Opening the Kimono: My Out-of-State REI Experience

277 Replies

@Michael L. - Thank you for sharing your turnkey out of state investing experience with all of us. Reading though your thread, I can see some similarities with my investing experience. I have been investing in Phoenix since 2010 without a turnkey provider but with a property manager. Reporting can sometimes be iffy by the PM and sometimes need clarification on issues. In addition, repairs will always come up, I've had to replace four AC's and a roof since I've started investing. There have been many minor items like a dishwasher that seems to always back up, leaking water pipe underground, garage door issues, etc. I have five properties with the same PM, so I would think he takes care of me a little bit better than most and especially this year since I am selling a few of them, he wants that commission check :)

An out of state investor must realize that no one will take care the property as good as yourself. You wont always know everything that is going on with the property until later on. Also, if you only have one property with the PM, do you really think the PM will give you the royal treatment versus other investors with multiple properties? Being PM is not an easy job, if you get paid 7-10% a month on $1000 rent, the time spent on the property will be limited. 

That said, investing out of state has still been fruitful for me but new investors looking into investing out of state need to have their eyes wide open going in, its not as passive as you think it will be. 

Regarding the washer/dryer charge, they will be refunding me the cost. This should have been completed as part of rehab. Despite the PM communication issues, they have always treated me fairly and run the business with integrity. 

Great Info. The remote management is a tough nut to crack.  I have a 4 unit near Belmont and Damen In Chicago I've Rehabbed  over the last 10 years while living in the different units.. I was struggling to find a property manager so I could move to  West LA and work in Tech.  I trialed a small team and shadowed them..  but they started overcharging obscene rates after about 6 month.  e.g. they wanted to pay  a roofer 5k to fix a leak in a unit-- Hmm. I went in there and cut the ceiling section out w /a dry wall knife and had my helper spary from above with a hose -- Turns out the leak was caused by a window caulking problem on the 2nd floor.  $10 worth of caulk to fix.  -Bang. I fired the management company --andI decided to manage it my self staying in contact with the Tenants and hire a couple contractors I've used over the years that live in the neighborhood to do the maintenance.  It's actually working out great.  I just pre-purchase major items at home depot and they pick them up.. Communicate va txt and Phone picts use spread sheets for invoices. etc. I think it's actually working out better that I'm not there doing the hands on work as I'm now better to focus on tenant relations, and the big picture..  In fact I' writing an quick phone app to help with the process.  Anyhow..    I'm out here in Culver City Ca working in Tech and looking for investments.. WOW. different market here.  I'm thinking of Inglewood with the New Rams Stadium for 2019.   This is my first day on the forum. -Please chime in if anyone knows the west LA market. It' looks like Inglewood is the only place left.  Playa Vista Tech $ has already spread to Westchester etc.   Cheers.

Originally posted by @Souji Kumar :

@Michael L. Could you share the appraised value for the property. Thank yoy

 Hi Souji,

The appraised value on both properties came it as the purchase price.  I think it was mentioned previously, but because all the comps in the area are other turnkeys sold by Elite/PFR, they essentially set the market.  The other sales in the area are not used in the comps because they are likely distressed sales.  Also, the appraisal factors in the expected rent as well.  

Hope this helps!

Originally posted by @Souji Kumar :

@Michael L. thank you very much for sharing your experience very useful. Just signed up for 2 properties with elite which per them will be delivered in June-July. I have heard that their delivery is longer than anticipated. Could you please share your inspection office details. Could you also share how has it been the cash flow with your 2nd property. This is my first investment. Do you suggest anything in particular I need to do before closing. All your help is highly appreciated for newbies like me. Thank you so much.

It'll vary from property to property, but a 2-3 delay in closing seems typical.  In my inspections, there were a few items that needed fixing, so I had a re-inspection to verify.

I'll PM you with my recommended inspector.

As a newbie, I was full of nerves and worries...this is expected I presume.  Alex and his team have been really professional and despite some hiccups here and there, they'll always put in the effort and are genuinely good people.  

Originally posted by @Johnson H. :

@Michael L. - Thank you for sharing your turnkey out of state investing experience with all of us. Reading though your thread, I can see some similarities with my investing experience. I have been investing in Phoenix since 2010 without a turnkey provider but with a property manager. Reporting can sometimes be iffy by the PM and sometimes need clarification on issues. In addition, repairs will always come up, I've had to replace four AC's and a roof since I've started investing. There have been many minor items like a dishwasher that seems to always back up, leaking water pipe underground, garage door issues, etc. I have five properties with the same PM, so I would think he takes care of me a little bit better than most and especially this year since I am selling a few of them, he wants that commission check :)

An out of state investor must realize that no one will take care the property as good as yourself. You wont always know everything that is going on with the property until later on. Also, if you only have one property with the PM, do you really think the PM will give you the royal treatment versus other investors with multiple properties? Being PM is not an easy job, if you get paid 7-10% a month on $1000 rent, the time spent on the property will be limited. 

That said, investing out of state has still been fruitful for me but new investors looking into investing out of state need to have their eyes wide open going in, its not as passive as you think it will be. 

Your reply is on point!

With Elite in particular, I know they have many clients with many more properties than myself, but they've never made me feel like a 'small fish', which is pretty cool.  In the last year or so, I've seen a few articles on Alex raising tons of money for more Chicago projects.  You can find more info on Elite here: https://www.facebook.com/EliteInvestLLC/

Originally posted by @Joe Chin :

Regarding the washer/dryer charge, they will be refunding me the cost. This should have been completed as part of rehab. Despite the PM communication issues, they have always treated me fairly and run the business with integrity. 

 Thanks for the update Joe!  Glad to see that paid for that...now to make AppFolio more useful...

@Michael L.

I have another question. Has there been any increase in the rent in 2016 compared to when you started. Thanks

Souji

Originally posted by @Souji Kumar :

@Michael L.

I have another question. Has there been any increase in the rent in 2016 compared to when you started. Thanks

Souji

 Hi Souji,

I've only had one renewal come up on one of my duplexes.  The rate were not increased on one unit, while the other unit had a $19/mo increase.  The unit with the increase is 100% subsidized by CHA. Hope that helps.

thank you Michael 

Originally posted by @JR Hinds :

I don't want to hijack this thread, but I've had the same experience as @Joe Chin . I wouldn't recommend Elite as a PM.

 I have purchased from Elite Invest and have had a positive experience. Alex is honest and upfront.  Feel free to PM me if you need more information. I may start a thread if anyone is interested.

Originally posted by @Momk M. :
Originally posted by @JR Hinds:

I don't want to hijack this thread, but I've had the same experience as @Joe Chin . I wouldn't recommend Elite as a PM.

 I have purchased from Elite Invest and have had a positive experience. Alex is honest and upfront.  Feel free to PM me if you need more information. I may start a thread if anyone is interested.

Great to hear from you again Momk!  Did you go with the triplex?  How was the inspection/initial process?  Would love to see the numbers on a triplex, since those are more 'rare' (esp. newer construction multis).

mine is a triplex - I close in May. Will post my numbers in my other thread as they evolve.

Thank you to all the turnkey investors who have posted their input on this thread!! Thank you @Michael L. for starting it:-)

I too am looking to buy turnkey properties. I currently have one non-Turnkey SFR in Houston, TX but I really hate the high taxes there. I am currently looking into Hammond, IN (more landlord friendly than chicago?) and Kansas City, MO.

Wishing everyone good success with turnkey!

@Jen Pothilat Indiana is definitely a far more landlord friendly state than IL. We sell turn key properties in Kansas City. Feel free to reach out if you'd like to know more about the market.

Hey @Jen Pothilat Hammond is for sure more landlord friendly and the taxes are pretty low I would recommend it, although the rents are lower than you can get in Chicago even though properties can go for around the same price. I actually live on the border of Chicago and Hammond, so contact me if you ever want a local investor to chat with.

I received a great question from @Steven Kleppin about property taxes and wanted to respond in my 'blog'/thread.

The question was regarding the inventory list: "There's a tax listed which matches generally with Redfin. However, the assessed value of the property at that time was about $20k... Did your taxes jump significantly when the value of the house was increased?"

The answer is nope.  The property tax assessment is a little more complicated in Cook County, but you can find some info here: http://www.illinois-attorney.com/news/how-real-pro...

 But essentially, my taxes did not go up at all so far.  You can find the most recent assessed value on the Cook County's Assessor's website by entering the property PIN or address.  I used the original assessment to calculate the amount to depreciate on my taxes.

Formula looks something like this:

(My Purchase Price) * (Assessed Additions Value/Total Assessed Value) => Because you can't depreciate the land

You should do your own due diligence with a tax pro, but that's how I've done it so far.

Great information here!

I'm a newbie and actually grew up in some of these areas that Elite and PFR operate in.  Rough is an understatement and I would not bet on appreciation in any of these areas.

I've been vetting PRF for a few weeks and stumbled into this thread.  I'm a defense contractor and never around, so my PM is very important to me.  My first year of being a landlord was very similar to @Michael L. .  Random charges and incomplete descriptions...  What ended up working for me was bypassing the accounts person and getting to know the maintenance manager.  Whenever he gets a call now, he shoots me an email with all of the details.  It works a lot better than the bean counters trying to explain something.  

Did you actually go to the properties during rehab?  What was your opinion of their construction crews?   I do feel that they are priced too high for the areas.  But like you said, "they pretty much set the market".  

Originally posted by @Brandon Griffin :

Great information here!

I'm a newbie and actually grew up in some of these areas that Elite and PFR operate in.  Rough is an understatement and I would not bet on appreciation in any of these areas.

I've been vetting PRF for a few weeks and stumbled into this thread.  I'm a defense contractor and never around, so my PM is very important to me.  My first year of being a landlord was very similar to @Michael L..  Random charges and incomplete descriptions...  What ended up working for me was bypassing the accounts person and getting to know the maintenance manager.  Whenever he gets a call now, he shoots me an email with all of the details.  It works a lot better than the bean counters trying to explain something.  

Did you actually go to the properties during rehab?  What was your opinion of their construction crews?   I do feel that they are priced too high for the areas.  But like you said, "they pretty much set the market".  

 I don't count on appreciation at all, but if it happens, that'd be icing on the cake!  Lol, bean counters :).  Going directly to the maintenance mgr would save a couple of back and forths, but it hasn't been bad dealing with the Elite PM folks for me,

I visited several properties on my visit/tour.  I did not get to go inside the units I ended up going with, but the operations, quality, etc. seemed consistent throughout.  During my tour in 2014, Elite was still with PFR and the construction side was still being managed by the current PFR owner, Justin I believe.  I have no idea what Elite's construction folks are like these days.  Regarding the PFR crew, they seemed like the standard labors you'd see on any home remodel site.  There's limited crew managers, so it seemed like the folks working at each site weren't being supervised directly, so I did get a sense of some 'slacking'/slowness here and there.  I liked the system they had in place though...very organized with the punchlists, status on each address, etc.

Good to know.  I'm very interested in that market.  It's just a matter of, can I do a rehab for less than them?  And the answer is probably no.  How was there inspection report for the tenant that moved out?  I noticed they had a youtube page of inspections.  Is one of those yours?

If you have a longer term outlook, I don't think it's unreasonable to expect appreciation in these areas - especially closer to the lake (e.g. South Shore, etc.). I lived in Chicago for years, and went to grad school at the University of Chicago in Hyde Park, so very familiar with the area. 

If you look at the gentrification patterns over the last 20+ years, all other options have been exhausted. Lincoln Park and surrounding areas north of downtown are already old and overpriced - not an area you would buy, rehab, and make money. River North / Gold Coast - same thing. Expansion west over the last 10-15 years has already yielded Wicker Park, Bucktown, West Loop, etc. - all of which are now priced at the high end. Expansion NorthWest into Lincoln Square, etc. will continue, but will probably taper off as you get further and further from the lake. Expansion south started pretty heavily before the bust - into the South loop, as far as about 18th street, but dried up when the large scale investment dollars went away. 

Given that you can't go further east because of the lake, and you can't really go north because that's all already expensive all the way to Evanston, and people won't keep going west when there is cheap RE along the lake going south, it seems likely that over maybe a 20 year horizon, the odds favor appreciation in this area. The south side was beautiful in the 50s (just drive down MLK and see some of those old mansions), and there's no reason it can't be again, particularly given the above constraints, and some of the large institutional projects coming in.   

The Obama Library will be in that area, I think there is a large Whole Foods coming in, there is a 30 year $4B project to reshape the lake shore along the south side, etc. The indicators are all there. Obviously nothing is guaranteed - the state is borderline bankrupt, and there are plenty of other risks, but when compared to other risk / reward scenarios, I'm betting on this one.

Hi everyone,

I wanted to ask if anyone has used the cost segregation method of depreciation for any properties purchased through Elite (vs. straight-line).  I didn't know if anyone has tried to see if Elite would provide the info, since they likely have the amounts for what they spent on certain types of property (i.e. appliances- 5 years; fences/shrubbery- 15 years etc) broken out.

Thanks!

Jenny

Originally posted by @Brandon Griffin :

Good to know.  I'm very interested in that market.  It's just a matter of, can I do a rehab for less than them?  And the answer is probably no.  How was there inspection report for the tenant that moved out?  I noticed they had a youtube page of inspections.  Is one of those yours?

 I have not had a move out yet.  That's not my youtube page, but would be interested in seeing what you're referring to.

I did have a CHA inspection (annual) that cost $200 per unit.  Ended up with a few hundred bucks in costs for minor repairs and painting.

Originally posted by @David Fitch :

If you have a longer term outlook, I don't think it's unreasonable to expect appreciation in these areas - especially closer to the lake (e.g. South Shore, etc.). I lived in Chicago for years, and went to grad school at the University of Chicago in Hyde Park, so very familiar with the area. 

If you look at the gentrification patterns over the last 20+ years, all other options have been exhausted. Lincoln Park and surrounding areas north of downtown are already old and overpriced - not an area you would buy, rehab, and make money. River North / Gold Coast - same thing. Expansion west over the last 10-15 years has already yielded Wicker Park, Bucktown, West Loop, etc. - all of which are now priced at the high end. Expansion NorthWest into Lincoln Square, etc. will continue, but will probably taper off as you get further and further from the lake. Expansion south started pretty heavily before the bust - into the South loop, as far as about 18th street, but dried up when the large scale investment dollars went away. 

Given that you can't go further east because of the lake, and you can't really go north because that's all already expensive all the way to Evanston, and people won't keep going west when there is cheap RE along the lake going south, it seems likely that over maybe a 20 year horizon, the odds favor appreciation in this area. The south side was beautiful in the 50s (just drive down MLK and see some of those old mansions), and there's no reason it can't be again, particularly given the above constraints, and some of the large institutional projects coming in.   

The Obama Library will be in that area, I think there is a large Whole Foods coming in, there is a 30 year $4B project to reshape the lake shore along the south side, etc. The indicators are all there. Obviously nothing is guaranteed - the state is borderline bankrupt, and there are plenty of other risks, but when compared to other risk / reward scenarios, I'm betting on this one.

Awesome perspective.   I try to keep tabs on the Whole Foods, and I like what they're doing for the community.  Both my properties aren't too far from it and also really close to the Aldi's, which was a factor in my selection. 

Originally posted by @Michael L. :
Originally posted by @Brandon Griffin:

Good to know.  I'm very interested in that market.  It's just a matter of, can I do a rehab for less than them?  And the answer is probably no.  How was there inspection report for the tenant that moved out?  I noticed they had a youtube page of inspections.  Is one of those yours?

 I have not had a move out yet.  That's not my youtube page, but would be interested in seeing what you're referring to.

I did have a CHA inspection (annual) that cost $200 per unit.  Ended up with a few hundred bucks in costs for minor repairs and painting.

 I was mistaken on the youtube page.  It was Letts Property Management.  PFR uses them.  https://www.youtube.com/user/LettsPropertyMgmt  

Why do you have to pay for the inspection?  Or is that fee for the property manager to accompany the inspector?  

Thanks

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