Should My First Investment Property be OOS?

11 Replies

I don't have any experience owning an investment property, but after getting my finances and credit in order while studying the tricks of the trade for the last year I think I'm ready to move forward.

I was focused on getting a property that I can easily visit once in a while, but I've seen some great deals in other states that might put me in a position to buy multiple properties outright.

Should I focus in my own city for my first investment property?  What are the trials and tribulations of being an Out of State Owner?  Any advice on issues that may arise?


@Ibrahim Yamini Where you invest will depend on your why in investing and your goals to accomplish your why. Are you interested in cash flow or appreciation?  Are you looking for immediate cash flow or can it wait?  What is your appetite for rehab? 

Can your current market you live in provide what you are looking for?  If not, then which markets can?

@AJ H. I have virtually no appetite for rehabs.  And I would prefer an immediate cashflow.  I guess it doesn't really matter which state as long as the numbers work for my bottom line.  I just want to make a minimum of $600 a month after all expenses had been paid.  I see it working for some $50K houses and $300K houses.  The opposite is true for both.  It just depends on what the unit will rent for

So , investing out of the area is difficult .. but not impossible! 
The first thing you need to do is assess your risk factor threshold.. 

that’s holds true in any investing though ..

But it may be extended a bit if you are looking at a substantial larger return  on investment by investing in out of state or out of the area ..

I would say the next thing is to find a boots on the ground person that can look after your interests and hopefully knows at the very least a little bit about real estate , construction .. ect ..

I’d prefer if they knew a lot though about what it takes to successfully invest in a property as a buy and hold or even as a flip. 

This can be a handyman , a contractor , a real estate agent / broker , , property management outfit , a family member that happens to live in the area you are wanting to invest ..

There are people out there willing to do these types of services and or even partner up on deals .. 

I myself partnered a couple times with out of state ( they lived in Chicago area  and I live in central Fl area ) investors , who where out priced in their market but at the time Central Fl was still reasonably priced for 3/2’s ..the average price we were paying for them was around $75-100k .. this was before this inflated bubble we are in now but after the old bubble had reset itself ..I’d say those same properties would be double to double and a half at least right now .. the market is just crazy .. 

it went really well on the first few flips .. the one investor only did one deal with me .. we made decent returns ( a total of around 30-35%  but that needed to be split for each of us to get our percentage ) but still .. even then it was a decent return on a 4-5 month investment of under $125k ..

Thing is , he had another opportunity that required all of his available funds so we only did that one flip ..

The other partner and I did one . We did really well on it .. bought another one that required a lot of work .. a lot !!

It was a hoarder house and I mean hoarder house .. took 5x 40 yard dumpsters to clean it out ..I had engineers stamped plans already approved by the city , had it down to the studs , had contractors lined up and ready to start when I came across another property that was a easy , easy flip at a great price and a stellar potential return ..

So I negotiated a even better deal on the 3/2 with a Arv of around $165k only required around $12.5k worth of rehab and the wholesaler was asking $85k for it ..well, I talked him down to $71k and we pay $500 towards the closing .. he accepted and my partner closed on it ..the only problem was my partner and I had set up our partnership under the terms that for each property we had a separate partnership contract and because the closing on that property was happing so quickly .. he had not signed his end of the contract between he and I .. it was discussed and printed and I had signed my end but the property closed before he sent it back to me signed .. 

I was excited as this property was going to be a easy and quick  $30-35k profit on my end ..but that excitement went away when the day following the closing came and I learned from my partner that him not signing the contract was by design .. as he decided ( after being convinced by the realtor I introduced to the deal for evaluation on the resell of the property ) that it would be a great buy and hold instead of a flip .. So my partner informed me that he was going to keep it as a buy and hold and not flip it .. and instead of me making $30-35k in a matter of a couple months .. he offered me $3k for a finders fee .. by the way, if you haven’t figured it out yet .. he was the finance partner .. I did everything else .. he put up the money so he was in control here 100% with me not having that signed partnership contract ..I was shocked and stuck .. either I accepted the $3k or I get nothing ..sure , I might have been able to take him to court but chances are I wouldn’t win and he had much deeper pockets then me .. 

So I accepted his insulting offer ( don’t get me wrong , had we discussed him just paying me a finders fee at all .. ever .. then I wouldn’t have had much of a problem with it .. ) 

After his check cleared my bank .. I withdrew the money and then informed him that our partnership was done and that he needed to buy me out of the property that I had down to the studs .. I sent him certified mail of my intentions and actions according to our partnership agreement ( as there was a section just for partnership buy outs and dissolution of partnership ) 

He argued with me , said he didn’t understand why I was upset and didn’t trust him .. then wanted to try to negotiate the amount I felt I was due for the work I already did to that hoarder house and even questioned the hrs I listed ( which was already on our daily spreadsheets previously when I recorded them ) but , in the end .. he ponied up the amount I wax due .. it was pennies on the dollar really .. it’s not like i was looking for a $15hr job ..actually, I think I ended up with closer to $25k .. but still .. that house alone I was projected to make over $50k on my end ..

Now .. as upset as I was with him .. cause I really didn’t understand why he would blow up our partnership like that .. according to him he didn’t need the money .. he wanted to start building his real estate empire instead of flipping them ..which I would have been ok with ..hell .. I would have liked to be even 25% partners on the buy and holds I helped acquire and rehabbed to rent status .. but that realtor got into his head .. when I confronted her on it , she accused me of sexually harassing her .. ( she’s a piece of work .. and she’s doesn’t like men ..as in , she’s in a relationship with a woman .. even if she didn’t look like a man ) I would never sexually harass anyone  ! 

By the way, that quick rehab for the now buy and hold .. took him and his new realtor buddy almost 5 mths to get the work done and listed for rent ..and the stud house .. well it’s just now being worked on again ..( this all happened back in 2018 .) and I have not partnered with anyone since until this last week in which I’m discussing partnering with a investor that I met here on BiggerPockets right around the same timeframe but, have since become good friends as he is local also 

I’m getting a bit off topic anyways ..my point is if you invest with anyone .. helper , contractor , partner .. especially when it’s out of the area .. be sure to have a detailed contract that spells out what is expected of each party and what happens when either does not comply with the written and signed contract .. 

and my other point is even though I felt I got burned and it took some time , I keeping my options open when it comes to partnering again. 

I hope this helps somewhat ..

I wish you the best ..

God Speed ! 

 

@Ibrahim Yamini why not? You do not have any experience anyway so if you connect with a local team or a team OOS, they are going to do all the work anyway right . So just connect with those that have experience and let them take care of all . I have done 100s and 100s and 100s of deals for my clients, 95% have zero experience and they are all OOS 

Good luck 

@Michael Short Wow, that’s a crazy story, but I guess not all that uncommon.  Your story reminded me of some pro-revenge stories I’ve heard recently about business partners screwing each other over.  I’m usually pretty vigilant but your info just reminded me to remain caught at all times with any deals with new business partners 

Thanks @Bob Stevens .  My focus was originally multi family homes but they are few and far between in the Phoenix area.  I’ve seen several out of state far below my price range which put me in shock.

If I can get two families in a unit, I only have to pay the standard fees once a month.  The second families’ rent will be pure profit.  

Based on my calculations, I’ll have money left over from my cash out to buy another multi family a few months later.  This is really exciting!

You have a lot of enthusiasm and energy but you MUST pick one strategy for now and FOCUS on it and nothing else. I love buy/hold single family houses, they’ve never let me down and they may make up the largest number of residential properties in the US so there is always another house out there. I would absolutely love a nice duplex or triplex but they go so fast and so high per door it’s insane. I have a saying: “420 pays plenty” :)

There are plenty of experienced RE pro's out there who might be open to having you invest with them BUT first establish your support team: RE attorney (very key), CPA, a broker you can trust (go look together at a minimum of 10 properties to decide and dont sign anything), what broker has to say about it, etc., who broker knows in REI, has broker also invested etc. Also a property manager, plumber, electrician, etc. They generally will give phone education. The more free estimates I get, the smarter I am! They always say they have to see it but if you can do a good job talking about it on phone call or email they will volunteer.

And read every word you can find about investing in RE. It’s the best because YOU can be in control of the way your money works for you!

Good luck!

Jane

Originally posted by @Ibrahim Yamini :

@AJ H. I have virtually no appetite for rehabs.  And I would prefer an immediate cashflow.  I guess it doesn't really matter which state as long as the numbers work for my bottom line.  I just want to make a minimum of $600 a month after all expenses had been paid.  I see it working for some $50K houses and $300K houses.  The opposite is true for both.  It just depends on what the unit will rent for

 You might want to look at some turnkey companies where the properties are all rehabbed and cash flowing from day one. You can look for the one property that hits your cash flow goal, then you are off to the races. Just keep in mind that turnkey properties traditionally do not have as good as returns as finding and operating your own properties. However, they take all the work out of finding, rehabbing, and managing the property. It is truly passive.

Best of luck!

@AJ H.

I'm a little hesitant about Turnkey companies. Not hearing too many good things about them, but I'll do a little more research. Seems like they would take a good sum of my ROI even if they're reputable

Originally posted by @Ibrahim Yamini :

I don't have any experience owning an investment property, but after getting my finances and credit in order while studying the tricks of the trade for the last year I think I'm ready to move forward.

I was focused on getting a property that I can easily visit once in a while, but I've seen some great deals in other states that might put me in a position to buy multiple properties outright.

Should I focus in my own city for my first investment property?  What are the trials and tribulations of being an Out of State Owner?  Any advice on issues that may arise?

Whether in-state or out of state your goal will be to establish relationships with people and/or organizations you trust to find, manage and protect your investments. In my opinion, you can work to establish relationships in your city and Out of State at the same time. Then it's just a matter of which strategy produces an opportunity first.

With regards to what issues may arise for out-of-state ownership. Naturally, it's more difficult to establish relationships, which is why our budgets always included quarterly visits. This increases your cost of doing business but it's a write-off.  Putting systems in place to monitor Out of State Investments is also required on top of the quarterly visits. Another solution is to purchase from a Turn-Key Company. Then it's just a matter of vetting the Turn-Key Companies.

 

@Ibrahim Yamini ya .. as I said , I don’t really understand why he did what he did .. the only thing I could come up with is that realtor got in his head ..and even though I felt a bit vindicated that it took him so long to proceed without me and I have to admit I took a little pleasure in it but not as much as you might think .. I’m just not that way as I really do wish the best for everyone .. just not at my expense lol .. the real regret is that it even happened .. I wish it hadn’t and wish we would still be partners but how could I ever trust him again ? 

Anyways .. I’m looking at partnering up on a flip I just found this week , with a investor friendly of mine .. so wish us luck ! 

And I wish you the very best ..

God Speed !