I am currently looking to purchase my first of hopefully many rental properties. The market in the town I live in is not good for buy and hold at this time so I am looking at surrounding areas.
I am finding property that would meet the 1.5-2.0 rule 45-60 minutes away. I am also only 2-2.5 hours away from Milwaukee and it looks more appealing to me for cost of entry vs cashflow. I am just unsure about managing the property from that kind of distance. Realistically how far away is to far for first time landlords?
Hi Garrett. Welcome and good luck.
Our furthest property is located about 25 minutes from our current residence. Once we move in about 1-2 months, we will have that distance/drive time reduced to about 20 minutes, with an average drive time of probably 8-10 minutes for each of our properties.
Don't let things hold you back from getting started but your first steps are where your 2nd, third and forth steps start, so they tend to be the most important.
My advice to you as you look to get started is don't underestimate the importance of being able to get to your place to take care of stuff/check in. I'd think you're right on the edge with that drive time however this statement largely depends in my view on the following:
- Is this an equity type property or a property that will cash flow (often the trade-off is that the cash flowing properties you don't get as much equity/appreciation, and the cash flowing properties take more of your TIME)?
- Per the above, what type of time are you working with - does your full time job accommodate you actually getting to the property to manage it?
- Are you planning to self manage? If you are leaning on a handyman or property manager and OK with the financial ramifications of this, it shouldn't be too likely that you'll need to go to the property.
- What are your longer term plans for possible next steps/acquisitions? We have really tried to 'cluster' our properties best we can and stay disciplined even when we think there's a stellar deal that's say more than 35-40 minutes away.
One other piece of advice is that I see the equity properties as being more appropriate as a first purchase. Get the properties that are in a good school system and take the long view - get in at a good deal, and be prepared to wait some time for equity to build, and let the appreciation do the work for you.
The properties that suck up a bunch of time and CapEx are not often the best fit for people getting started.
My first property was 6 hours away and now it’s about 12-14 hours away since I have moved. If you have good people in place it is very doable.
I just moved away from all my units, about ~3,000 miles. What I've found is being close creates an unnecessary crutch in your business.
If you want to grow, you need to be able to run your business without being there. Starting long distance makes this easy, if you start with units that are close you create a dynamic of comfort to being close, which is not ideal.
being close to a house doesn't give you any real benefit unless you intend to personally go there and shake down a tenant. otherwise long distance will offer better options and teach you valuable lessons that are widely unspoken and undervalued on BP.
The important part of real estate is people, not geography. Create a GREAT team and you can succeed anywhere, lousy team and you will fail everywhere.
@Garrett Davis before I answer your question I would like to hear more about why the buy & hold market in your town is not good. Is it not good on the buying side or on the renting side?
I did a lot of BRRRRs (sorry, now we call them BARRRR) and I like to keep them close. They were on my way to work (when I still had a W2) and about 15 min from home. With a BRRRR you have to be on the job every day. Or you have to pay someone to go there in your place. I have one duplex 45 minutes away and it's a pain the go there and drop off a new garage door opener etc.
Way too many people get hung up on the 2% rule. IMO a recepie for desaster. Speaking for Milwaukee its very easy to get yourself a 2%er. 50k home with $1000 rent. Boom, mission accomplished: homerun, we are going to be rich! Unfortunatley it's not that easy.
People realize that typically after they have bought ten of those or so and had them for a while. Everything looked good for the first 3 to 5 years, they kept on buying more properties, until they prortfolio starts reversing the cash flow on repairs and capex and they realize they have no equity and the capex they spent is sunk cost, becasue the fully fixed up home is worth the same as before. These portfolios show up on BP - search for "motivated seller".
Back to my questions - what's wrong with your hometown?
@Garrett Davis I forgot: When you evaluate a property outside of your area ad drive time (both ways) and milage expenses to your cash flow calculation. Your car is not for free and neither is your time. You should pay yourself at least $35 for sitting in the car and 50 cents per mile. Getting a property rented may take you 10 trips, getting something fixed is another couple trips. Once you have a stable tenant it will be less, but next time they move out plan for another 10 trip.
The other thing is for one property it's no big deal, but how many do you need to get out of the rat race? 10? 20? 30? Can you still drive it for that many? Or will you pay someone close by to do it for you? That would be another expense item in your cash flow calculation.
@Marcus Auerbach houses are in short supply in in Monroe, WI causing high prices. Most property is going for asking price and at times higher. Rent on the other hand is hasn't followed so it is hard to find property will cash flows.
Ours was about 40 minutes away, if it's under an hour if you're handy, you can save a lot with maintenance calls. If it's hours or states away, your only option is to call a plumber/HVAC technician, which essentially guaranteeing at least $50-$200 charge. I guess it's doable, but just make sure you factor in additional things down the road.
@Garrett Davis my first rental property was about 30 steps away! My second one was about an hour and a half's drive. Both were manageable, and both came with their unique set of issues.
@Garrett Davis I believe episode 197 with Chris Heeren is an investor in the Madison, Janesville, Beloit area. From the episode it sounds like, he is doing very well in those areas and even has properties that meet the 4.0 rule.
@Garrett Davis check out http://www.coreprop.biz, if you are interested in Milwaukee. @Dawn Anastasi put the site together and has a lot of resources to help get you started. I'm in Madison, but recently purchased a duplex in Milwaukee. The only reason I felt confident doing so was because of Dawn's website. Specifically, I recommend the e-book she offers for $5.99. On top of that, she lists good quality contractors on her site for free. I can also recommend a good property management team if you don't want to manage the property yourself.
Any property within a hours drive is easy to self manage. Plenty of people drive and hr each way to a conventional job every day. No big deal and once you have been at this a while you will discover real emergencies requiring you to be onsite in short order are extreamly rare.
@Garrett Davis I'm about 750 miles and a 14 hour drive away my friend. The key to remote investing is working with honest people who have a track record of doing good business in the market. There is a ton of talent in Milwaukee my friend. All the best to you on your REI Journey. One guy that I can say is a solid guy in the market is @Marcus Auerbach the guy is extremely knowledgeable of what is happening in the market.
The 2% rule (or even the 1.5% rule) is not something you should follow. We try to stay within 30 minutes, and preferably 15 minutes, but if you are hiring a management you can probably afford to go a little further.
@Garrett Davis - finding a great property manager is key to managing from a far. Do that and your boundaries to invest are limitless!
The first property I managed myself was 40 minutes away, now it's 6 hours away. The farthest property is almost 3,000 miles away. The key is having good local feet on the ground in cases of emergency. Having said that, I can attest that starting with the first property being pretty close definitely helped to learn the basics before taking on something that is farther away. If it's 1 hour away, it's definitely doable. If it's closer to 3 hours, you definitely want to have some local as a backup for unexpected events.
Hi Garrett. Congrats on your new venture into REI. It's a big step and can free you from the rat race but if done wrong, it can set you back quite a bit.
To answer your question and provide some insight based on my personal experience, let me recount my first investment property. It was a duplex in a working class neighborhood but in a decent location and school district. It easily cash flows about $400/mth for both doors. We still have it and that was purchased 10 years ago. The property was only 7 minutes from our residence. I'm glad we had bought local because of all the issues that I had with learning to be a good landlord. We had bought it with Section 8 tenants, which we tried for 3 years but decided to terminate that class of tenants. We hired people to slowly update the property and now drive market rent. It's almost never vacant.
LESSONS LEARNED: huge learning curve no matter how much you read. try to get a mentor. shadow other experienced landlords. determine what class of tenants you want. make sure it cash flows with reserves for emergencies. buy in a good location and/or school district and you will weather most real estate corrections. this property doesn't appreciate as fast as SFRs but cash flows really well.
Fast forward 10 years and I now live 1,600+ miles from my properties. I employ reliable contractors to help me with maintenance and improvements. I fly back when needed. I've slowly converted my properties to Short Term Rentals (STR's) to increase cash flow by 2-4x. I've employed smart home technologies to easily control and monitor access to my properties. No keys whatsoever!
LESSONS LEARNED: now that i'm much more experienced and paid my dues, i've learned to leverage through equity and partnerships. i know what type of investments i want to do or to avoid. my purchases are mainly based on location, easy access to freeways and conveniences, and good school districts. i know my numbers. i am targeting growth markets that are landlord neutral or friendly. my tenants and guests are my goose eggs and i treat them well and in turn they pay me well ;-)
Hopefully, that helps. Much success to your journey in REI and hope to see you more here on BP.
@Garrett Davis The distance shouldn't be much of a stopping block, as you could leverage technology, create a solid team, and build a front-end process for tenant placement.
Also, there is a good book on BP for long distance investing if you need some theoretical background on the topic.
Hope this helps, Garrett. Goodluck. Thanks! - Ola
I can tell you from my own personal experience that the further away your property is, the harder it is to manage. I live in north central Indiana and my rental property is in Milwaukee, wi. about 3hrs away. The property was my fathers home (and my childhood home). My property needed a lot of rehab. So we purchased Arlo cameras to keep tabs on the property, and got electronic locks for the back door for remote access for contractors, and had ADT install an alarm system with remote access. (keep in mind technology can glitch and requires a internet connection, anything happens to your internet, you just lost all that technology)
The technology saved us alot of time, effort, and money as we were able to keep tabs on work being done, the property (it even alerted us to a water leak when the camera in the basement detected audio!). However there were 3 times when the technology did an update and failed to reconnect to the internet and required human intervention to get everything re-established.
The investment of the technology was about $1000. But the best part is that it is reusable for the next property and the alarm system (1 year contract) we made a mandatory item as a part of the rental, the alarm stays in our name, but the monthly service fee is added to the tenants monthly rent.
The biggest downside to long distance properties is not always being able to be present for work being done by contractors. For example, our electrician missed installing a light in the entryway. We were not able to be there for a week after the work was done and our re-hab contractor already started on repairing and fixing the drywall before we came back to inspect. End result, no entryway light without having to re-do the drywall work in that area at an added expense of nearly $300.
Hope this helps.
@Garrett Davis I am in Indianapolis and we manage properties for investors all over the world. I have more investors from California than anywhere else. We also have quite a few from Israel, Colorado, and Washington State. Since you are in a decent market, I would certainly take advantage of it, but I wouldn't be scared of a deal that may be 1-2 hours away. Different investors have different opinions on whether or not to use a property manager. I live in the market that I invest in and use a property manager (of course, I work for the property management company.) It's easy to manage properties when things are going well, but it can get tricky when things go wrong and I would rather have an experienced professional handle these things. A good PM can pay for itself by avoiding many costly mistakes and a bad PM can ruin what would otherwise be a great property. I would certainly seek out some local investors to work with. Having a mentor will do you very well. BP is also full of very valuable resources and people who have tons of experience. Best of luck!
Hi @Garrett Davis, my first property is only 1 - 1.5 hours away. However, when I’m in NJ my other properties are 1,000 miles away (FL). But I’m down there enough and found a good handyman so my tenants mostly call him for any problems. For your first property I would tend to stay local and as you grow as an investor and become more comfortable the further away your properties can be.
My rule for investment in local: 15 minutes from my home so I can stop by to fix any minor issues. If I have to invest 2 hours away I will hire a pm to manage. I value my time as $30 per hour so you can see the logic.
Keep your friends close and your tenants closer.
My suggestion would be to have your first one as close as possible........ big learning curve and that gets multiplied when you add distance. Learn the ropes close to home and get some "seat time" under the belt before you expand to farther distances.....
This is all predicated on being able to buy close to home....some markets make it near impossible for a new investor to buy close to home.