is a great option for some people, but it's largely going to depend on your long term goals. As I mentioned above, unless you have a huge amount of deployable capital, it's not the easiest to grow quickly. Existing construction, particularly in Cape Coral and the surrounding area, can often offer stronger annualized returns, and that is still accounting for ongoing maintenance.

I am obviously partial to this area, but there are very few opportunities across the US right now that offer the growth potential we're seeing in multiple Florida markets. Other people I'm sure will have their suggestions for those and will normally include Tampa, Jacksonville, and a few others on the West coast. 

Hey @Stetson Miller , thanks for your input! 

That's great insight. I wouldn't expect an agent to be able to fill in the gap like a turnkey. I'd assume you would need to put in a decent amount of effort to build out a local team (which is fine, but can be hard to understand where to start), and also have some experience within that market to be able to operate effectively. 

When you say stronger annualized returns from existing construction, is that based on the potential of finding a good deal that even with rehab is a lower cash investment, but rents out at similar rates? 

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@Logan Murdock the agent would be filling the gap with tried and trusted recommendations for members of that team.

Regarding the returns, yes, that's correct. Even accounting for any necessary rehab, which is minimal in this area. The major difference comes in how soon you'll be tackling capex items. Still, even after accounting for all those things, existing construction comes out ahead strictly from a numbers perspective

@Logan Murdock

Thanks for the mention. As you know we work across multiple different states, and have a variety of different investment opportunities available. I absolutely think that the Cape Coral new construction is one of the best opportunities we've seen in our investing career! It is important to know that we are all professional investors ourselves actually investing right along side our investors. This would 100% be accurate for SWFL. We have millions invested in builds in Cape Coral. It is an outstanding opportunity with exceptional growth potential. To be very specific, most of these homes have a significant amount of immediate equity that is a huge value for the investor. They can sell the property for a gain, do a cash out refi (BRRR) to reinvest the equity into other investments or keep the property cash flowing exceptionally well! The 4/2 model we are selling for $275k usually appraises in the $330k to $340k range on pre-construction. Just last week we had some of the highest appraisals come back at $375k & two at $400k which is mind blowing! Because we are doing volume we are able to sell significantly below what someone would normally be able to achieve on their own. Not to mention we initially projected rent at $1,850, and now seeing rents at $2,200 yo $2,300 now that these are being completed.

@Trevor Fleck would be a good person to connect with to discuss his experience working with us.  He is in the process of doing 5 builds with us.

@Stetson Miller I would have to completely disagree about your statement "You hit the nail on the head with your third bullet point of the turnkey company capitalizing on your shortcomings."  While there are many TK companies out there that may behave in this way, we are not one of them.  Clearly seen by the example I've just outlined we allow for a significant amount of upside/equity for our clients.  I would have to say this is too general of a statement that overall brings TK companies with a good reputation into the category of those that do not have a good reputation.  There are many terrible RE agents out there.  Same thing with contractors, builders, property managers, etc.  It takes a good amount of networking to find the people that are the right fit for one's goals.  I can say we have one of the best reputations you will find on this site with hundreds of very successful & happy investors.  To verify this statement up I've posted some links that someone can read through to see what investors experiences have been with us.  At least we can agree that SWFL is one of the best places to invest in the country right now!

Here are some forums that reference investors experience with RTR:

https://www.biggerpockets.com/users/ZacharyCole/references

https://www.biggerpockets.com/forums/92/topics/518583-feedback-on-renttoretirement-and-zach-lemaster

https://www.biggerpockets.com/forums/92/topics/765347-rent-to-retirement-review

https://www.biggerpockets.com/forums/850/topics/895660-my-first-investment-property-an-out-of-state-deal

https://www.biggerpockets.com/forums/92/topics/983659-first-investment-property-with-rent-to-retirement?highlight_post=5677176&page=1#p5677176

https://www.biggerpockets.com/co/RentToRetirement

https://www.biggerpockets.com/forums/92/topics/929410-rent-to-retirement-updates?highlight_post=5508807&page=1#p5508807

https://www.biggerpockets.com/forums/92/topics/893621-rent-to-retirement-review?highlight_post=5222888&page=1#p5222888

https://www.biggerpockets.com/forums/311/topics/915728-experience-with-rent-to-retirement-turnkey?page=1#p5345200

https://www.biggerpockets.com/forums/92/topics/808479-rent-to-retirement-experiences

https://www.biggerpockets.com/forums/67/topics/952977-turnkey-in-indianapolis-through-rtr-case-study

https://www.biggerpockets.com/forums/12/topics/533693-anyone-worked-with-renttoretirement-turnkey


https://www.biggerpockets.com/forums/92/topics/581730-rent-to-retirement-zach

https://www.biggerpockets.com/forums/48/topics/874096-reviews-on-r2r-and-nch?page=1&utm_source=Iterable&utm_medium=email&utm_campaign=Transactional:%20topic_notification&utm_content=Transactional#p5123754

https://www.biggerpockets.com/forums/311/topics/883772-turnkey-investing-renttoretirement-feedback-reviews?highlight_post=5171720&page=1#p5171720

https://www.biggerpockets.com/forums/92/topics/950188-rent-to-retirement?page=1&utm_source=Iterable&utm_medium=email&utm_campaign=Transactional:%20topic_notification&utm_content=Transactional#p5535505


https://www.biggerpockets.com/users/ZacharyCole/references

I wouldn't get turnkey to start off with unless your goal is to make moderate cash flow with low appreciation and high property management fees. I am not against turnkey as part of a wider portfolio, but I think there can be a lot of money lost in turnkey when you can basically do it all with a good plan in an area as was said above.

I think the best way to pick a market isn't to read about hot markets or go into some place where you know nothing. Sit down and make a list of every place you have lived or gone to school. Then make a list of where all of your family and friends live, the ones that you like and trust. Balance those lists with market research and look for an overlap. You do this because you have a small advantage to big advantage in these areas over ones where you know nothing or no one.

@Zach Lemaster Agree with everything you said, particularly that there's many terrible real estate agents out there! Being able to weed them and other integral team members out takes time and work that some people don't have, in which case the turnkey option would be perfect. My only point was that it depends largely on your long, and short for that matter, term goals. Where you want to end up and how soon you want to get there needs to be balanced with how hard you want to work!

Logan,

It really comes down to time and money. How much time do you have to be active (meaning being hands on) Vs how much money you want? If you don't have the time to be hands-on then a Turnkey option is a good one. You won't make as much money but you won't add additional stress either by putting in more time and energy on top of your "stressful W-2". Doing more in RE will be adding more stress and work to the plate so keep that in mind. Sometimes less is more but ultimately you will have to decide what price you want to pay with your time and money. I hope that helps and best of luck!

@Zach Lemaster - thanks for jumping in with what you are seeing in Cape Coral and your perspective. Appreciate it.

@Jonathan Greene - I like that exercise of making a list of places your family or friends live as potential markets rather than just going for hot markets. A lot of the struggles I face is that CA is generally a difficult market even where I went to school, but as you move farther out of your network that begins to change. Thanks for the thoughts!