Logistics of investing from Afar

16 Replies

I have a logistical question for those who are brave enough to invest out of your state. Assuming you have your team in place, real estate agent, contractors, management company; how do you handle the rehab? when you buy the property do you have the real estate agent hand the keys to the PM and the PM lets the contractors in the door? who gives the final approval for the rehab? and if you physically fly out to the location, at what point do you fly out - to look at homes? final inspection of rehab work?

As someone from California I have been trying to play this idea out in my head and get down to the logistic details on how this would play out.

@Phillip Vaughan we have property manager oversee all rehab on properties when it's out of state. On sites that need less lifting like just some interior renovations, than it's less important to go out and see it as frequent. On the flip side we've also bought some more run down stuff that needs a lot of work and we'll go out somewhere along the rehabbing process of it as well once it's done. Also have our property manager do tours of the properties and take videos on the more run down stuff so we can get an idea of how it's going.

I would also suggest, once in a while, visiting any property you own with little to no notice so you can see how it actually is on a day to day and not after a PM has cleaned it up knowing you'll be there.

There's no right answer of when you should or shouldn't, it'll all depend on what will make you comfortable and what you can afford.

My management firm is often hired to help out-of-state investors, so we look at our job as to over-inform them, but they make all the final decisions. We do live video-walkthroughs and use other technology in interesting ways so that the feel like they are there anyway. The investor makes the important decisions and gives approvals, based on the information we provide. If you have any interest in deals near Chicago or Milwaukee, send me a message.

Unless you trust your team enough to basically hand them a check for say $10k and trust that they will get the job done, and/or you are willing to visit the job site personally on a weekly basis, in no way, shape or form would I advise any newbie to take on a rehab out of state. There are just way too many ways to get ripped off, and I suspect you will discover for yourself many of them ifyou go this route. Besides that, I assure you that there are plenty of deals to be had and ways to make great returns investing locally in CA RE. Find somebody who is doing that and willing to share, then find a way to add value to their operations while you learn. Much, much, much better and lower risk way to go IMO.

@Phillip Vaughan What city are you planning on investing in? When putting a team together BP is a good place to start for real estate agent and management company. Not sure how many contractors are on the site but I'm pretty sure you can get some good referrals from the site. 

Once you find a team, you need to visit the city that you are investing in and meet the people you are relying so heavily upon.  Visit when you have some deals under contract or closing day. Stay a few days and learn about the city. 

lastly, use a third-party inspector until you get very comfortable with the person who doing you initial walk through. 

Best of Luck, 

Mr. Duplex 

We work with many investors from out of state. They typically fly down here to prospect the territory and interview as many local REI people as possible. What I like about Milwaukee is that it's a big market but it's small--everyone seems to know everyone and the people in this market are extremely helpful. Just by joining a few REI groups focused on Milwaukee, you will learn who's who and gather useful intel.

Most of the successful out of state investors we work with have a solid PM and that PM monitors the rehab project as well as finding other opportunities for the investor.  I can refer you to a couple of people who are very good at this. 

Best of luck in your REI adventures.

~Rebecca

Well one thing is that you don't have to buy a property that needs a rehab. I've dealt with two scenarios from buying/owning out-of-state:

Buying- I've only purposefully bought turnkey properties out-of-state so I specifically don't have to deal with rehabbing and such long-distance. There are a lot of turnkey companies out there (don't trust them all) in various markets, so plenty of buying options where you don't have to do any work on the property at all and all the teams are in place.

Owning- I do have one property that wasn't turnkey (I lived in it before I knew I was moving to CA). Last summer it needed a full rehab--triggered by tenant damage with smoke but went ahead and used it as an opportunity to go ahead and do the upgrades it needed anyway. I'll tell you that in all of my years of owning long-distance rental properties, this rehab was the only thing I've HAD to go tend to in person. It was horribly exhausting. What I learned from it is that I can't trust rehab qualities by contractors without seeing it all in person. Even the good contractors would miss things here and there and/or not pick up on everything that needed to be done.

So two pieces of info I'll leave you with-- 1. You don't have to buy anything that needs a rehab and 2. If you do rehab a property, I higgghhhhly recommend you be there in person to tend to it.

@Phillip Vaughan I'll second what @Ali Boone said - if you're going the self-assembled team route (choosing an agent, a contractor, a PM) for a long-distance investment, you'll likely end up with more work than you bargained for. You can go the full-service turnkey route, where the company buys, rehabs, markets, tenants, and manages all the properties they sell. Or you can find a 'turnkey' property (one that has already been rehabbed and is ready for tenants) through an agent and hire your own PM. Either is going to be easier than rehabbing from a distance, it's a matter of how many moving parts you want.

@Brie Schmidt and @Jay Hinrichs have a site dedicated to reviewing turnkey companies (turnkey-reviews.com). While it's not comprehensive, it's a good place to start. Of course, the best resource is always BP, and you'll find no shortage of threads discussing different operators  -the good, the bad, and the ugly (some really ugly, so due dilligence is KEY). If you find someone you think you might like, you can always start a thread of your own to solicit opinions and experiences from other investors.

Turnkey is a great entry point for new investors, and even for experienced investors looking to expand into out-of-state markets or who just want something passive and reliable. That being said, there are some less-than-scrupulous people out there calling themselves turnkey operators, so you need to be ready to ask a lot of questions and demand specific, data-backed answers. When it comes to turnkey, the people you work with are the most important factor - even before market - because they will make or break your investment. No matter how amazing an investment is on paper, it can fail real quick if the people you're trust to make it successful aren't on the up-and-up. When you've narrowed it down to one or two operators, visit them, shake their hands, tour the properties - looking someone in the eye is still one of the best ways to either gain peace of mind or clock hidden red flags. 

If you're looking into TK, it can be easy to get overwhelmed. I posted a while back on a thread for another new investor venturing into this niche with some questions all investors should be asking of any TK operator they consider. Hopefully it is helpful to you in your research: 

https://www.biggerpockets.com/forums/55/topics/361999-new-investor-from-glendale-ca

Best of luck!

Clayton

Originally posted by @Phillip Vaughan :

I have a logistical question for those who are brave enough to invest out of your state. Assuming you have your team in place, real estate agent, contractors, management company; how do you handle the rehab? when you buy the property do you have the real estate agent hand the keys to the PM and the PM lets the contractors in the door? who gives the final approval for the rehab? and if you physically fly out to the location, at what point do you fly out - to look at homes? final inspection of rehab work?

As someone from California I have been trying to play this idea out in my head and get down to the logistic details on how this would play out.

It looks like it has been mentioned in here before, but have you thought about going with a Turnkey? Many investors who look out of state go with a turnkey provider because ideally everything should be done and completed for you. Make sure you do your research and see if they are a TRUE provider. Sometimes people just throw around the word "turnkey" and really they are just agents finding you homes off of the MLS they think do not need a lot of work.

You want to go with a company who will be there from A-Z not someone who tries to make it look like that.

Check out:

How to Find the Right Turnkey Real Estate Investment Company for You

and

The Best Types of Markets for Profitable Turnkey Properties

Those should really help you out! Best of luck!

Thanks to all. Turnkey may end up being part of the strategy. I really wish I could get the same kind of deals here in California because I feel that real estate is something that I could really get into. But why would I blow a 20% down payment on a 200K home when I could buy 2 100K homes in the midwest with twice as much cash flow.

Having said that I still plan on getting in touch with an agent in my area this summer to start looking at foreclosures or distressed properties to at least TRY to find a good enough deal locally.

Thanks again for all of the input.

@Phillip Vaughan I'm with @Ali Boone on this one, buy something that's not in need of major rehab.  What I've bought out of state has been fairly new construction and while there is maintenance (garbage disposals, hot water heaters, etc.) that's a far cry away from demoing walls.  What I also did (and do) while visiting is lay out for the PM what materials I would want to do any renovations with.  For example, getting rid of carpet floors when they end their useful life.  That being said, that's a different proposition that renovations, taking down walls, etc.  It would take a lot of trust for me to  be able to completely outsource that to someone.  It's certainly nothing something I would trust someone with right out of the gate.

@Phillip Vaughan have you nailed down the areas you would like to begin investing? Once you have there are many operators that provide different options for investing. Some operators are doing advertising the BRRRR method, while many offer turnkey products to investors. Make sure the PM is either owned by the turnkey provider or is very closely vertically integrated, this is a huge pitfall to be aware of. Happy to share more if needed.

Originally posted by @Phillip Vaughan :

Thanks to all. Turnkey may end up being part of the strategy. I really wish I could get the same kind of deals here in California because I feel that real estate is something that I could really get into. But why would I blow a 20% down payment on a 200K home when I could buy 2 100K homes in the midwest with twice as much cash flow.

Having said that I still plan on getting in touch with an agent in my area this summer to start looking at foreclosures or distressed properties to at least TRY to find a good enough deal locally.

Thanks again for all of the input.

It can really bring you some great returns. And when you are all the way in CA it could help you feel better knowing the home (hopefully) should not need any work in the near future. 

@Phillip Vaughan As a turnkey investor myself for the last number of years, I can tell you that it is never quite as passive as some might make it out, although certainly more passive than BRRRR. If you find the right team though it can be a very good way to enter REI out of state. Finding the right team that still has inventory at prices that make for a good investment has become increasingly challenging for the turnkey investor in today's market. For my own Buy and Hold strategy I have turned to something that is truly passive, and with instant diversification. I invest in portfolios of 10 SFR at a time that are co-owned by the managers for aligned interests. I have written extensively about the investments I've made this way in my article series:

Have I Found the Holy Grail of Passive Real Estate Investing?

@Phillip Vaughan Great question. Flipping from afar is a bit more tricky than simply purchasing buy and holds. Are you interested in buy and hold at all? If so, I'd suggest starting there then graduating to the flipping arena after you have a foot hold in the market. After operating a buy and hold portfolio you will naturally develop/vet relationships with a team of people who will have your best interest at hand. Hope this helped. Best of luck. Remember to persist and you will WIN!!!