Out of state investing
Commercial Real Estate Broker · Tarzana, CA · Member since 2015 · 8 posts · 2 votes
Out of state investing
Most Popular Reply
Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes
10y@Jay Hinrichs is involved it a site called Turn Key Reviews
There are many horror stories about people not having the ability to exit TK purchases even after several years.
My opinion only is that TK companies seem to thrive in the markets that have a big disparity of prices.
Every time I appeal property taxes on houses I bought for $2000 the assessor has comps showing $40,000 within 1 or 2 blocks.
If your Turn Key provider is selling you a house for $45,000 will you have an ability to exit when I have bought 5 or 6 of the houses on your block for under $5000 each?
40 Replies
- Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes10y
You should fly out and meet the company. There are some very reputable companies here on B.P. With great reviews. A property managing company is great for out of state investors. Turnkey-reviews.com is a great site to take a look at.
- Investor · TX · Member since 2015 · 62 posts · 23 votes10yMark Rauch I am from San Diego, and I invest out of state. Check out Memphis Invest if you are looking into a turnkey property. Best of luck! Rhea
- 10yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Your best bet for out of state investing will be to work with a TK provider. If you work with a reputable company you should do well. As mentioned before, there are many tk companies around the country. If you can go and visit once you have identified who you might be working with.
Good luck
Curt Davis - KAIZEN Realty538 Reviews - Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes10y
@Jay Hinrichs is involved it a site called Turn Key Reviews
There are many horror stories about people not having the ability to exit TK purchases even after several years.
My opinion only is that TK companies seem to thrive in the markets that have a big disparity of prices.
Every time I appeal property taxes on houses I bought for $2000 the assessor has comps showing $40,000 within 1 or 2 blocks.
If your Turn Key provider is selling you a house for $45,000 will you have an ability to exit when I have bought 5 or 6 of the houses on your block for under $5000 each?
- Commercial Real Estate Broker · Tarzana, CA · Member since 2015 · 8 posts · 2 votes10y
Jerry, Rhea, Curt and Richard,
Thank you so much for your input. I had no idea about the "turnkey" concept.
Will definitely look into it. I would definitely fly out regularly to the areas I end up investing in. Richard, great points! It would be critically important to hook up with a company that will be totally honest with in terms of sales comps. That would be a nightmare to not be able to have an exit strategy should you want to trade up. If there are opportunities to purchase for under $5,000.00, I would expect the company I align with would disclose this.
Amazing to me those opportunities exist. Are these abandoned, ghost town areas of Detroit? Who rents these homes? Is there appreciation?
Personally I am leaning towards apartments and not single family.
Thanks again!!
- Investor, Real Estate Agent · Sacramento, CA · Member since 2015 · 56 posts · 32 votes10y
"turnkey" is a term used in many industries to mean the operation is ready "just turn the key". In rental properties it means the property is rent ready and all things are in place to start cash flowing.
Turnkeys do have pros and cons just like anything else. One pro is less headaches since all things are in place, however there is a cost for this. The cons are low returns compared to an active investor acquiring the property in their own way and doing a light rehab.
In my opinion the extra returns you see from the extra effort put in to acquire and do light rehabs is worth it. I could be a source for you to look in Houston. PM if you interested.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Mark Rauch I see your a broker.. the biggest issue us West coast brokers have is the fact that SO much of the mid west and turn key markets are traded off of MLS..
and you add in non disclosure states and establishing true values is pretty tough.
and one thing I will say is that unlike the west coast were are props will sell on MLS generally after they have been rehabbed for 98 to 100% of appraised value and sometimes over that.. in the mid west and rust belt you will almost never get a home to sell for those numbers unless its being sold to an out of area buyer who does not realize how the market works in situ .... I learned this the hard way in all of the mid west markets.. So you cant get to fixated up or down on comps or appraisals you need to look at these for what they are
they really are just little stand alone commercial properties... they are only sold to investors there is little to no retail activity so you just need to back into cash flow numbers and make sure they work for you.
If you think your going to buy some cash flow mid west rental for under 100k and have it as a rental then sell it to a home owner in 10 years that is very risky thinking these areas just don't allow for that.. granted some of it happens but your home needs to be completely like new to get close to retail values.. not just a rental rehab..
hope that perspective from a west coast broker helps.
end of the day buy it just like your buying a duplex or small commercial and know your exit will be to someone else who wants the 1.25 rule.. or greater
- Real Estate Investor · Milton, WI · Member since 2015 · 52 posts · 14 votes10y
@Mark Rauch, invest in a place you might like to vacation to, so a majority of your vacation you can write off!
- Real Estate Consultant · Indianapolis, IN · Member since 2014 · 322 posts · 238 votes10y
I just want to say @Mark Rauchthat I just did a deal in another state and it was not as bad as what people make it out to be. I just made it my mission in life to find the RIGHT people to work with. I found an outstanding agent, got a referral for a contractor, and a closing attorney. Granted I ended up wholesaling that deal I still had everything in place to do a flip but chose to take a small portion of profit in exchange for not dealing with a flip.
I think you just need to be confident in the people you are working with. I help an out of state investor and one of the best things he did was he actually came out for a weekend and we spent two days together just driving around and getting to know the area I work in and getting to know each other. Establishing a relationship (not just a phone call) will be your key to success- in my humble opinion. You can do this!
- 10yAlex CraigBusiness MemberReal Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
@Mark Rauch I would not even consider $5,000 properties anywhere. I would strongly think hard about anything under $70,000. Invest where people want to live, not where the have to live. You can fix the house, you can fix the Property Manager, you can fix the tenant, but you can't fix the area. High Crime = High Turnover = High Vandalism, which leaves you with $0 profit. I have never seen an area that is a good long term investment with rent under $695 a month. The higher the rent, the higher the value of the property, the more passive it will be. As a out of state investor, I think Turnkey sets up better when the investment is passive. Low income properties you will be forced to talk to your PM more then you want and make more decisions then you are interested in making. Those decisions usually have 0's behind them.
The team you work with is more important then the market, assuming you are investing in a major metro area. Whether you invest in Memphis, Little Rock, Indy, KC, Atlanta, Houston, Dallas, etc. is for the most part irrelevant if you have a good team in place and reputable company with long term business plan so that they are with you helping you manage the asset. If you invest in a smaller town or college town, then some understanding of where that town is going would be important.
Something else to look out for is #'s that are higher then anyone elses. If you look at a market and everyone is selling homes at a 11% cap rate, but you run up on someone offering 15%, that is a major red flag. Also beware of the guarantee that sound to good to be true. Most of the time, that means the company is making a huge profit and if they have to give 5k back, it is no big deal. There should be some sort of guarantee after the sell, but 1 year rent guarantee's are mainly gimmicks. I can't see offering a 1 yr guarantee that a tenant will pay their rent b/c it is something I have no control over if that tenant was placed within the guidelines of what we consider a good tenant (enough income, good credit, good rental history, clean background, etc). Tenants die, get relocated, divorced, lose their jobs, etc. That is not the Property Managers fault. Now if the tenant gets evicted and you find out the tenant should never been there in the first place, then that is the PM's fault and they should be held accountable. However, no reputable PM company wants to deal with a dead beat tenant anymore then the owner.
Somewhere on BP I put together a long laundry list of what to look for in a Turnkey company. I will see if I can find it and re-post.
- 10yAlex CraigBusiness MemberReal Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
@Mark Rauch I found the list of items to look for in a Turnkey provider.
- Visit the market that you want to invest in and meet the team. This is a minimal cost to make sure you’re spending your money wisely. For some, their schedule may not permit, if that is the case, talk to other investors they have done business with
- Be comfortable and impressed with the property manager. To be impressed though, would mean talking to a few property managers within the market. That being said, I do advise sticking with the turnkey provider for management on the back end to create accountability. Most Turnkey providers Management business will cater to higher service levels because the connection to the sell
- Leave the properties with abnormally high ROI with rents under $850 (maybe $795 depending on the market) to the local investors. These are very high maintenance, intense hands on management properties, that really should be done by the person that owns the property. These are commonly referred to as C class. Remember, if it is too good to be true, it probably is!
- Order a third-party property inspection
- Make sure the property has been rehabbed to turnkey quality that will maximize your cash flow (roof and HVAC updated, ceramic tile it kitchen and bath, vinyl plank hardwood in high traffics areas, durable carpet installed in bedrooms, external fences and buildings addressed during the rehab, supply hoses replaced under the sinks, etc) otherwise your cash flow will go to maintenance
- Be skeptical of the one-year tenant warranty. That just means the turnkey provider is making an abnormally large profit who uses gimmick marketing to secure investors. Just because a turnkey provider does not guarantee the tenant does not mean they are not standing by their decision to select that tenant. It just means that the TK provider understand that people live in house and things happen to people outside their control such as job loss, illness, death, divorce, job transfer, marriage, mental breakdown, etc (I have seen all of those)
- Verify rent range through other property managers, Craig’s List and Zillow
- Ask if permits were pulled during the rehab
- If a tenant is in place, ask to see the tenant file
- Remember, you can fix the house, you can fix the tenant, you can fix the property manager, but you can’t fix the area. Be very conscientious as to the area that you invest. If it is an area in decline now, imagine what it will be in 10 years
- Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes10y
I meant to ask above if there are markets that you think TK if a viable investment vehicle?
(but my question disappeared)
I DO NOT RECOMMEND DETROIT for TK type of investments and I am suspicious of TK everywhere. There are better ways to invest in Detroit and suburbs
"... If there are opportunities to purchase for under $5,000.00, I would expect the company I align with would disclose this."
The turn key provider is buying them and then rehabbing them and selling to you!
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Richard Dunlop there are many good turn key or as I prefer to call them SFR rental markets.. IE as you know I think your from LA or CA... people generally do not buy SFR's for rentals.. they buy duplex 4 plex small or large multi.
there are of course good markets in EACH city and I would think sometimes that means suburbs not the inner city core.. if your talking inner city core then yes I agree it can be extremely dicy in all the inner city cores I have seen in those areas.. ( and what I mean is C and D class in inner city cores) not the regentrification areas..
I just sold a home in rehabbed in Charleston that 3 years ago was the hood.. 1200 sq ft I got 438k for it. so that market is changing big time. but those are outliers.
What most are talking about here are vanilla cash flow properties and the reason people flood to them is with financing for investment properties finally coming back its the easiest thing to buy and what most folks are used to ...
Detroit as you well know is a very special place and there has been an EXTREME amount of financial Sociopathic behavour there. .IE bying houses for 5k doing nothing to them selling them to unsuspecting foreigners fo r50k... but that activity also took place in the Fraser area of Memphis I got hits from many Aussies that some nice Memphis TK guy racked them over the coals... to me its unconcienable but it is what it is and
CAVEOT EMPTOR is alive and well in this side of the industry
- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes10y
@Mark RauchHi and welcome to BP! I see you hail from the San Fernando Valley. I spent a good portion of my growing up there, but that is ancient history. I've been in the NW for decades now. Anyway I have only invested out of state, and primarily used turnkey companies. It can work very nicely with the right company, but as others have said there can be a trade off in terms of returns and equity. Still for a relatively passive investor busy with a day job or running a business, the option is well worth exploring.
- Investor · Canton, GA · Member since 2015 · 88 posts · 63 votes10y
Originally posted by @Mark Rauch:
If one were to invest out of state, what would be the proper way to oversee improvements and management. In other words what should your infrastructure look like and how can you protect against property managers, contractors, handymen and tenants from taking advantage of the fact that you are not local? Have heard horror stories but it seems that the deals to look at currently are not in Los Angeles where I live.
Thanks,
Mark
I support all the posts that mention turn key providers. I used two of them to purchase my out of state investment properties and it just takes time to build confidence in working with them. Make sure they can provide references, and make sure you use licensed inspectors (and appraisers if necessary) to verify everything about the property. You'll be surprised how many inspectors, agents, and appraisers are used to working with out of state investors. Sometimes they even offer discounts on their services to out of state investors. These guys want your return business because it means more work and money for them. If you don't want to get taken advantage of, try to find credible references for the handymen, and make sure the property managers are a member of NARPM. Generally the turn key providers I work with already have reliable vendors on their preferred list so this is somewhat taken care of in some cases.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Rhea Jackson, Very interesting. I'm also from Leucadia and have been considering Out of state investing and have actually done some in the past that turned out to be minimally profitable and ultimately had to be managed by us.
I've found that long distance investing like relationships doesn't always work out too well. However, it's becoming increasingly difficult to find suitable RE investment opps in SoCal. I'd be interested in finding out how your investments are working out and if you are planning to continue investing out of the area.
Have a Happy & Successful '16 and congrats on becoming a Mom. No better or important vocation in the World!
- Investor · TX · Member since 2015 · 62 posts · 23 votes10y
Originally posted by @John Arendsen:
@Rhea Jackson, Very interesting. I'm also from Leucadia and have been considering Out of state investing and have actually done some in the past that turned out to be minimally profitable and ultimately had to be managed by us.
I've found that long distance investing like relationships doesn't always work out too well. However, it's becoming increasingly difficult to find suitable RE investment opps in SoCal. I'd be interested in finding out how your investments are working out and if you are planning to continue investing out of the area.
Have a Happy & Successful '16 and congrats on becoming a Mom. No better or important vocation in the World!
Hello John, Leucadia is just a street over from me. Anyways my properties are working out great for me. The return is very good and my highest return right now is 18%. We have a wonderful property management team we work with that deals with all the headache for us.
I have never invested in CA and I never will. I was born and raised here in Carlsbad and My family and I are moving out of Ca and headed to TN next year. We will be investing there and continue to invest out of state.
- Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes10y
@Rhea Jackson, Never say never. Some of the best RE plays I've ever made were when the RE market tanked in Cali several times over the years. One person's nightmare is another's dream come true. I've been living in one of mine for 35 years. Cost me 150k and is now worth an easy 3m. Not a bad ROI.
All that stated, TN is a great state. We love it. In fact one of my best friends has one of the biggest and most successful biz's and owns a substantial RE fortune in Hoenwald. You may want to check that area out. It's south of Nashvilie about an hour or so.
If you want his contact info let me know I'd be happy to share it with you in a PM. All the best with your relo plans.
- Investor · Dayton, OH · Member since 2015 · 74 posts · 21 votes10y
If I were to invest outside of my home area of Dayton and Cincinnati Ohio, I would highly recommend using a property manager and local real estate professional you can trust in the area you wish to invest in. Don't make the choice fast but qualify the potential property manager and/or agent for months by asking them for advice or by asking them to evaluate properties in their area. Also present to them what if scenarios and ask how they would handle them. During these months of evaluating and getting their opinions on anything to do with real estate you should get a good feel for the type of person you are dealing with. If they don't respond adequately prior to hiring them as a property manager or RE agent then they won't work once you have chosen them to represent you and protect your investment. Also if they are always positive about all the properties you present to them they may be just interested in the business of making money and not helping you. If they truly evaluate a property as they should they should present to you the negatives as well as the positive characteristics of the deal.
Once you choose the property manager or management company I would ask to periodically do skype or facetime meetings at the property so you can see the condition of the property. You can also schedule these skype or facetime meetings around scheduled property inspections with the tenant to see how the tenants are taking care of the place. You can also label these "inspections and furnace filter changes" to give your self a reason other than just making the tenants think you are snooping around.
Any other questions feel free to reach out to me individually to connect.
- Lender · Kansas City, MO · Member since 2015 · 103 posts · 28 votes10yBeing a TK Provider I first would like to suggest you reach out to that company. Ask them specifically why their city is a good opportunity & ask them for solid data proving it....after all as my grandma would say, the proof is in the pudding. Remember, this is an investment & the houses you purchase may not be a house you wish to live in. I own 2 houses, one in KC in a nice neighborhood, middle class boring area but the rental I own is a 2/1 much older & smaller house. Saying this, your probably investing for cash flow, the roi is what is & will be the driving force. You will need a good PM, ask who the TK Provider uses, talk to them because they will be your best friend in the area. Also, ask what was rehabbed, we have set guidelines for all our houses so your not stuck with repairs. If you can visit the city & see the houses, someone from the TK or PM will make arrangements to show you the houses. Take your time to invest. Do your research, go to the county websites, the city's websites, check flood zones, this is YOUR investment. Feel free to reach out to me if you have questions. Education is key!
- 10yChristina CareyPro MemberReal Estate Broker · Dayton, OH · Member since 2010 · 245 posts · 186 votes
We've seen many out of state investors - after the fact, unfortunately - who were taken advantage of, by contractors mostly, but also by licensed agents as well.
Jay Thomas hit the nail on the head - having boots on the ground and procedures in place to verify things are key. People can manipulate photos, but they cannot manipulate a live video call.
Also, hiring an independent 3rd party to check on things, verify completion, etc., prior to paying a contractor - can be another good alternative, and shouldn't cost much.
- Investor · De Pere, WI · Member since 2015 · 16 posts · 8 votes10y
Everyone, great feedback! Very useful list @Alex Craig.
I live in WI and currently looking into investing in Memphis. I've contacted Midsouth Homebuyers for that.
I've read good things about them but any feedback good or bad that you can provide on them is appreciated.
Thanks.
- 10yDouglas SkipworthBusiness MemberRental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
Originally posted by @Yasir Lillingston:
Everyone, great feedback! Very useful list @Alex Craig.
I live in WI and currently looking into investing in Memphis. I've contacted Midsouth Homebuyers for that.
I've read good things about them but any feedback good or bad that you can provide on them is appreciated.
Thanks.
Check out this post from last month about Mid South Home Buyers. They are first class folks!
https://www.biggerpockets.com/forums/311/topics/255066-midsouth-home-buyers
Investor's Guide to Memphis Real Estate - 10yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
First decide what you are looking for regarding price range, ROI, cash flow, rtc....
Regardless of how first class someone may be, if their product is not what your looking for then it doesnt make sense to do business with that company. Understand that with lower priced homes ( under $65k ), no matter how nice of a rehab or how great the cash flow looks on paper, they tend to have higher issues in general. In Memphis, I would suggest sticking with $75k or higher homes that have a monthly rent of $825/$850 or higher.
Good luck
Curt Davis - KAIZEN Realty538 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.