How do you buy investment rehab properties sight unseen?

Question

Question to all you investors:
Please share your techniques for buying investment rehab properties out of state, sight unseen; sources of financing, hiring/finding contractors, property managers, and realtors.

Steve M. · Answer

i think the main problem with investors buying sight unseen props is they put their trust in to "Investment Groups" <-- I fell for one of these .... NEVER again.

Investment Groups (atleast the ones I have come in contact with) look good on paper, and even if you meet them face to face.  They tell you they have everything lined up for you, everything from the sale, rehab, to finding tenants & managing the property for you.  It sounds all fine & dandy, but what you don't realize is that you are paying a premium for EVERYTHING.  Realizing you are getting bent over backwards from hundreds/thousands of miles away isn't a great feeling.

Premiums Paid:
* Sale Markup (The investment group puts in under contract and essentially wholesale's to you)  Knowing that you don't know much about the area, they may try and squeeze in a few extra $$$ they wouldn't normally be able to.
*  They have their "crew" do everything.  Something tell's me, they don't pinch your pennies when funding this work.
*  PM's really don't look out for YOU, the investor.  They make more money if they can turn your property over to a new tenant every 2-3 months, than keeping a good quality tenant in there.

If you MUST purchase a property sight unseen, start your search for an agent or local HERE.  References are key .... Perhaps finding an investor in the area you are thinking about buying is your best bet.  They can help give you the lay of the land, perhaps point you in the right direction of a good agent, and perhaps a decent GC, etc.... I would trust a fellow investor over an "investment group" anyday!

If I were still living in California, I'd be rehabbing/flipping.  Seeing as my market is pretty rough right now for such a thing (Banks still asking too much for REO's) we are using a buy & hold approach.

Good luck!

Steve M. · Answer

Simple Answer = I don't anymore.  I did at one point, and its been nothing but issues.

I know this may not work for everyone (especially those living in low cash flow areas - IE:  Cali, Hawaii, etc...)

I now stick to drivable distances.  If its within 50-60 miles, I'll consider it.  I factor in driving time for repairs, collecting rent, etc.... If its further than I would like to drive to do those things, its too far away to own :)

YMMV !!!

Phillip Gainey · Answer

I have learned the hard way that buying properties out of state is not the way to go.  Unless you actually like flying cross country to "take names" and "kick arse"!

There are too many people you have to trust.  PMs for one.  Everyone I've talked to who have bought in Memphis have had to fire at least a couple property managers.  They don't screen the tenants properly and are not upfront about what is going on with your property.

We've had to fire two so far.  One rented to people with 4 eviction judgments against them.  Turned out the roof needed replacing and the tenants weren't paying the rent because the roof was leaking and they wouldn't fix it.  We weren't told about the roof at all.  So we fired him.

New PM took 5 weeks to get an estimate to replace the roof.  Turns out his roof guy was busy on another project, and was UNAVAILABLE.  Rather than telling us, he kept us hanging. Oh, and we weren't even informed about needing a new roof during that 5 weeks.  Found out by accident. In the meantime, the place is vacant and we are in a position of not being covered with insurance since we were still paying the occupied rate.  So we fired him.

Now we are working with a guy that seems to have it together (Jim West, Reedy and Co).  Just informed us today that this property is a "total mess".  Second PM just mentioned we need a new roof (5 weeks late) and that the garage needed repair.  He had full access to the property and never told us the true condition of the property.

What's my point?  If were invested locally, we could drive over there and see what the hell was going on, rather than being led along by people!  Kept fat, dumb and happy!  Until the bill arrives.

PG

Mike Jakobczak · Answer

I agree with Gregory.

Due Diligence is key to the success in buying unseen properties.  Your Power Team is always the most important part of your business in real estate but buying unseen properties it makes it even bigger!

Some tricks I do is working with a realtor that will do some extra leg work for you.

Ex: take lots of pictures of each part of the house, the neighbor houses, the main streets.  Even videos, if possible.

Also you will need the realtor to open the door for contractors, appraisers, inspectors, property managers, etc.

This usually means you need to throw some extra cash sometimes.  Depending on the relationship with the realtor.  My advice tho, is do not call any realtors unless you are ready to start putting in offers.  Relationship building is key to success, and you calling up to discuss areas without knowing anything about the area.  That spells out, not serious, to the agents.  Don't waste their time, they are very busy people!

Also use the internet to your advantage, use google maps, bing maps, you can walk through neighborhoods as if you were there.  If you see a lot of run down properties, chances are they are still like that.

To be successful, you have too be very organize for buying unseen properties.  I would not advice first time real estate investors to jump right into something like this.  But once you get good at it, the world is your back yard have fun with it.

Gregory Childs · Answer

We do pretty much all of our projects out of State. I would say we have a 75% success rate of hitting/exceeding our profit projections on projects, 20% we still make money (just not as much as we had expected), and occassionally we end up on the wrong side of the equation (but not drastically).

It's all about validation and confirmation and execution. 
We decide on a local representative (usually a realtor) - and we do one or two initial deals to see how they perform (limit our risk exposure).
We closely monitor the deals and apply project management principals throughout. The contracts and bids have to be very tight - otherwise scope creep will kill you.

We always have an independant  home inspection and desktop appraisal done in adition to the normal validation (CMA, Comps, etc). And before any draw requests we have a construction consultant verify the work.

The process is pretty simple:
Validate the properties that they meet a minimum criteria (basic spreadsheet)
Make offers (contingent)
Any accepted offers we then get a firm construction bid, desktop apprasial, comps, etc
Negotiate/Close
Engage the contractor - phased draw approach
Validate work with construction consultant
Realtor acts as a local eyes/ears (make sure contractor is not leaving site a mess, etc)
Market the property
Negotiate/Close.

We've done 40+ properties this way in the past 18 months and it seems to be working well. Average ROI is around 25-28%.

TTFN,
Greg

J Scott · Answer

While I don't do this, my guess is that most people who do build their out-of-state team first, and once that team is in place (contractor, agent, closing attorney, etc), they use the team to do their due diligence.

For example, the agent can provide comps/ARV for areas and properties, the contractor can provide rehab estimates and bids for the work, etc.

I'm not sure how you could do this without a team in place to help out...

Dave Reynolds · Answer

Investing in properties without first seeing them is a risky investment. In order to limit some of the risk it is necessary to build the right team of professionals in the area that you want to invest. The most important partners would be a contractor and a real estate agent. The real estate agent will give you access to listings that meet your criteria and the contractor will get the work done. Ideally you would like your real estate agent and contractor to work together to ensure the properties are worth the investment. Your real estate agent will also be able to put you in contact with lenders in the area.

There are several resources available online that will assist with your search for a real estate agent and a contractor. The first source is local real estate listing and companies. These websites will identify who in that area is working with foreclosed or rehab properties. Additionally it will help showcase the type of properties that are on the market in a particular area. Once you have identified a few agents contact them and ask if they are willing to answer a few questions. Ask the agents questions that pertain to the type of work you are looking to engage in as well as questions about their experiences. Be sure to highlight your work and communication style so that everyone is on the same page from the beginning.

The next resource to use in the search for a reliable contractor would be a site such as angieslist.com. Sites that solicit user feedback and experiences provide a great resource for identifying contractors that do great work. Just like before be sure to interview the contractor and see if they are able to perform the duties that you are in the market for. Also you may want to identify a project manager to help coordinate and check-up on the progress of any work that is occurring at the property.

Finally be prepared to travel to the properties in the event something goes wrong. Things come up even when you hire the best people, be prepared to travel frequently when things go wrong because you are ultimately responsible for the property.

Dave the Real Estate Guy

Amanda Hensley · Answer

Our first rental was 2700 miles away, in our hometown.  We didn't originally choose to do that, we wanted something closer but couldn't find any deals.  So we decided to look in a town that we were always going to be traveling to at least once per year.  And things fell into place - I realised I knew a very good realtor there, my uncle is a handyman (and someone I trust), so they went through the property for me.  The only slight variable for me was the property management co since there's only one in town.  But with my folks being there, I know I can ask them to drive by every once in a while and just make sure the place looks ok.

And I like this b/c it has forced us to find a deal that pays for EVERYTHING on its own, including mgmt, and still puts money in our pockets.  We would have been much more eager to get something here and it would have been less of a deal.

Phillip Gainey · Answer

Wow, I got a sniveling private message today, obviously in response to my first post above, from the turnkey seller who sold my partner the property with all the problems, and who changed companies and now works for the same company as our new PM.  The one recommended by another BP member.  Seemed to be insinuating that he is going to some how cause trouble between us and our new PM.  At least that is how I read it.  Whatever.

Just one more reason to have a partner, with a mutual monetary interest in seeing that the property succeeds as an investment.  Deal with people who have a vested interest in the ultimate outcome.  Avoid the salesman and the buck passers.

PG

Phillip Gainey · Answer

I agree.  Have done this in Indiana with good results.  You've got to have a local person involved with something to lose.  Not some sales person who makes his profit upfront, recommends a pm who screws up, then makes lame excuses for that PM like:  "Well, if I recommended him he must have been doing okay up to the point I recommended him!"  Pretty lame.

The guy we work with in Indiana, arranged the sale (one subj2, one take over payments) and manages both properties.  Can't be any "buck passing".

Also, for out of state investors, realize that in many markets, Memphis for one, the PMs and Turnkey sellers all know each other. So don't get referrals for a PM from people on the sell side  Get a referral from ANOTHER OOS INVESTOR.  I got the PM mentioned above, Jim West, from another BP investor who has had good results from him after firing two other managers.

Also, focus on the person, not the company. What do I mean?  People move from company to company.  For example, it just so happens the guy who sold my partner the property above with all the problems, now works for the company the above highly recommended PM works for!  Identify the people you should be dealing with, no matter where they happen to be working.

PG

How do you buy investment rehab properties sight unseen?

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