Recommendations for BRRRR, Long Distance Real Estate Investing
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I recommend newbies start local but I do understand that the cost of entry into San Diego market is not cheap. This can be overcome via a house hack. Owner occupied can get 95% LTV loans. $35k at 95% LTV could likely get a $600k to invest in a property but you want some reserves so $500k to invest in a property. $35k can be enough if going the house hacking route.
If you accomplish the text book BRRRR (not easy), after the refinance you have a property worth well over the $500k purchase and value add costs and $0 into it. I did indicate that the text book BRRRR is a challenge, but would it be terrible if you have $30k into a property worth $550k where you added $50k of sweat value? You return at this point would be $50k on a $30k investment. Not bad!
I indicated the text book BRRRR is challenging to do local. How challenging do you think it is to do a text book BRRRR OOS? I would think a lot more difficult (we have had OOS property but did not attempt an OOS BRRRR, but we have had to rebuild twice OOS after hurricanes and that was not easy).
We have built our RE holdings largely via San Diego BRRRR. We know it can work. By the way, we typically do not get all of our investment extracted unless we got an assist with market appreciation (which we have gotten multiple times, about half of our RE has had all of our investment extracted). Do not forecast being able to extract all of your investment, it is very challenging to do this in San Diego.
San Diego BRRRR "facts":
- The refi appraisals are conservative. Expect at least 5% below value if the appraisal was for a sale with associated offer.
It is very tough to extract all of the investment. Many things contribute to this but high on the list is conservative appraisal, not high cash out LTV, the competition for good candidate BRRRR properties is high so getting it with a lot of meat with respect to ARV is a challenge, labor costs are not cheap, etc.
the cash flow does not improve after the value add and refinance. We have found that the rent increase percent is very close to the loan increase percent with similar LTV. However, if you are going from real high owner occupied LTV to cash out refi LTV you may see a slight increase to cash flow but it will be due to the lower LTV.
My “facts” are not all obvious and there may be some exceptions, but in general they are very likely.
Good luck
28 Replies
- 6yTwana RasoulBusiness MemberReal Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
@Alex Mina I assume that’s 35k :)
You’ll definitely get more bang for your buck with a property out here but id be happy to give some pointers if you are adamant about investing OOS. I have OOS in investments myself.
Feel free to PM me
Best of luck!
Compass5122 Reviews Hey @Alex Mina and welcome to BP and real estate investing :) I'm fairly new myself, and don't have much knowledge to share, but I'd like to follow this thread so I can see who else chimes in on this. Are you only looking into out of state investments or are you open to local deals? It's been something I've been going back and forth about myself. I'm in San Diego and would love to invest locally to be more involved in the deal, but not sure if I'm up to bet 600K+ on my first deal, rather than something out of state for a fraction of the cost, lol.
I recommend newbies start local but I do understand that the cost of entry into San Diego market is not cheap. This can be overcome via a house hack. Owner occupied can get 95% LTV loans. $35k at 95% LTV could likely get a $600k to invest in a property but you want some reserves so $500k to invest in a property. $35k can be enough if going the house hacking route.
If you accomplish the text book BRRRR (not easy), after the refinance you have a property worth well over the $500k purchase and value add costs and $0 into it. I did indicate that the text book BRRRR is a challenge, but would it be terrible if you have $30k into a property worth $550k where you added $50k of sweat value? You return at this point would be $50k on a $30k investment. Not bad!
I indicated the text book BRRRR is challenging to do local. How challenging do you think it is to do a text book BRRRR OOS? I would think a lot more difficult (we have had OOS property but did not attempt an OOS BRRRR, but we have had to rebuild twice OOS after hurricanes and that was not easy).
We have built our RE holdings largely via San Diego BRRRR. We know it can work. By the way, we typically do not get all of our investment extracted unless we got an assist with market appreciation (which we have gotten multiple times, about half of our RE has had all of our investment extracted). Do not forecast being able to extract all of your investment, it is very challenging to do this in San Diego.
San Diego BRRRR "facts":
- The refi appraisals are conservative. Expect at least 5% below value if the appraisal was for a sale with associated offer.
It is very tough to extract all of the investment. Many things contribute to this but high on the list is conservative appraisal, not high cash out LTV, the competition for good candidate BRRRR properties is high so getting it with a lot of meat with respect to ARV is a challenge, labor costs are not cheap, etc.
the cash flow does not improve after the value add and refinance. We have found that the rent increase percent is very close to the loan increase percent with similar LTV. However, if you are going from real high owner occupied LTV to cash out refi LTV you may see a slight increase to cash flow but it will be due to the lower LTV.
My “facts” are not all obvious and there may be some exceptions, but in general they are very likely.
Good luck
- The refi appraisals are conservative. Expect at least 5% below value if the appraisal was for a sale with associated offer.
- Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes6y
@Alex Mina
I’d try to stay in your own state first if you can. Go read how OOS investing works for other first timers, it doesn’t. I’d find someone who is investing in San Diego and learn the process before OOS investing. You’ll thank yourself later.
- 6yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
@Alex Mina Welcome to real estate investing. I live in Escondido and know the San Diego market pretty well. The approach Dan described is a possibility but you face two critical things: 1. you need to find a lender in the current environment that wants to fund your deal and that will only work if you have the ability to carry the property. As you may realize, in San Diego county you are looking at about $12000/year for property taxes alone. For the property with such low investment, you are also looking at about $400/month for mortgage insurance. In addition, you will need to get homeowners insurance, which will run you almost $100/month. So, notice I am not mentioning what your mortgage itself would be. You already have about $1500/month in costs + utilities and probably about $2500/month for interest and principle. All in you are going to have to pay approximately $4000/month to hold the property.
If you now want to renovate it using BRRR, you will probably need at least 6 months depending on the ability to put money aside and buy the materials and in some cases get the experts to renovate the place you bought.
People here on BP tell you that BRRRR OOS is not a good idea, especially when you just started. I agree.
I created a system called "The IDEAL Wealth Grower" where I help you to make successful OOS investments. Yes, they are not BRRR but I believe they are a good compromise. I ask my clients: Do you really want to work on properties or do you want to invest to reach economic and ultimately financial independence?
If you are totally into BRRR, follow Dan's suggestions and also follow Dan. He is a great advisor and he has a ton of experience.
If what you really want is becoming a real estate investor and generate passive income, we should talk. In the current low-interest-rate environment your $35K can make you $200-$300/month. It will build you equity over time and it keeps you on a path where you can get more properties as you accumulate new down-payments. There are some ways to accelerate that path we could discuss.
On Bigger Pockets there are different "camps" of believers that you will discover. Some say you should only invest locally. Some say apartments are the only good investment. Some say working with the best TK operators is the way to go. Some say you should do nothing on your own and just give them your money - you may have heard about Grant Cardone.
I teach people how to become a real estate investor by selecting well-performing properties. The location is purely a matter of math. If you can find a well-performing property in San Diego that you can afford, you can invest here (you won't). If that well-performing property is far away from San Diego you need to have a long list of criteria to qualify all the service providers you will work with to have your property OOS.
Let me know if you like to speak about it. I am happy to have a call. PM me when you are ready
Originally posted by @Axel Meierhoefer:
@Alex Mina Welcome to real estate investing. I live in Escondido and know the San Diego market pretty well. The approach Dan described is a possibility but you face two critical things: 1. you need to find a lender in the current environment that wants to fund your deal and that will only work if you have the ability to carry the property. As you may realize, in San Diego county you are looking at about $12000/year for property taxes alone. For the property with such low investment, you are also looking at about $400/month for mortgage insurance. In addition, you will need to get homeowners insurance, which will run you almost $100/month. So, notice I am not mentioning what your mortgage itself would be. You already have about $1500/month in costs + utilities and probably about $2500/month for interest and principle. All in you are going to have to pay approximately $4000/month to hold the property.
If you now want to renovate it using BRRR, you will probably need at least 6 months depending on the ability to put money aside and buy the materials and in some cases get the experts to renovate the place you bought.
People here on BP tell you that BRRRR OOS is not a good idea, especially when you just started. I agree.
I created a system called "The IDEAL Wealth Grower" where I help you to make successful OOS investments. Yes, they are not BRRR but I believe they are a good compromise. I ask my clients: Do you really want to work on properties or do you want to invest to reach economic and ultimately financial independence?
If you are totally into BRRR, follow Dan's suggestions and also follow Dan. He is a great advisor and he has a ton of experience.
If what you really want is becoming a real estate investor and generate passive income, we should talk. In the current low-interest-rate environment your $35K can make you $200-$300/month. It will build you equity over time and it keeps you on a path where you can get more properties as you accumulate new down-payments. There are some ways to accelerate that path we could discuss.
On Bigger Pockets there are different "camps" of believers that you will discover. Some say you should only invest locally. Some say apartments are the only good investment. Some say working with the best TK operators is the way to go. Some say you should do nothing on your own and just give them your money - you may have heard about Grant Cardone.
I teach people how to become a real estate investor by selecting well-performing properties. The location is purely a matter of math. If you can find a well-performing property in San Diego that you can afford, you can invest here (you won't). If that well-performing property is far away from San Diego you need to have a long list of criteria to qualify all the service providers you will work with to have your property OOS.
Let me know if you like to speak about it. I am happy to have a call. PM me when you are ready
I do not know Axel's methodology to have any opinion but I will address how I would do a House Hacking BRRRR. It will address many of Axel's concerns.
I would purchase a detached thrashed duplex (it is all your budget would allow for). I would move into the more thrashed unit and rehab it in place. When it has been rehabbed, I would move to the other unit renting the freshly rehabbed unit at top of market rent (if it has a good rehab, it should be able to achieve top of market rent). I would then repeat the process on the 2nd unit (i.e. move into the unit and rehab it in place). I suspect using this method it will likely take at least as long as Axel suggested. After the second unit is rehabbed you refinance (the aging after purchase will be covered). The entire time the tenant is paying rent and you are saving paying rent. This ideally covers, or comes close to covering, all those expenses that Axel mentioned (on a $500K RE the property tax is less than $6K so half of what he indicated). When you add in the equity paydown you should at least be even on expenses and hopefully ahead on expenses.
After both units are rehabbed and the refinance, the value of the property should be substantially higher than purchase price + rehab costs. This is the sweat equity and helps with the short term return on investment.
Each year the rent will increase that will improve the cash flow while you live in a nice newly renovated property. This will eventually help with the long term return on investment. Typically, somewhere prior to year 10, the total accumulated cash flow as a function of the purchase price has surpassed most of the higher initial cash flow areas.
In addition, the property value appreciates (because over the long term San Diego always has but mostly because every metric shows that it should).
If you desire you could choose to do it again (the final R).
I am definitely not indicating that BRRRR is easy or requires no effort (it is not real easy and it requires a fair amount of effort). What I am indicating is when done correctly, it can provide a great return that can lead to substantial wealth.
Good luck
- 6yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
@Alex Mina @Dan H. Alex, I will be very happy when you can report back to this thread on BP that you found a property as Dan describes. if you can find that, you will be a very lucky man. By the way, my house cost $550K when I bought it 3 years ago and my property tax is $11000. The rate in CA is 2%.
The main issue I have with the properties in our San Diego area is the performance. Assuming you would find someone who would pay you the rent on the less broken down half of the duplex to cover your carrying cost so you can save your own rent and use it to renovate, everybody in the area would do it. The reality is that you can typically get about 50-60% of the rent you would need, and the more broken the property the more likely you will end up with the worst possible tenants.
I like the idea of getting started locally. I only caution that you could lose your shirt because you have to make an assumption on top of assumption on top of assumption on top of assumption to make things work. If you find that pink unicorn I applaud you.
In case it does not emerge and you rather look for passive income and becoming an investor I am happy to help. I don't recommend learning how to renovate horrible properties while living in it and hoping the tenant never misses a rent payment in the middle of the worst economic and unemployment crisis.
That's the beauty of real estate and becoming an Ideal Wealth Grower. You decide what your BHAG (Big Hairy Audacious Goal) is and then you go after it. dan and I are here to help you and there are more very knowledgable people on BP who can also provide amazing information.
I created my OOS portfolio of single-family residences that pay $7500/month of passive income while living in San Diego and am always happy to share what I learned and how I did it.
- 6yLee RipmaPro MemberRental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
@Alex Mina - you've already gotten some good advice. Ready for my advice - BRRRR is really overrated. What you actually want is value add over a few years. If you're doing a true BRRRR you need tons of cash or hard money. You are buying a property that is in total disrepair. My advice is to either get a duplex out of state with 25% down that is 1% rule now that has upside in the rents or to do the house hacking thing locally. With 35k you can afford a 25% down 140k duplex out of state or a 6-700k 1-4 unit with 5% down in SD. This higher purchasing power for house hacking is why people are suggesting this. I started investing out of state about 3 years ago (Kansas City). I do not own my own home in CA. I do not confuse living in real estate with investing in real estate. I now invest both locally in LA and out of state in Kansas City. I have transformed my networth doing so and quit my day job. So whatever you do, do something and get started!
Originally posted by @Axel Meierhoefer:
@Alex Mina @Dan H. Alex, I will be very happy when you can report back to this thread on BP that you found a property as Dan describes. if you can find that, you will be a very lucky man. By the way, my house cost $550K when I bought it 3 years ago and my property tax is $11000. The rate in CA is 2%.
The main issue I have with the properties in our San Diego area is the performance. Assuming you would find someone who would pay you the rent on the less broken down half of the duplex to cover your carrying cost so you can save your own rent and use it to renovate, everybody in the area would do it. The reality is that you can typically get about 50-60% of the rent you would need, and the more broken the property the more likely you will end up with the worst possible tenants.
I like the idea of getting started locally. I only caution that you could lose your shirt because you have to make an assumption on top of assumption on top of assumption on top of assumption to make things work. If you find that pink unicorn I applaud you.
In case it does not emerge and you rather look for passive income and becoming an investor I am happy to help. I don't recommend learning how to renovate horrible properties while living in it and hoping the tenant never misses a rent payment in the middle of the worst economic and unemployment crisis.
That's the beauty of real estate and becoming an Ideal Wealth Grower. You decide what your BHAG (Big Hairy Audacious Goal) is and then you go after it. dan and I are here to help you and there are more very knowledgable people on BP who can also provide amazing information.
I created my OOS portfolio of single-family residences that pay $7500/month of passive income while living in San Diego and am always happy to share what I learned and how I did it.
>The rate in CA is 2%.
Something is not correct. We own quite a few CA properties and 100% are below 1.25%. In my conservative pro forma, I use 1.25%. Even my residence in Poway, that has large school bonds, is below 1.25% (and is about what you estimated the Property tax for the investment property, Just over $12K/year). With Prop 13, the average CA prop tax is 0.8% but that is factoring in all the long time owners who are paying an artificially lower percent. I suspect that legit (no attempt to be conservative) new property tax is ~1.15% of sold price but I still suggest using 1.25% in a conservative pro forma.
Maybe your 2% includes the insurance????? PMI????
>The reality is that you can typically get about 50-60% of the rent you would need, and the more broken the property the more likely you will end up with the worst possible tenants.
I agree most purchases are cash flow negative at purchase but this is less so for multiplexes. What I had indicated was to achieve cash flow neutral when including the equity paydown. I think this should be fairly easy to achieve but I have yet to purchase an RE that projected negative cash flow without including the equity paydown (we have purchased an RE projected cash neutral - The value add was projected at $60K and we did far better than the projection) so of course I would think it would be easy to reach neutral when including the equity paydown. I would not be adverse to buying a negative cash property if it had a good value add. Note a $50K value add can compensate for a lot of negative cash flow.
>the reality is that you can typically get about 50-60% of the rent you would need, and the more broken the property the more likely you will end up with the worst possible tenants.
My pro forma most investors would consider real conservative (I consider them slightly conservative). I typically have allocated >=$300/month for maintenance/cap ex per unit. My pro forma shows that at a 0.7% rent to cost ratio most (virtually all) RE will have positive cash flow at investor level LTV (<=80% LTV). Every property I have analyzed (I do not do D areas) has projected positive cash flow at 0.75% rent to cost ratio. This means the rents are much closer to making cash neutral on multiplex than you indicate. It also means I still find positive cash flow RE on the MLS (rare, but on occasion).
>I only caution that you could lose your shirt because you have to make an assumption on top of assumption on top of assumption on top of assumption to make things work. If you find that pink unicorn I applaud you.
I do not see many assumptions necessary. I do think it is not easy to find a decent BRRRR property, but I would not refer to it as a unicorn find. I see them semi-regular but we expect outstanding ROI so RE that others may find acceptable we usually pass. If I do not have 100% return just after the refinance then we did something wrong (I do not believe we have failed to have 100% ROI just after the refi yet). I also agree that properly executing a BRRRR take effort and some knowledge.
I recommend everyone start local. I know what can be achieved via local RE investing. I also know we sold our OOS RE quite a few years ago in large part because we could achieve better returns local with less hassles. I think it is more challenging (but not impossible) to succeed with OOS RE.
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes6y
Originally posted by @Alex Mina:
Hello everyone,
I am a brand new investor. I live in San Diego. I rent my own place and have been for the past 8 years. I have about $35 saved to invest and I would like to put it towards my first investment properties. I'm more than happy to go out of state, as I know that I will get more bang for my back. I preferably would like to take on the BRRRR strategy, starting small. Maybe 2 B 1 B. I listen to all the podcast and just finished David Greene's BRRRR book.
Any recommendations on area to start? Or even better, are there any real estate veterans out there that would let me in on a deal? I'm coachable and want to learn.
A lot of people come to invest in Kansas City thinking they can do an extreme BRRRR and I always tell them that when you first enter a market to find a location that cash flows well, doesn't have a ton of work to do (near turn key), and buy in an area that will safely appreciate. Then, you can pull it out in a year or two and get more aggressive with your BRRRR. I would be safe on my first investment. Hope that helps!
- 6yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
@Dan H. Hi Dan
I found my mistake. The 2% is for the max increase in property taxes annually and the rate with local bonds, etc. is closer to 1 %.
I don't want to discourage Alex and if he wants to do BRRR and can pull it off locally it would be great.
Many of the folks that join my program are mainly interested in positive cash flow with a reasonable spread of the risk. That results in a performance of about 0.8 - 0.9% of the purchase price in rent and good cash flow with a 5/5/5 approach for vacancy, maintenance, and capex, plus 8-10% property management fee.
As I had mentioned, the mentoring program is called Ideal Wealth Grower and the GROWER part stands for
Goal
Current Reality
Opportunities and obstacles
Will to take action
Experiences from actions taken
Results generated from actions taken
Alex will have to think about what he wants to accomplish and what the long term goals are. If it is to generate profits from buying low, applying BRRR and selling high, that's a very valid approach.
In my program, people want to develop a passive income portfolio to ultimately become economically independent and possibly retire early.
Originally posted by @Axel Meierhoefer:
@Dan H. Hi Dan
I found my mistake. The 2% is for the max increase in property taxes annually and the rate with local bonds, etc. is closer to 1 %.
I don't want to discourage Alex and if he wants to do BRRR and can pull it off locally it would be great.
Many of the folks that join my program are mainly interested in positive cash flow with a reasonable spread of the risk. That results in a performance of about 0.8 - 0.9% of the purchase price in rent and good cash flow with a 5/5/5 approach for vacancy, maintenance, and capex, plus 8-10% property management fee.
As I had mentioned, the mentoring program is called Ideal Wealth Grower and the GROWER part stands for
Goal
Current Reality
Opportunities and obstacles
Will to take action
Experiences from actions taken
Results generated from actions taken
Alex will have to think about what he wants to accomplish and what the long term goals are. If it is to generate profits from buying low, applying BRRR and selling high, that's a very valid approach.
In my program, people want to develop a passive income portfolio to ultimately become economically independent and possibly retire early.
>That results in a performance of about 0.8 - 0.9% of the purchase price in rent and good cash flow with a 5/5/5 approach for vacancy, maintenance, and capex, plus 8-10% property management fee
If you are investing in a cheaper rent market with low unit count, 10% will not suffice for maintenance/cap expense over a long hold time. Also basing maintenance/cap Ex as a percentage of rent is basically indicating to replace a water heater in a $1k/month 2 BR costs half as much as replacing the water heater in the 2 BR unit that rents for $2k. In general, maintenance/cap ex will be a larger percentage of the rent in cheaper rent locations than in higher rent locations.
>That results in a performance of about 0.8 - 0.9% of the purchase price in rent and good cash flow.
I would rather have the 0.7% ratio local RE. It may not have good initial cash flow, but the effort should be easier. The rent appreciation will help the cash flow situation.
Good luck
Originally posted by @Gina Kim:
Hey @Alex Mina and welcome to BP and real estate investing :) I'm fairly new myself, and don't have much knowledge to share, but I'd like to follow this thread so I can see who else chimes in on this. Are you only looking into out of state investments or are you open to local deals? It's been something I've been going back and forth about myself. I'm in San Diego and would love to invest locally to be more involved in the deal, but not sure if I'm up to bet 600K+ on my first deal, rather than something out of state for a fraction of the cost, lol.
Hi Gina! Thank you :)
I've definitely considered investing locally, but as you said betting 600k is a much bigger risk than investing elsewhere. Since my next deal would be my first deal, and I know that I'm going to make plenty of mistakes, I would rather do it on an affordable home and ramp up from there.How far along are you in real estate?
Originally posted by @Dan H.:
I recommend newbies start local but I do understand that the cost of entry into San Diego market is not cheap. This can be overcome via a house hack. Owner occupied can get 95% LTV loans. $35k at 95% LTV could likely get a $600k to invest in a property but you want some reserves so $500k to invest in a property. $35k can be enough if going the house hacking route.
If you accomplish the text book BRRRR (not easy), after the refinance you have a property worth well over the $500k purchase and value add costs and $0 into it. I did indicate that the text book BRRRR is a challenge, but would it be terrible if you have $30k into a property worth $550k where you added $50k of sweat value? You return at this point would be $50k on a $30k investment. Not bad!
I indicated the text book BRRRR is challenging to do local. How challenging do you think it is to do a text book BRRRR OOS? I would think a lot more difficult (we have had OOS property but did not attempt an OOS BRRRR, but we have had to rebuild twice OOS after hurricanes and that was not easy).
We have built our RE holdings largely via San Diego BRRRR. We know it can work. By the way, we typically do not get all of our investment extracted unless we got an assist with market appreciation (which we have gotten multiple times, about half of our RE has had all of our investment extracted). Do not forecast being able to extract all of your investment, it is very challenging to do this in San Diego.
San Diego BRRRR "facts":
- The refi appraisals are conservative. Expect at least 5% below value if the appraisal was for a sale with associated offer.
It is very tough to extract all of the investment. Many things contribute to this but high on the list is conservative appraisal, not high cash out LTV, the competition for good candidate BRRRR properties is high so getting it with a lot of meat with respect to ARV is a challenge, labor costs are not cheap, etc.
the cash flow does not improve after the value add and refinance. We have found that the rent increase percent is very close to the loan increase percent with similar LTV. However, if you are going from real high owner occupied LTV to cash out refi LTV you may see a slight increase to cash flow but it will be due to the lower LTV.
My “facts” are not all obvious and there may be some exceptions, but in general they are very likely.
Good luck
@Dan Heuschele, thank you for the great information. I have looked into the house hacking route, and at one point, my wife and I considered a few properties. Ultimately, we decided this is not the route that we wanted to go. This might sound silly, but we didn't want to give the apartment that we are renting. We live here month-to-month, 3-bedroom apartment in the middle of San Diego paying $1800/month. House hacking would take away our ability to be mobile, which I find very valuable in current situation. So investing OOS seems like the option considering that we would also like to buy and hold.
Also, being that it is my first property, I'm not looking for a perfect BRRRR. At this point, I'm not concerned if I am able to extra my entire investment when I refinance. I know that would be a home run, but I'd be more than happy just getting on base, as I know that I'm going to make my share of mistakes along the way.- The refi appraisals are conservative. Expect at least 5% below value if the appraisal was for a sale with associated offer.
Originally posted by @Nick Rutkowski:
@Alex Mina
I’d try to stay in your own state first if you can. Go read how OOS investing works for other first timers, it doesn’t. I’d find someone who is investing in San Diego and learn the process before OOS investing. You’ll thank yourself later.
I appreciate the heads up!
Originally posted by @Axel Meierhoefer:
@Alex Mina @Dan H. Alex, I will be very happy when you can report back to this thread on BP that you found a property as Dan describes. if you can find that, you will be a very lucky man. By the way, my house cost $550K when I bought it 3 years ago and my property tax is $11000. The rate in CA is 2%.
The main issue I have with the properties in our San Diego area is the performance. Assuming you would find someone who would pay you the rent on the less broken down half of the duplex to cover your carrying cost so you can save your own rent and use it to renovate, everybody in the area would do it. The reality is that you can typically get about 50-60% of the rent you would need, and the more broken the property the more likely you will end up with the worst possible tenants.
I like the idea of getting started locally. I only caution that you could lose your shirt because you have to make an assumption on top of assumption on top of assumption on top of assumption to make things work. If you find that pink unicorn I applaud you.
In case it does not emerge and you rather look for passive income and becoming an investor I am happy to help. I don't recommend learning how to renovate horrible properties while living in it and hoping the tenant never misses a rent payment in the middle of the worst economic and unemployment crisis.
That's the beauty of real estate and becoming an Ideal Wealth Grower. You decide what your BHAG (Big Hairy Audacious Goal) is and then you go after it. dan and I are here to help you and there are more very knowledgable people on BP who can also provide amazing information.
I created my OOS portfolio of single-family residences that pay $7500/month of passive income while living in San Diego and am always happy to share what I learned and how I did it.
Axel, thank you for your input. I've actually run the math on a number of different properties, and I've realized that San Diego is not the best location for my FIRST investment. At some point in the future, I will invest in San Diego county, but the first one is just to get the experience under my belt -- the buying/closing process, becoming a landlord, etc. Passive income is definitely the goal.
I'd love to hear how you got to $7500/month.
Originally posted by @Lee Ripma:
@Alex Mina - you've already gotten some good advice. Ready for my advice - BRRRR is really overrated. What you actually want is value add over a few years. If you're doing a true BRRRR you need tons of cash or hard money. You are buying a property that is in total disrepair. My advice is to either get a duplex out of state with 25% down that is 1% rule now that has upside in the rents or to do the house hacking thing locally. With 35k you can afford a 25% down 140k duplex out of state or a 6-700k 1-4 unit with 5% down in SD. This higher purchasing power for house hacking is why people are suggesting this. I started investing out of state about 3 years ago (Kansas City). I do not own my own home in CA. I do not confuse living in real estate with investing in real estate. I now invest both locally in LA and out of state in Kansas City. I have transformed my networth doing so and quit my day job. So whatever you do, do something and get started!
Hi Lee!
I listened to your episode on the podcast back in March while I was on my way to a wedding in Palm Springs! Then watched it again on youtube at home. It was such great info, thank you.
I like your idea of getting a duplex out of state. That sounds like a good sweet spot between BRRRR and turnkey properties.
When you say value add over a few years, do you mean adding bathrooms/bedrooms and such over a 5 year span? Or better yet, what would that typically look like if doing so out of state?
- 6yLee RipmaPro MemberRental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
@Alex Mina
Glad you liked the podcast! No, I do not mean adding bedrooms and bathrooms, I am suggesting something far easier than that. When I say add value what I really mean is “make property produce more income.” How do you make a property produce more income? Well you make it so that people will pay more to live there. How do you get people to pay more? You make it a nicer place to live! New flooring, new paint, open concept (remove walls), washer dryer in unit, SS appliances, tile bathrooms, etc. So how can you make a space nicer, make people want to pay more to live there? That’s what value add is.
- 6yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
@Alex Mina You are welcome. I am always happy to talk. For the IWG program, I offer a complimentary strategy session to discuss the GROWER part of your situation. Just tell me when
- 6yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
@Lee Ripma I totally agree. That's one reason I like turnkey. Sure, it is debatable if turnkey costs too much on the front end to purchase. On the other hand, in my approach, there is a strong correlation between purchase, renovation, sale, and property management. That correlation leads to very good quality work. There is only one other approach that has worked for me and that is having someone who I trust and who does the purchase and oversee the renovation but for another reason than selling. He does the front end of the turnkey process to generate long term relationships with investors to be their lender. It's an interesting thought because he would get the properties he originally purchased and improved back in case the investor does not pay the bills/mortgage/loans.
Hope to talk soon and would love to get the link to the podcast Alex was referring to
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes6y
Originally posted by @Alex Mina:
Hello everyone,
I am a brand new investor. I live in San Diego. I rent my own place and have been for the past 8 years. I have about $35 saved to invest and I would like to put it towards my first investment properties. I'm more than happy to go out of state, as I know that I will get more bang for my back. I preferably would like to take on the BRRRR strategy, starting small. Maybe 2 B 1 B. I listen to all the podcast and just finished David Greene's BRRRR book.
Any recommendations on area to start? Or even better, are there any real estate veterans out there that would let me in on a deal? I'm coachable and want to learn.
Many markets available. Cleveland is the one I am most familiar with and it's also very popular with investors across the USA so I figured you'd get some value out of reading The Ultimate Guide to Grading Cleveland Neighborhoods. I also have similar guides that you may want to look over for Kansas City, Missouri. & Birmingham, Alabama.
In addition there are tons of other turnkey markets out there besides those listed above. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
- Cincinnati, Ohio
- Dayton, Ohio
- Toledo, Ohio
- Youngstown, Ohio
- Cincinnati, Ohio
- Memphis, Tennessee
- Saint Louis, Missouri
- Indianapolis, Indiana
- Detroit, Michigan
- Erie, Pennsylvania
- Louisville, Kentucky
- Milwaukee, Wisconsin
- Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or lose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
- Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
- Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
- Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
- Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
- Make sure your property manager is a licensed real estate brokerage.
- Google Clayton Morris scam and/or Morris Invest fraud for a cautionary tale of what not to do when buying turnkey real estate
- Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.
- 6yAxel MeierhoeferPro MemberRental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
@James Wise That's great advice for Alex.
@Nick Rutkowski that's not true. My first 5 units were all successful OOS BRRRR properties. I'm from NY they are in PA. With the right due diligence, team
& commitment it is extremely possible. But I do suggest investing somewhere you can drive to if necessary!
- 6yLee RipmaPro MemberRental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
@Axel Meierhoefer
You are shamelessly plugging some guru course you created which isn’t allowed on the forums.
I wasn’t recommending turnkey I was recommending stabilized value add. Not the same thing! The only way I would buy turnkey would be in a market with massive market appreciation. Otherwise you really want a way to create equity, that’s not possible with turnkey.
Originally posted by @James Wise:
Originally posted by @Alex Mina:
Hello everyone,
I am a brand new investor. I live in San Diego. I rent my own place and have been for the past 8 years. I have about $35 saved to invest and I would like to put it towards my first investment properties. I'm more than happy to go out of state, as I know that I will get more bang for my back. I preferably would like to take on the BRRRR strategy, starting small. Maybe 2 B 1 B. I listen to all the podcast and just finished David Greene's BRRRR book.
Any recommendations on area to start? Or even better, are there any real estate veterans out there that would let me in on a deal? I'm coachable and want to learn.
Many markets available. Cleveland is the one I am most familiar with and it's also very popular with investors across the USA so I figured you'd get some value out of reading The Ultimate Guide to Grading Cleveland Neighborhoods. I also have similar guides that you may want to look over for Kansas City, Missouri. & Birmingham, Alabama.
In addition there are tons of other turnkey markets out there besides those listed above. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors
- Cincinnati, Ohio
- Dayton, Ohio
- Toledo, Ohio
- Youngstown, Ohio
- Cincinnati, Ohio
- Memphis, Tennessee
- Saint Louis, Missouri
- Indianapolis, Indiana
- Detroit, Michigan
- Erie, Pennsylvania
- Louisville, Kentucky
- Milwaukee, Wisconsin
- Jackson, Mississippi
Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.
One thing to note when looking at the individual markets, you can make or lose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
- Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
- Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
- Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
- Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
- Make sure your property manager is a licensed real estate brokerage.
- Google Clayton Morris scam and/or Morris Invest fraud for a cautionary tale of what not to do when buying turnkey real estate
- Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.
@James Wise -- thank you for the advice, especially what to look out for. I appreciate it.
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