Turn Key out of state - what is your strategy

51 Replies

Hello BP,

so I have acquired 3 turn-key properties since when I started in Summer  and in process of closing on 2 more.

Out of total 5, 2 are relatively close by (PA and NJ) and I have seen them and believe those are great purchases, but the other 3 are "virtual" buys - via turn key providers online...

When I take time to reflect on online purchases, I can't help but think that this is probably not the smartest way to invest my money. Sure, the numbers on paper work and I should be getting positive cashflow every month. Sure, I took all your advises and stash away 10% from all the earnings in case of repairs...

The reason why I do buy these far away properties is two-fold

1. There are no good deals that I am able to find anywhere in driving range from where I live on Long Island, NY

2. I am a newbie and work full time and all these online providers such as Roofstock are great for someone like me

But the more I am getting myself into this game, the more I am concerned that repairs and vacancies will eat my profits away and at the end, the properties are not sell-able too and I will be stuck with them or lose big.

If you are passive investor and invest out of state, I am interested to know what your long-game strategy is?

thank you for reading!

David 

thank you @Jay Hinrichs - I loved your podcast - wow!

How does one go about properly choosing these online investments in the first place, w/o ever seeing the area or properties?

Originally posted by @David Khalfin :

Hello BP,

so I have acquired 3 turn-key properties since when I started in Summer  and in process of closing on 2 more.

Out of total 5, 2 are relatively close by (PA and NJ) and I have seen them and believe those are great purchases, but the other 3 are "virtual" buys - via turn key providers online...

When I take time to reflect on online purchases, I can't help but think that this is probably not the smartest way to invest my money. Sure, the numbers on paper work and I should be getting positive cashflow every month. Sure, I took all your advises and stash away 10% from all the earnings in case of repairs...

The reason why I do buy these far away properties is two-fold

1. There are no good deals that I am able to find anywhere in driving range from where I live on Long Island, NY

2. I am a newbie and work full time and all these online providers such as Roofstock are great for someone like me

But the more I am getting myself into this game, the more I am concerned that repairs and vacancies will eat my profits away and at the end, the properties are not sell-able too and I will be stuck with them or lose big.

If you are passive investor and invest out of state, I am interested to know what your long-game strategy is?

thank you for reading!

David 

 This is a common thought/concern investors have when investing out of state with a Turnkey Provider. Hopefully, the provider you went with supplies the management in-house and they have excellent service. Having a property that went through rehab and inspections is one thing, but you want to make sure their management is excellent as well. 

Many investors buy properties online these days since they cannot fly out every time there is one available. They will be snatched up too quickly. The goal here is to make sure the TK provider is really reputable and can deliver the product they promised. Also, maybe do some research on their PM skills. Hopefully, they are rated A+ in terms of handling vacancies and maintenance. Maybe check with past investors and see how these items were handled? 

Tom Ott, Real Estate Agent in OH (#2016003865)
440-749-4043

thank you @Tom Ott

Yeah, I have dealt with Roofstock - i like what they have to offer, which works great for someone like me who sits all day long by laptop. They provide "full-service" so to speak. But it seems that the inventory or better say their margins are not so great for cashflow lately. So I am trying to expand my horizons into some other TK providers.

I want business but somehow it feels more like gambling :)

I think people are going crazy and buying everything hugely overpriced - the numbers that @Brandon Turner talks about in his webinars are nowhere to be found for someone who is a passive investor.

Originally posted by @David Khalfin :

Yeah, I have dealt with Roofstock - i like what they have to offer, which works great for someone like me who sits all day long by laptop. They provide "full-service" so to speak. But it seems that the inventory or better say their margins are not so great for cashflow lately. So I am trying to expand my horizons into some other TK providers.

I want business but somehow it feels more like gambling :)

I think people are going crazy and buying everything hugely overpriced - the numbers that @Brandon Turner talks about in his webinars are nowhere to be found for someone who is a passive investor.

You can also use investor friendly agents to purchase out of state properties so you can sidestep companies like Roofstock if the inventory on those sites aren't suitable for your investment needs.  Check with the property management companies you use to manage those properties, they may also work with investors on acquiring additional properties.

Jason Gines, Attorney in New York (#4767281)

Hey @Jason Gines , thanks for your input!

Yes, this is how I am trying to expand beyond Roofstock.

But, the key question really is whether buying blindly like that is the right thing to do. Currently, all seems good - you get your cashflow and all but if you dig deeper, it is not hard to see that the $100K house that you bought is in the area where similar houses only go for 60k. Yes, your house has been rehabbed but in a few years it will not be rehabbed anymore. Does it mean it's value will be dropping?

Originally posted by @David Khalfin :

Hey @Jason Gines, thanks for your input!

Yes, this is how I am trying to expand beyond Roofstock.

But, the key question really is whether buying blindly like that is the right thing to do. Currently, all seems good - you get your cashflow and all but if you dig deeper, it is not hard to see that the $100K house that you bought is in the area where similar houses only go for 60k. Yes, your house has been rehabbed but in a few years it will not be rehabbed anymore. Does it mean it's value will be dropping?

I'm not quite sure I understand what you mean by buying blindly.  If you are purchasing through Roofstock you are relying on their inspection, but if you are purchasing through an agent you are relying on them, their contractors, and your own inspection.  That isn't exactly purchasing a property blind, but it does require some amount of risk and a great deal of reliance on others.  With respect to purchase price, I hope you aren't purchasing properties at 40k above what other houses are going for in the area.  There will be items that need to be repaired or replaced as time moves on with a property, but the rent should cover those future items and the property would hopefully be appreciating in value unless you are purchasing in an area where prices are expected to remain relatively flat long term.  

Jason Gines, Attorney in New York (#4767281)

Hey David I️ am a recent BP me ever whose starting out in R/E. I’m also from the NY area. Did you buy your Turnkeys from Roofstock?

Well, yeah - you rely on reputable providers such as Roofstock and they will help you all the way (speaking from personal experience) but it is still a blind buy - I have never been even close to the area where the houses are located; I don't know the neighborhoods or the condition of the house. As an example - the very first house I got on Roofstock, the inspection stated that the roof is 5-10 years old and has more than 5 years life (standard roofstock description), only the Ins company almost denied coverage the day before closing bc the actual date of the roof happened to be 2002. 

Also, yes there is inspection in place and it definitely helps but some of those reports are very high-level and you cannot see the property and have an instinct or a feel for it. So yes, I still say that these are blind buys.

As far as the price is concerned - I think that the market overall is unrealistic. The prices are blown up because newbies like me are snatching everything that shows cashflow on paper. I understand that and trying to learn quickly but I looked at every single property in one city on roofstock (about 10 houses) and compared to houses in same area on zillow and trulia and every single one of them is overpriced by about 30% 

hi @Albert Severino , welcome to BP - great place to be to learn!

Yes, I got a few from roofstock and in process of closing on the other one right now.

@DavidKhalfin That’s great man good luck with your Portfolio. Thanks for the tip.

David did you buy your NJ, and PA properties as Turnkeys was it through Online purchase?

@Steve Kontos , how do you find those properties and do you/ your team rehab them and then hold and rent them or sell?

I have been reading BP posts and also listening to podcasts and some successful investors take time to learn the area, go there in person and analyze all factors and then build local team to invest, but I am not quite there yet :)

@Albert Severino , no both PA and NJ weren't online - both found by local RE agents believe it or not.

And I am outsourcing them to local property management because they are still far and also i want all my investments as passive income, but at least with these, I was able to see them and have a real feel for them and know the area, but there aren't many to choose from unfortunately.

@David Khalfin , buying outside your local market can be tricky. There's a lot of good advise in this forum. Reputation is certainly a huge factor in selecting a good turn key provider. But you can also "hedge your bet" by consulting a local agent. Once you're comfortable with an organization, find a local agent that works with investors. Use them as a consultant (I'd offer to pay them a fee) to bounce deals of of and even to be your feet on the ground.

My company provides turn key investments in the Philadelphia area. It's really important to me to clearly communicate our investment to our clients before they invest with us. 

Real estate is local. If you aren't sure about the market or a specific neighborhood, enlist the help of a local expert to fill in the gaps between the sales talk and the asset.

Good luck with your investments.

@David Khalfin I am also interested in possibly pursuing turn key out of state and am originally form LI. It sounds like you are off to a great start. I think the first question you should ask yourself is what do you want to get out of the property? Are you looking to generate strong monthly cashflow, fix it up and sell in the short term, hold long term and hope it appreciates? 

If you run the numbers and you feel you are getting a good deal and achieving what you set out to, I wouldn't be to concerned about repairs and vacancies because those costs should be factored in for any property you own.  I would however do extensive research into the market you are purchasing in, what houses nearby are selling for and if there is job growth and population growth. Lastly, I personally would really like to see before I buy but if getting to the area is to difficult many turn keys will provide a video of them walking through the home so you can get a better sense.

I guess I'm a little biased, but there are turnkey companies out there who are the right choice for an out of state investor.  They don't overcharge, and do not sell to investors for over market value.  Further, they have their systems so dialed in, that it's not really worth it for an investor to try to build a team on the ground.  That team would be working on 1-2 properties, whereas the the TK would be working on 20-30 in the same period.  That additional "forced equity" that the investor might realize would be eaten up in time, travel, effort, etc.  

@David Khalfin , in response to your question about choosing an investment without seeing the area or properties, check out this blog post for some resources that can help you evaluate a market

https://www.biggerpockets.com/blogs/10284/67625-why-do-you-invest-in-that-market

I also agree with @Jay Hinrichs , those are worries you will likely have anytime you own real estate. 

@Joshua Weidman , great advise! Thank you!

I am starting to network with the local providers, exactly how you said - find someone reliable and trustworthy and work with them because no one knows their specific area better than the locals.

However, my general concern is currently it is a huge bull market and everyone thinks they can invest in RE (including me) and so lots of local TK providers pop up in many markets across the country. And most of them mean well and want to provide honest service but many of them are not real seasoned professionals themselves so I guess the point is to find those that have been through recession and ups and downs, etc..

hi @Joe 

@Joe Vastola - are you telling me that you moved from LI to Brooklyn? It sounds backwards to me :))

I lived in Brooklyn before moving around and finally ending up on LI.

My goals are simple on paper - generate enough cashflow to be able to replace my current income from the full time job. So, the only thing I really care about is monthly earnings from the investments. Unless I really need the money, I am not looking to move these houses anytime soon. Obviously, I would love appreciation on each house but I don't count on it because that to me is pure speculation.

I read a lot about researching local area - read news, job progressions, population growth, etc. I try doing some of it but a lot of it sounds like a bunch of nonsense  for someone who is far far away from the actual area. 

I do like, however, to use google earth to check out the area surrounding the property. 

Any other tools that people use?

@Jeff Schechter , I agree with you that for someone like me it is way easier to find someone local. I don't have a know how, nor resources and time to build local teams, but it is quite possible that if one concentrates on one particular area, then with time that team may build itself..

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