Out of state investing: Evaluating strategies: Turnkey / Wholesale / Partnership with local investor

24 Replies

Hey BP community,

I am looking intently on doing some buy & hold out of state investing and trying to come up with a good strategy. Some of the options and pros / cons i have been evaluating are listed below:

1) Turnkey -

Pros - hopefully easier / stress free, little $ down (conventional loan, no repairs)

Cons - i have heard sometimes it can not be easier / stress free in some cases… Also properties and repairs may be marked up compared to other options (in other words, not getting the max return on your cash)

2) Buy from Wholesaler. Build a team of GC / PMs

Pros - Cheaper costs, more trust with team members, likely higher cash flow / appreciation potential

Cons - requires more hands on work in location, time to build team, cash purchases,

These may be the extremes of the spectrum and I am sure there are a lot of options in between such as using a traditional agent, etc. I have also been thinking of a way to try and get the best of both worlds through a hybrid type of approach / partnership.. which leads to option / idea 3.

3) Find wholesaler/boots on ground who wants to do buy and hold, but doesn’t have as much cash… create partnership. This creates 2 parties incentivized to do the best thing for the partnership.

Idea: wholesaler finds deals. Both parties put cash in (maybe as the out of state investor I put in more up front, 65/35… 70/30?).  In location investor gets GCs to give quotes, and organizes any needed rehab. OOS investor works to get mortgage, insurance, coordinate w/ PM, etc.  We refinance the property and end up as 50-50 split.  

Does anyone have any thoughts on the feasibility of something like this? I am really trying to get good prices, maximize my money, and build a solid team through incentivized teamwork. Sound like a crazy idea?!? Haha. I would like to hear your thoughts and experiences on if you think it could work… Or if you have tried something like this.

I am looking into the areas of Indy and Kansas City mostly… SFRs and small multis.

Thanks for your input.

I work with a number of out-of-state investor such as yourself, that are in the same position as you are.  Funny, most are also from California.  The simple answer is, yes, yes and ....yes.  You can, and we do, use all three options you described, successfully.

@Matt B.  

These are all great ideas.... It's all about getting the most bang for your buck I totally understand where you are coming from. Out of state investing takes a lot of time and courage, It probably is one of the hardest things anyone can do ie.. trust some one, GC, PM, or company with your money or investment and you are not there to watch. That's when due diligence, credibility, and gut instincts come into play to achieve best results in all of the three scenarios you mentioned.

I would like to add a 4th- Look for investors, wholesalers and or turnkey providers etc who are willing to do owner financing.

Good Luck,

Derrick

Medium new logo for bigger pockets..Derrick Craig, Memphis Buy and Hold | [email protected] | 901‑212‑4476 | http://www.memphisbuyandhold.com

I think you nailed the primary issues. Although I would always prefer partner on the ground, I am never expecting these folks to be easy to find. 

One thing I have been advocating: Head over to Facebook and search for Kansas City. If you click on the city profile, it will list everyone you know who current lives there, or has ever lived there. Although it's unlikely they are the exact folks you are looking for. If you know them well enough, they are likely to give a trustworthy referral.

Do the same with LinkedIn. Although I wouldn't expect weaker business contacts to do the same favor. The ones you actually know will be happy to help you.

@Matt B.  I think you definitely have 3 good ideas of how to invest from out of state. Regardless of which route you choose to go, I'd highly recommend going to that city and checking out the areas of properties you may be looking at to get a better feel for the quality of property you are buying. Also, having a team on the ground is super important, whether that's for doing actual purchasing/rehabbing/etc work or someone to bounce ideas and questions off of. Good luck!

@Matt B. Hello, I'm Connie J Covert. I'm a licensed Realtor in KC, MO area. I've worked w/investors (mainly out of state/country) for 5 years. There's a twist to what I do! I have a wholesale business, building/adding to all the time. I have a group of wholesalers, investors, GC and can recommend a great PM company. The trust/relationship I have w/my investors is remarkable! I'm just straight forward & honest. I find deals non listed, as well as listed, FSBO, etc. My "fee's" are not astronomical, therefore I build in volume. That's a good business practice that's been overcome by GREED!

Please let me know if I can be of assistance to you. I will help you build a portfolio, have hard money lender also!

Originally posted by @Matt B. :

Hey BP community,

I am looking intently on doing some buy & hold out of state investing and trying to come up with a good strategy. Some of the options and pros / cons i have been evaluating are listed below:

1) Turnkey -

Pros - hopefully easier / stress free, little $ down (conventional loan, no repairs)

Cons - i have heard sometimes it can not be easier / stress free in some cases… Also properties and repairs may be marked up compared to other options (in other words, not getting the max return on your cash)

2) Buy from Wholesaler. Build a team of GC / PMs

Pros - Cheaper costs, more trust with team members, likely higher cash flow / appreciation potential

Cons - requires more hands on work in location, time to build team, cash purchases,

These may be the extremes of the spectrum and I am sure there are a lot of options in between such as using a traditional agent, etc. I have also been thinking of a way to try and get the best of both worlds through a hybrid type of approach / partnership.. which leads to option / idea 3.

3) Find wholesaler/boots on ground who wants to do buy and hold, but doesn’t have as much cash… create partnership. This creates 2 parties incentivized to do the best thing for the partnership.

Idea: wholesaler finds deals. Both parties put cash in (maybe as the out of state investor I put in more up front, 65/35… 70/30?).  In location investor gets GCs to give quotes, and organizes any needed rehab. OOS investor works to get mortgage, insurance, coordinate w/ PM, etc.  We refinance the property and end up as 50-50 split.  

Does anyone have any thoughts on the feasibility of something like this? I am really trying to get good prices, maximize my money, and build a solid team through incentivized teamwork. Sound like a crazy idea?!? Haha. I would like to hear your thoughts and experiences on if you think it could work… Or if you have tried something like this.

I am looking into the areas of Indy and Kansas City mostly… SFRs and small multis.

Thanks for your input.

Hi Matt,

Great post

Check out a few blogs I wrote for Bigger Pockets on this topic that you might find useful.

http://www.biggerpockets.com/renewsblog/2014/07/26/sight-mind-real-estate-investing-afar/

http://www.biggerpockets.com/renewsblog/2014/06/28/abcs-real-estate-asset-classes/

Thanks and much success.

Medium list n sell logo designEngelo Rumora, List'n Sell Realty | [email protected] | 419 740 6999 | https://agentscomefirst.com/ | Podcast Guest on Show #89

I would probably lean toward option 3. That way you align your interests with the people on the ground. It can be very hard to manage a team from afar and I've seen several out-of-state investors get taken advantage of. 

Make sure to study the area thoroughly and stay out of really bad neighborhoods (the price is super cheap for a reason). And vet whatever property manager you use thoroughly, this is where a lot of out-of-staters get burned.

Medium apartment logoAndrew Syrios, Stewardship Investments | http://www.StewardshipProperties.com | Podcast Guest on Show #121

Matt, the first thing you have to ask yourself is whether you have the time, inclination and skills to do it yourself. That's not for everyone and if you don't have all of these, you can et yourself in to trouble. People often assume that you pay a lot more for a turn key property and with some turn-key companies that put huge mark ups on the property, you do. If a turn key company doesn't allow you to have financing or won't agree to a finance contingency in their purchase agreement, that's a good sign they are putting big mark ups on them because they know it won't appraise. Avoid those companies.

There's a lot of reasons buying from a good turn key company doesn't cost you a lot more.
1. Turn key companies can acquire properties cheaper through auctions, cash offers, marketing direct to distressed sellers etc.
2. Turn key companies can do their renovations cheaper because of economies of scale
3. You don't have any cost overruns and nasty surprises on rehab with a turn key
4. You now what the true rent will be because it should already be rented
5. You don't have a lease up fee to get an initial tenant in place
6. It's cash flowing from the start. You can easily have 3 months of vacancy while you do a rehab and find a tenant. Also, all the time spent putting a team in place is lost cash flow.

I have to admit that I am a little biased because my company sells turn keys in Indianapolis and Kansas City, but I think with the right turn key company, you can minimize your risk and maximize your cash flow.

Mike D'Arrigo, Pinnacle Investment Properties, LLC | [email protected] | 800 348‑0956 | http://www.investwithpinnacle.com

For turnkeys, I agree with all of @Mike D'Arrigo 's points.

For wholesaling, my only edit to your thoughts on that route would be that the team members won't always be more trustworthy than other methods. Not saying they can't be, but when you create that kind of team, everyone works individually and not with each other (other team members), so the incentive to perform isn't as high (not as much as risk for them). Versus turnkeys, the team members are all tied to each other so the incentive to perform is higher because if one team member sucks, it can bring them all down. I also agree with the comment about understanding the difference in time/effort with this method. This can be a great method, but make sure it lines up with your goals.

For partnerships, just know there is a ton of risk in that. Especially if you are partnering with someone you don't know. I know of a couple partnerships that have formed on BP that have been really successful, but just go into it understanding the risks of doing so and make sure the legal ends are tied tight.

All of the options are good. One way to look at them is, from top to bottom, you are going from the least amount of risk to the most. So weigh your risk comfort with your interest in how much time/effort you want to invest, and you can probably decide from there!

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ | CA Agent # 01911993

Like Andrew, I vote option 3 if it is doable. Better returns, educational and broadens your skill set.

The traditional turnkey option if you are not interested in the nuts and bolts of the business. Thx.

This post has been removed.

Wow, lot's of good discussion going on here.  Thanks everyone for their input.

@Trevor Ewen  I really like the idea of looking through Facebook and linked in.  I tried Facebook and found a couple potential options.  Thats a great nugget!

@Engelo Rumora  great advice on your articles.

@Derrick Craig  Do you have any experience getting owner financing out of state?  Advice or previous deals you've done?  That sounds intriguing.  Is it common?

@Ali Boone  and @Mike D'Arrigo , I agree that whether whole sale or building a separate team you still need to build trust. Also, minimizing my time spent on investing is ideal (after I learn the process sufficiently). I think a good strategy for me is to visit my investment areas, then look at turn key properties, MLS properties, and whole sale options. Talk to people and feel it out. Mike, also the fact of avoiding leasing fee and vacancy during the properties first year is intriguing.

@Ali Boone Why do you think turn key is less risky then building a partnership out of state?

Thanks again for all your input.  If people have specific success or failure stories with options 1, 2, 3, 4 please share them and keep the great advice coming!

@Matt B.  

Original post
"@Ali Boone Why do you think turn key is less risky then building a partnership out of state?"

I don't want to speak for @Ali Boone but turn key is far les risky if you are working with a reputable  turn key company that you can fully trust. The reason being is that there are a lot of 'moving parts" that you have to get right when you do it on your own and build a team. You have to choose the right real estate agent, the right contractor, the right property manager and mortgage broker. The process is only as good as the weakest link in this chain and if you make one bad choice, it can have disastrous effects on your investment. With a good turn key company you only have to make one right choice. Working with contractors locally can be hard enough but managing them remotely is particularly challenging and some take advantage of the fact that you can't keep an eye on what is going on at all times. That 2 week rehab can easily turn in to 2 months and you have no control over the quality. You don't deal with any of these issues when you buy a turn key.

Mike D'Arrigo, Pinnacle Investment Properties, LLC | [email protected] | 800 348‑0956 | http://www.investwithpinnacle.com

@Matt B.  

  Hi Matt ,, I see your from Sunnyvale.. I myself went to Cupertino High and lived in Pa for years.. bought my first house in Milpitas for 80k and it was a shapel home..

I am curious why you think you need to leave the great state of CA to buy property.. and or the West coast.. you can achieve the vaunted 1% rule in any number of west coast areas. and or fix and flip..

I just funded a deal I Sac for instance were we bought the home for 60k put in 30k and sold for 130 in 45 days.. that's not a bad deal.

But if your bound and determined and think that out of state Is the only way to go. then my personal opinion is that you need to really check out the areas and the risks you need to forego the low end crap and buy top of the market .. Mike A  has some nicer stuff I like In Indy.. NO NEED to talk with middle men broker people that have responded on this thread they will just add expense to your purchase you can buy direct from the Vendors No problem.. Engelo has a nice little niche from what I see..  But again you must check it out for yourself. 

Joe has his stuff in or around Detroit or MI... Marvin I really can't understand what he is saying never could but I love the dude... Rodney and I have debated the subject. Mr. Craig from my conversations with him is lower end Memphis and proud of it. 

I just got to ask the question tough WHY WHY buy out of state properties that don't appreciate and everyone tells you PM is the major issue and if you get fubared your going to lose all your money ( which is a true statement) just curious really

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

This post has been removed.

@Matt B.   I invest out of state and I would have to say that the two most important things you have to do are:  Thoroughly research the areas you want to invest in, and make sure you find people you can trust to manage your investments. 

From my experience, as an out of state investor you absolutely have to buy higher end properties.  Sometimes the low end properties can be tempting when you see low purchase prices, and high returns.  However, in most cases those low end properties turn out to be more trouble than they're worth, especially when you have to rely on others to help you.  Investing out of state means that you start with a higher level of risk than those who are local to their own market.  Managing that risk is important. I do a lot of research to make sure I'm investing in the right places, and that I have the right people working for me.  I do anything I can to reduce my risk and still make a decent return.

By the way @Andrew Syrios   Is Bill Syrios your father?  I saw some videos of him speaking at an investor meeting a couple years ago. 

Originally posted by @Matt B. :

Wow, lot's of good discussion going on here.  Thanks everyone for their input.

@Trevor Ewen  I really like the idea of looking through Facebook and linked in.  I tried Facebook and found a couple potential options.  Thats a great nugget!

@Engelo Rumora great advice on your articles.

@Derrick Craig  Do you have any experience getting owner financing out of state?  Advice or previous deals you've done?  That sounds intriguing.  Is it common?

@Ali Boone  and @Mike D'Arrigo , I agree that whether whole sale or building a separate team you still need to build trust. Also, minimizing my time spent on investing is ideal (after I learn the process sufficiently). I think a good strategy for me is to visit my investment areas, then look at turn key properties, MLS properties, and whole sale options. Talk to people and feel it out. Mike, also the fact of avoiding leasing fee and vacancy during the properties first year is intriguing.

@Ali Boone Why do you think turn key is less risky then building a partnership out of state?

Thanks again for all your input.  If people have specific success or failure stories with options 1, 2, 3, 4 please share them and keep the great advice coming!

Thanks :)

Have a great day.

Medium list n sell logo designEngelo Rumora, List'n Sell Realty | [email protected] | 419 740 6999 | https://agentscomefirst.com/ | Podcast Guest on Show #89

Originally posted by @Raj S.:

By the way @Andrew Syrios  Is Bill Syrios your father?  I saw some videos of him speaking at an investor meeting a couple years ago. 

Hey Raj, yes, Bill Syrios is my father. Did you see his "Building a Real Estate Empire" video on youtube by chance? 

Medium apartment logoAndrew Syrios, Stewardship Investments | http://www.StewardshipProperties.com | Podcast Guest on Show #121

Hey! I think your plan sounds perfect actually. Look at all the options and that will give you a better idea as to what is out there. I've found in my experience that the more you look at, the more clear the answer is.

As far as turnkey versus building your own team... I kind of hate saying it like that because certainly there can be the cases where a team you build could end up more trustworthy than a turnkey team, so...it's not certain one way or another. But like I said, it boils down to incentive. Turnkey teams all work together (the seller, the rehabber, the PM, the whoever) under one umbrella so their motivation to do everything properly is going to be higher, because if they (one team member) flunks out, the whole thing is a flunk. Versus a do-it-your-self team...the rehabber won't care about the PM, and the PM won't care about the seller, etc. (unless they all happen to work together randomly) so they could get away with not performing as well and it won't hurt them much. Plus the turnkey guys are experts with investment properties, whereas random team people may not always quite understand it as well so they can go any which direction. One trick of course being finding a good turnkey company to ensure all those parts are functioning correctly.

But as I said, it can go either way. I would say in your case not to focus as much on which team is more trustworthy, but rather to think about how much time and effort will be required to do either option. Sounds like that is more of your determining factor.

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ | CA Agent # 01911993

Originally posted by @Andrew Syrios :

Hey Raj, yes, Bill Syrios is my father. Did you see his "Building a Real Estate Empire" video on youtube by chance? 

I did see that video on youtube a while ago.  I thought your father did a good job of explaining how he got started, and where you guys are now investing.

@Matt B.  

Yes I have experience in getting owner financing out of state and yes I have done owner financing for several investors, mostly foreign investors.. PM me and I will tell you how I worked the deal with one of my recent investors.

Check this bp article/blog out when you get a chance by @Nathan Brooks  

The $30k Rental Property: How to Finance & Profit From Cheap Real Estate

Also @Jay Hinrichs   You are correct I LOVE the so called "lower end" of Memphis it is where I grew up and I have family and friends in those areas, unfortunately my family was not rich nor did I have a rich Dad to help me get started, actually I never met my dad. Just so you would know a little bit more about me other than Low end lover... LOL!!! :)))

 But I also purchase in areas that are not called or considered lower end actually some are right around the corner or up the street from the top turnkey providers here in Memphis... As a matter of Fact one of the Turnkey providers here in Memphis offered to purchase one of my property's for a lower price than what I listed so he could sale it for a higher price than what I have it listed for I still have the emails from him.. Strange huh LOL!!!

Medium new logo for bigger pockets..Derrick Craig, Memphis Buy and Hold | [email protected] | 901‑212‑4476 | http://www.memphisbuyandhold.com

Originally posted by @Raj S. :
Originally posted by @Andrew Syrios:

Hey Raj, yes, Bill Syrios is my father. Did you see his "Building a Real Estate Empire" video on youtube by chance? 

I did see that video on youtube a while ago.  I thought your father did a good job of explaining how he got started, and where you guys are now investing.

 That's cool to hear Raj, I'm glad you enjoyed it. I'll pass on the word to my father. 

Medium apartment logoAndrew Syrios, Stewardship Investments | http://www.StewardshipProperties.com | Podcast Guest on Show #121

@Derrick Craig  , the article on homes under 30k was great.  Also agree it seems like it is all about trust and building the right connections and team.  I think I will take a trip out to my areas soon and start looking at properties and meeting contacts.  I PM'd you about the owner financing also.  Thanks!

- Matt

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