Long-Distance Real Estate Investing - BRRR Analysis Paralysis

46 Replies

Hello Everyone,

I am currently in the Denver Metro area and have one property that I am renting out and a primary residence. I just read David Greene's book Long-Distance Real Estate Investing. The book is great and I am motivated to implement the strategies that are taught to BRRR properties. But there is one problem with the book (or me)...

The problem is that it opens the whole country up as a possibility. The hurdle now is determining which markets would be good ones to target. I would like to target 3 and here is my shortlist:

Kansas City, KS

Orlando, FL

Raleigh-Durham, NC

Grand Rapids, MI

Des Moines, IA

With about 40K to invest, are there any on this list you would recommend, remove or add? 

Thanks

What's your strategy? Do you want to use that $40k as down payment on properties or pay cash? In KC, you should be able to buy a house straight up with that amount of cash. Or you could spread that out to different properties. 

Find a place that you don't mind traveling too! All the successful out of state investors I met either fly out there to handle issues or get creative with a PM. The best long distance idea I heard was when an investor gave an equity position to the local PM. Now the PM has skin in the game.. guess what properties she takes care of first?

Originally posted by @Reese C. :

Hello Everyone,

I am currently in the Denver Metro area and have one property that I am renting out and a primary residence. I just read David Greene's book Long-Distance Real Estate Investing. The book is great and I am motivated to implement the strategies that are taught to BRRR properties. But there is one problem with the book (or me)...

The problem is that it opens the whole country up as a possibility. The hurdle now is determining which markets would be good ones to target. I would like to target 3 and here is my shortlist:

Kansas City, KS

Orlando, FL

Raleigh-Durham, NC

Grand Rapids, MI

Des Moines, IA

With about 40K to invest, are there any on this list you would recommend, remove or add? 

Thanks

I personally think you are going to take on far too much risk given your cash position.. I know the book gives flowery out comes and sounds exciting but there is nothing more risky in real estate than doing remote rehab on your own if your not significantly capitalized and highy experienced.. there are going to be many people read that book and wish they had not.. 

@Reese C. I live in Raleigh. You can reach out to me if you want some basic understanding of the market here.

I also invest long distance (Cleveland and Memphis) and I would not do BRRR long distance like @Jay Hinrichs says.

The big dirty secret on BP is everyone talks about returns but they don’t talk about risk. You have to adjust your return expectations to manage the risk.

Could I go buy a whole city block in a war zone in Detroit? Sure! But why would I? The risk doesn’t justify the return potential.

I’m not sure what returns you want but having bought basic (cosmetic rehab) or totally turnkey properties so far my total return (cash flow, appreciation, loan paydown) is greater than 15 percent and my IRR is greater than 20.

Great returns much less risk then what you’re wanting to do. Just food for thought.

Originally posted by @Caleb Heimsoth :

Reese C. I live in Raleigh. You can reach out to me if you want some basic understanding of the market here.

I also invest long distance (Cleveland and Memphis) and I would not do BRRR long distance like Jay Hinrichs says.

The big dirty secret on BP is everyone talks about returns but they don’t talk about risk. You have to adjust your return expectations to manage the risk.

Could I go buy a whole city block in a war zone in Detroit? Sure! But why would I? The risk doesn’t justify the return potential.

I'm not sure what returns you want but having bought basic (cosmetic rehab) or totally turnkey properties so far my total return (cash flow, appreciation, loan paydown) is greater than 15 percent and my IRR is greater than 20.

Great returns much less risk then what you’re wanting to do. Just food for thought.

one thing to remember the author of that book is a high producing real estate broker with probably a lot of wherewithal.. and a ton of experience.. so yes what he talks about can happen.. but is it appropriate to advise those who have never done it and or on much tighter budgets and no real experience.. in my ever it to be humble opinion NO.. HIGHLY risky.. there is thread after thread on BP of folks who have tried this that lost all their money.. A lot of things have to go right.. and rehab contractors on lower end properties are as risky a person or business you can possibly align yourself with.. And a top producing agent in a market is NO way going to work with one off 50k buyer and marshal their whole rehab.. those folks would go broke.. they will sell you the home and wish you a good day.. :)

@Reese C.

Something you need to ask yourself is, WHO do you know and HOW will you operate in the area you want to invest in. Nothing wrong with long distance investing. For example, Chinese investors for spent $31.7 BILLION on US Real Estate last year. Its certainly doable with the right due diligence. Don't just ask yourself WHERE, but HOW and WITH WHOM will you invest. Investing in rehabs out of state means you need some trusted business partners that can do the work on time and on budget. So, think about areas where you may have some friends, family or associations that might be able to expand your network in your target market and find you some quality partners.

On another note, the Omaha, NE rental market is awesome. You may want to add that to you list to consider. But again, it's more about the WHO and HOW than it is about the WHERE.

Best of luck!

@Brian Garrett I don't know the details. I'm not sure if it was just equity, or equity + PM fee. He bought a 15 house portfolio with an average price of 20k per house. Very low-end stuff with an average of 15% vacancy. That's why he got a PM to get skin in the game. It struck as the best idea I've heard in a long time for out of state investing. 

Thanks everyone for your feedback! Here are a few details, thoughts and responses.

  • @Vi K. The $40K would be for a DP. I am not looking to purchase a place outright for $40K.
  • @Caleb Heimsoth Thanks for the offer, I will take you up on it. I will be targeting cosmetic rehabs (paint, carpet, appliances, vanities etc.). I would like to hear how your experience and numbers differed between basic rehabs and turnkey properties.
  • @Walter Key, You are right! This question / this post to help identify areas is just the next step in a long process that will lead up to an ultimate purchase. I plan on doing quite a bit of research into the right people and getting them in place but need to narrow the aperture. 
  • @Jay Hinrichs  Thanks for your insight, I truly appreciate it. I watched your podcast and I know you have TONS of experience. Is there an alternate path you would suggest based on the info?
Originally posted by @Walter Key :

@Reese C.

On another note, the Omaha, NE rental market is awesome. You may want to add that to you list to consider. But again, it's more about the WHO and HOW than it is about the WHERE.

Best of luck!

I will take a closer look at Omaha (especially since it's not too far off from Denver).

@Reese C. you can PM me if you want specifics but so far my turnkey has out performed my non turnkey.  I’m still learning.  Not perfect by any measure but as I get into it more I know what I’m looking for 

@Reese C. You forfeit your potential equity when buying turnkey since you are essentially purchasing at full market value and just receiving the cash flow. I'd suggest finding your own deal as that equity can be key to helping you grow your portfolio and acquire more deals moving forwards which sounds like your goal since you want to BRRRR.

Brrrr hardly works in KC ....well let me rephrase that, in areas that are a good fit for new landlords that are out of state.

Everyone invests in KC and there's no shortage of buyers couple that with first time home buyers being squeezed out of rentals you have desperate people bidding on houses.

Deals still exsist and you can still make money, but if you go into it thinking you're going to get a house like 75% of market value and then cheap remodel to bump up the apprisal it's not likely to happen. That good of a deal would either a not hit the MLS b) get marked up by a wholesalers, or c) bidding war on MLS and sell for over list.

Then you have contractors... construction is booming all over the country and KC is no exceptions. People have more work then manpower .... it'll be tough to find good contractors and unlikely to find cheap ones...

With all that said it's still possible, but you're going to need to alter the generic strategy and get creative.

Originally posted by @Brian Garrett :

@Reese C. You forfeit your potential equity when buying turnkey since you are essentially purchasing at full market value and just receiving the cash flow. I'd suggest finding your own deal as that equity can be key to helping you grow your portfolio and acquire more deals moving forwards which sounds like your goal since you want to BRRRR.

I agree, and that is why the BRRRR approach is my preferred strategy. Have you had any successful BRRRRs you completed out of state? If so how did it go?

Originally posted by @Matt K. :

Brrrr hardly works in KC ....well let me rephrase that, in areas that are a good fit for new landlords that are out of state.

Everyone invests in KC and there's no shortage of buyers couple that with first time home buyers being squeezed out of rentals you have desperate people bidding on houses.

Deals still exsist and you can still make money, but if you go into it thinking you're going to get a house like 75% of market value and then cheap remodel to bump up the apprisal it's not likely to happen. That good of a deal would either a not hit the MLS b) get marked up by a wholesalers, or c) bidding war on MLS and sell for over list.

Then you have contractors... construction is booming all over the country and KC is no exceptions. People have more work then manpower .... it'll be tough to find good contractors and unlikely to find cheap ones...

With all that said it's still possible, but you're going to need to alter the generic strategy and get creative.

 Good points. I appreciate the heads up. Is this the same on the MO side? I may have to pull KS off the list. 

Are there any places you would take a closer look at?

Originally posted by @Reese C. :
Originally posted by @Matt K.:

Brrrr hardly works in KC ....well let me rephrase that, in areas that are a good fit for new landlords that are out of state.

Everyone invests in KC and there's no shortage of buyers couple that with first time home buyers being squeezed out of rentals you have desperate people bidding on houses.

Deals still exsist and you can still make money, but if you go into it thinking you're going to get a house like 75% of market value and then cheap remodel to bump up the apprisal it's not likely to happen. That good of a deal would either a not hit the MLS b) get marked up by a wholesalers, or c) bidding war on MLS and sell for over list.

Then you have contractors... construction is booming all over the country and KC is no exceptions. People have more work then manpower .... it'll be tough to find good contractors and unlikely to find cheap ones...

With all that said it's still possible, but you're going to need to alter the generic strategy and get creative.

 Good points. I appreciate the heads up. Is this the same on the MO side? I may have to pull KS off the list. 

Are there any places you would take a closer look at?

 It's going to be the same in any popular metro across the entire country. 

For KC ... KC KS is not so nice, pockets of ok-nice exist but overall it's cheap houses in bad areas and all the problems that come with that niche. Higher taxes than MO side too and less landlord friendly. Go out to the burbs and you get goood schools and much nicer areas, but again you pay for that with increased taxes.

MO side is more landlord friendly and better areas but with worse schools. You have pockets of good schools in the burbs but lower price points and lower taxes...

For either side expect to be slightly below up to little above 1%. 100k property probably will rent for 8-1100. Expect to pay 75-125 a door and I'd avoid the 1500+ rents as they'll be harder to identify and lock down..

But again, just to give you an idea flooring is about 2-3 bucks a sqft to install plus material. If you're redoing the floor of say a 1500 sqft house and are at 4/sqft that's 6k. You're going to need the apprisal to come in about 22% higher than your cost to pull your money out... Expand that out to your construction project and it could get up there quick. You might find it better to buy a house that had floors done say like 10yrs ago and you can redo them when you sell it....

Originally posted by @Reese C. :

Hello Everyone,

I am currently in the Denver Metro area and have one property that I am renting out and a primary residence. I just read David Greene's book Long-Distance Real Estate Investing. The book is great and I am motivated to implement the strategies that are taught to BRRR properties. But there is one problem with the book (or me)...

The problem is that it opens the whole country up as a possibility. The hurdle now is determining which markets would be good ones to target. I would like to target 3 and here is my shortlist:

Kansas City, KS

Orlando, FL

Raleigh-Durham, NC

Grand Rapids, MI

Des Moines, IA

With about 40K to invest, are there any on this list you would recommend, remove or add? 

Thanks

Go by the deal, not by the area. Make sure the metro area is growing, and people over the past 20 years, including the recession, wanted to live there. You may find someone using direct mailers, cold calling, or even the MLS that will accept an offer that meets your criteria.

-Pretty much any metro area in Texas, Florida, Arizona, California, Oregon, WA, NC, VA, etc.

@Reese C. This thread is very similar to one I started not long ago. We ended up just picking Indianapolis to start in because we were tired of being stuck in analysis paralysis. We decided that our time would be better spent analyzing a specific market, rather than continuing to debate over different markets when we don't have any experience yet. I've had a lot of people tell me not to attempt a brrrr strategy out of state for my first deal, but I believe they are missing the point, or rather what my goal is. Yes, of course there is more risk, but that is what an investor does. Manage risk. Yes, we could buy a turn-key for low risk, or invest closer to home. But I want to drive two hours to my investment property just as much as I want to take a 5 hour flight to one. I don't want to do either of those things. I want to make this into a business by developing systems. Systems like "Long-Distance Real Estate Investing" and the "E Myth" teach us to develop. I would rather not make any money on my first deal, even lose money on my first deal, as long as I learned from it.

My advice is to just pick a location and start mitigating your risk by learning about that area and networking. Only you know the amount of risk you are comfortable with. I don't know about you but I already have enough people telling me I can't do something. That is the beauty of BP, it is full of people doing things I once though was impossible. You can do this and so can I.

Disclaimer: I haven't done my first deal yet so take this advice with a huge grain of rock salt. I'm just trying to offer a little encouragement in a world of dissuasion.

Originally posted by @Bryan Venable :

@Reese C. This thread is very similar to one I started not long ago. We ended up just picking Indianapolis to start in because we were tired of being stuck in analysis paralysis. We decided that our time would be better spent analyzing a specific market, rather than continuing to debate over different markets when we don't have any experience yet. I've had a lot of people tell me not to attempt a brrrr strategy out of state for my first deal, but I believe they are missing the point, or rather what my goal is. Yes, of course there is more risk, but that is what an investor does. Manage risk. Yes, we could buy a turn-key for low risk, or invest closer to home. But I want to drive two hours to my investment property just as much as I want to take a 5 hour flight to one. I don't want to do either of those things. I want to make this into a business by developing systems. Systems like "Long-Distance Real Estate Investing" and the "E Myth" teach us to develop. I would rather not make any money on my first deal, even lose money on my first deal, as long as I learned from it.

My advice is to just pick a location and start mitigating your risk by learning about that area and networking. Only you know the amount of risk you are comfortable with. I don't know about you but I already have enough people telling me I can't do something. That is the beauty of BP, it is full of people doing things I once though was impossible. You can do this and so can I.

Disclaimer: I haven't done my first deal yet so take this advice with a huge grain of rock salt. I'm just trying to offer a little encouragement in a world of dissuasion.

 Line by line my exact thoughts...

Originally posted by @Bryan Venable :

@Reese C. This thread is very similar to one I started not long ago. We ended up just picking Indianapolis to start in because we were tired of being stuck in analysis paralysis. We decided that our time would be better spent analyzing a specific market, rather than continuing to debate over different markets when we don't have any experience yet. I've had a lot of people tell me not to attempt a brrrr strategy out of state for my first deal, but I believe they are missing the point, or rather what my goal is. Yes, of course there is more risk, but that is what an investor does. Manage risk. Yes, we could buy a turn-key for low risk, or invest closer to home. But I want to drive two hours to my investment property just as much as I want to take a 5 hour flight to one. I don't want to do either of those things. I want to make this into a business by developing systems. Systems like "Long-Distance Real Estate Investing" and the "E Myth" teach us to develop. I would rather not make any money on my first deal, even lose money on my first deal, as long as I learned from it.

My advice is to just pick a location and start mitigating your risk by learning about that area and networking. Only you know the amount of risk you are comfortable with. I don't know about you but I already have enough people telling me I can't do something. That is the beauty of BP, it is full of people doing things I once though was impossible. You can do this and so can I.

Disclaimer: I haven't done my first deal yet so take this advice with a huge grain of rock salt. I'm just trying to offer a little encouragement in a world of dissuasion.

 Do that first deal! 

I agree with your all of your premises except narrowing your geography. If you live in CA why just limit it to Indianapolis? If one day you were looking and found a 10-15 unit complex in North or West Houston at a true 8 Cap and do not want to buy it you should DEFINITELY send me a message. 

I believe all good things in REI come from the quality of the deal and/or terms.