Ready, Aim, Aim, Aim......

[Trevor Lohman]

Hey Everyone,

So I've been starting a few threads on here lately to try and learn a bit about "passive" investment opportunities, and wow its amazing how much you can learn from this website and its members.

I'm at the point now where I think it's just time to finally become a real estate investor. I might not make the perfect first deal, but I know my 10th will be a whole lot better than my 1st, and I'll never get there if i just keep googling and reading into the late night hours.

So, I've landed on out of state income property investing... I know I know plenty of reasons why you should stay local, but even the "cheap" areas within 2 hours of me are expensive (in absolute terms), have bad demographic trends, and are a little rough (I know this last one isn't a big deal, but combined with the first two...)

So, there are a couple areas I'm interested in and have been talking to some local Property managers in the two areas I'm considering (and they're BP members which seems like a plus). I'm starting to take the first real steps towards making my first investment and thought I'd throw a couple questions out.

I had completely ruled out LLC's because in California they're more or less cost prohibitive for small investors. Should I reconsider since I'm now thinking of investing in other states? (Indiana and Tennessee)

Any tips on finding a deal out of state? Its tough to do anything but look at MLS homes with a real estate agent from way out here. What about property managers who are also real estate agents? Anything wrong with buying through your PM, assuming the deal looks good? Again as far as you can tell through pictures etc.

It seems like either way you have to put a lot of trust in your PM, which is why I'm looking to start small, but it seems if you find a good one then out of state investing (for me at least) is the way to go.

Well BP, looking forward to what you have to say.

Thanks for the feedback,

Trevor

[Adam Gerig]

@Trevor Lohman in Indiana all property managers "should" be agents. You need to either be under a broker who is running it or have a broker that allows you to property manage on the side. That being said I've heard of several people whom property manage and aren't licensed. Some may be better than actual real estate agents I'm sure, but you also want to make sure you CYA(cover your @**) if there were ever disputes or litigation. You want to make sure they are licensed & INSURED to cover any litigation. Now that being said if a tenant decides they are going to sue they'll probably still name you, but the property manager will be the first person they probably go after. If you are dealing with someone who is unlicensed I highly doubt they have insurance to cover such a situation.

I would highly suggest starting an out of state LLC. They are pretty cheap here in Indiana (a couple hundred bucks) I know in California that they almost make it cost prohibitive to have one. Which again is why I love it here :)

If I were in your situation I'd go the PM route that is also an agent. And I hope you don't think that's just because I'm a property manager. (Although I may be a little biased lol) Reason being is an agent who is looking at investment properties if they've never invested themselves are going to bring you everything and anything because they think it's a "deal". You'll get bombarded with stuff that's not worth the paper it's printed on. There are some good investment realtors out there, but I rarely buy stuff on the MLS unless it's owned by a bank. Even that being said you've got everyone else that is an investor that is looking at that property too. So that's gonna drive the price up.

We typically buy directly from the sellers. Which allows us to cut the 6% out right off the bat and also have our own maintenance and flip team in house. Which allows us to know before hand what a property is going to take to get it done and where we need to be "all in" for it to make it a deal. If the numbers don't work then the numbers don't work. I contacted two owners directly on Friday that both wanted in the $30s. That I wouldn't pay more than in the teens for. A lot of owner's don't know how to value their property and just pull a number out of the air. I base it off the numbers if it's not going to produce X amount of return then I'm not interested. That's how you should value you things too. If I'm all in at "X" and it returns "Y" I'm willing to pay this amount of money. For me it's gotta be double digit returns for me to even leave my office to go look at it. That's why a lot of times I'll call the seller directly and get a number before I go look. We are going to look at a package of 4 tomorrow that the owner wants $55k for. 3 of the 4 are rented and gross rents are over $1200/month. The x factor is going to be the 4th house as I'm positive it's a total rehab. If we can get it for around $30k it'd be a no-brainer assuming the other 3 properties aren't falling apart, but we shall see.

Honestly if I were out of state I'd look for a property manager or an good investor agent and by that I mean they actual own rentals and know how to valuate them. If you tell them you're looking for a 3/1 ranch that brings in at least a 10% return on your money invested after fix-up and they bring you a $100k property that brings in $750/month run. They don't know how to calculate ROI. If you need any help with anything just let me know. Be well!