Turn Key out of state - what is your strategy

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

@Jennifer Slaughter, great article - I have bookmarked all your research links. Actually reviewed one in detail and compared my area of interest to many others and mine sounds great! :)

And so my worries are the reason why I wrote this post - as usual I am hoping for insights from people like yourself! thank you again!

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Mindy JensenPro Member

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

8y

@David K. , If you're throwing down $30k, $50k, $80k on these houses, you can afford a $300 plane ticket to go visit to make sure you're buying what you think you're buying.

I wouldn't spread myself too thin across the country. NJ & PA aren't so far away from you. If you have a good property manager in those area, I'd concentrate on finding more deals that those PMs can manage for you. Finding a good PM is like winning the lottery.

[email protected]Podcast Guest on Show #261

2 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

@Steve Kontos, I think this makes sense for sure. I have been reading forums here in BP for about a year now. Thanks to BP community, I made the decision (not easy at 45) to invest and stick with it. Lately I have started listening to podcasts (about 3 per week) - some of the people on these podcasts are nothing less than fascinating.

I would love the opportunity to shadow someone but have not found the way to get there yet. I read a lot that I have to offer something in return (which makes sense) - once I figure out what is it that I have or know that seasoned investors may want or need, I will offer it :)))

0 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

Hi @Mindy Jensen, thanks for your feedback.

Yes, now that I have 2 properties in one far-away area and want to invest more, I am actually thinking of going there. I am just kind of trying to assess my plan/ checklist of what is important and how to execute my 1-2 day trip there to the fullest.

Any tips?

0 Reply

Steve Kontos

Investor · Great Neck, NY · Member since 2016 · 679 posts · 467 votes

8y

@David K.

Sounds good but get out there, here in NY we have events virtually every single night. Attend some and see what is needed so you can progress because you will not know until you speak to people.

1 Reply

Mindy JensenPro Member

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

8y

@David K. , contact your property manager in the area, and ask if they know of any properties that would fit your criteria, and can they show them to you when you come to town.

PMs must be licensed agents, although not every PM is also a showing agent. If you have one who is, they get a commission if they sell you a house, so they'll be incentivized doubly to show you houses. More to manage once you buy, plus the bonus when you do buy.

If they don't show houses, ask for a recommendation for someone who does.

[email protected]Podcast Guest on Show #261

1 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

8y

Consider using rentfaxpro to get more insights on how that exact address stacks up to a national average. There you will get a score for PMs available and rentability or that properties chances of collecting rent along with other factors like vacancies and tenant durations and more.

Then you can compare accordingly. Some of the turnkeys will score very poorly historically vs what is presented on paper so it is worth doing this beforehand.

Good luck!

0 Reply

Lane Kawaoka

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

8y

David Khalfin I started buying 11 turnkeys but I should have just stopped at 3-6 of them. At that point you get it... how to manage them. It’s turnkey but the return of time is just scaleable. At 200-300 cf per property you are going to get a whole bunch of them. But still great way to get started. Let me know if you like chat.

1 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

Hi @Lane Kawaoka, thank you!

Why are you saying that you should have stopped at 3-6? I would love to chat with you, sure - sending you msg now.

0 Reply

Jody SchnurrenbergerPro Member

Investor · Asheville, NC · Member since 2017 · 506 posts · 404 votes

8y

You have a lot of great advice on here! I agree with sticking with just a couple of areas instead of owning properties all over the US. I highly recommend you visit them at least once a year, so if they are all in a similar area, that helps. Visiting them lets you know for sure you are getting your money's worth. I went to visit my properties and discovered the exterior needed to be painted. I don't know how long it would be before the PM noticed because it was on the back (the front is brick), so they might only pay attention to the interior during turnovers and when there's no turnover, who knows if they every look at the back of the property. Also, I found early signs of water damage from drainage problems that needed to be addressed. Even if you have good property managers, no one will care as much about your places as you will. Not to mention, the person who deals with my properties is always the same person, so I provide a second set of eyes to find issues.

When you make a trip to a location, I suggest trying to see if you can coordinate it with a local meetup so you can start networking in person. Also, make friends with folks in the area that you find on here. When I went home over the holidays, I made plans to meet 2 BP folks that are more connected to the area than I am now. :-)

Also, drive around (more conveniently with an agent or local friend) and mark neighborhoods you want to own in and those you for sure don't want to so you can make better decisions when presented with offers. And be sure to check comps before buying. Buying a $100k house in a $60k neighborhood should have been easily avoided.

I have a friend who bought their personal house through an agent who showed them every nook and cranny on FaceTime. If your turnkey company doesn't do something like that (or have ready-made video showing you the whole place), maybe consider another company. Someone said others do that.

If you're going to pick a new area to invest in, try to find an area near a friend or family member who can help you with the search, not to mention, provide a free place to stay when you visit the properties. ;-) They can help with areas to stay away from and if you're lucky, maybe even get you a deal through an auction, if that sort of thing is possible. (I've never done an auction, personally, so I don't know if they would be allowed to bid on your behalf.)

Good luck!

0 Reply

Reuben H.

Albany, NY · Member since 2017 · 21 posts · 6 votes

8y

Originally posted by @Jody Schnurrenberger:

You have a lot of great advice on here! I agree with sticking with just a couple of areas instead of owning properties all over the US. I highly recommend you visit them at least once a year, so if they are all in a similar area, that helps. Visiting them lets you know for sure you are getting your money's worth. I went to visit my properties and discovered the exterior needed to be painted. I don't know how long it would be before the PM noticed because it was on the back (the front is brick), so they might only pay attention to the interior during turnovers and when there's no turnover, who knows if they every look at the back of the property. Also, I found early signs of water damage from drainage problems that needed to be addressed. Even if you have good property managers, no one will care as much about your places as you will. Not to mention, the person who deals with my properties is always the same person, so I provide a second set of eyes to find issues.

When you make a trip to a location, I suggest trying to see if you can coordinate it with a local meetup so you can start networking in person. Also, make friends with folks in the area that you find on here. When I went home over the holidays, I made plans to meet 2 BP folks that are more connected to the area than I am now. :-)

Also, drive around (more conveniently with an agent or local friend) and mark neighborhoods you want to own in and those you for sure don't want to so you can make better decisions when presented with offers. And be sure to check comps before buying. Buying a $100k house in a $60k neighborhood should have been easily avoided.

I have a friend who bought their personal house through an agent who showed them every nook and cranny on FaceTime. If your turnkey company doesn't do something like that (or have ready-made video showing you the whole place), maybe consider another company. Someone said others do that.

If you're going to pick a new area to invest in, try to find an area near a friend or family member who can help you with the search, not to mention, provide a free place to stay when you visit the properties. ;-) They can help with areas to stay away from and if you're lucky, maybe even get you a deal through an auction, if that sort of thing is possible. (I've never done an auction, personally, so I don't know if they would be allowed to bid on your behalf.)

Good luck!

Nice post Jody and such good advice on here in general. I can't count how much time I have spent looking over the areas I am looking at investing in. In my case, I am looking for someplace with enough potential stock to ensure that I can pick up a new one in the future. I have found some VERY nice properties in small towns, but I am afraid that I'll just get the one PM there in town and if there are ever problems, will have trouble replacing the PM. Not a comfortable situation...but I sure do like some of those quaint small towns!!!

1 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

@Jody Schnurrenberger - yea I agree that it is probably a smart thing to check on your investments once every so often. I was just hoping that I will invest and collect paychecks and won't have to do anything at all :))

@Reuben H., yes, once you find that property, nothing is as important as the good caring PM and having choices probably helps!

1 Reply

Joe Vastola

Brooklyn, NY · Member since 2017 · 51 posts · 30 votes

8y

@David K. I grew up in Nassau County but work in Manhattan and my dad owns an apartment building in Williamsburg so I have a good deal.

It may seem like nonsense to read up on job progression and population growth but those two areas have enormous influence and cash flow potential when it comes to deciding on investing in a particular market. That knowledge can help you find areas that are becoming popular and in higher demand. If you can get in before other investors at a more reasonable price, that's where BIG money can be made.

That is very smart because as you know most sellers won't advertise deficiencies in the property (near a railroad, on a busy street etc.)

0 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

Hi @Joe Vastola, thank you for your input!

Of course, those that know the market, score best. Perhaps I used the wrong choice of words.

I am learning what I can (that is why I am here and posting) but I think buying and holding on for a long time to collect rents, it is all about micro-neighborhoods. I am sure there would be an impact of job growth trends/ population on a particular neighborhood but I don't know how I would be able to tell from 3000 miles away.

So here's an example and perhaps my give back to BP community here:

Trump during his visit to China signed a huge financial investment package, according to which China will invest billions of dollars into US. Most of that investment will happen in West Virginia, which may be one of those crazy opportunities for any local related businesses, incl RE obviously.

But here is my question / dilemma - I still don't have a clue where it would be or where it makes sense to buy..But, i am sure many of you do.

0 Reply

Jennifer Slaughter

Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes

8y

@David K., that is awesome and you're welcome! I think you are asking good questions, keep plugging away.

0 Reply

Lane Kawaoka

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

8y

@David K. A lot of what you read says MFH is better than sfh but I say start with SFH then move up ASAP

After over a few hundred investor consultants over the past couple years here is what I tell W2 employees. For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool... but just remember why we got into this... To be free from a JOB. Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

3 Reply

Lane Kawaoka

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

8y

I bought my 11 sfhs and now I’m selling them. I don’t want to deter anyone from buying them, everyone should start with sfhs first.

0 Reply

Mike D'ArrigoPro Member

Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes

8y

@David K. In my opinion the biggest mistake investors make when buying out of state is not knowing the neighborhoods well and buying cheap asset classes in bad neighborhoods. This can easily be overcoming by visiting the market and understanding the rents for the various areas. If the median rent in your market is $900 and you're buying in an area with rents of $600, it's a pretty good indication that you are in a low income neighborhood that is going to have a lot of challenges. Aside from knowing the area well and having good property management, the challenges of investing out of state are not all that different from investing locally. If you're going to work with a turn key company, in general, the ones to avoid are the ones that:

Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
Don't allow for your own independent property inspection
Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
Require you to pay for any renovation upfront
Sell only in cheap. low end neighborhoods
Don't accurately represent the neighborhood/property classification
Don't have consistent rehab standards for all properties

3 Reply

Jeffrey Nordin

Rental Property Investor · Lodi, CA · Member since 2017 · 51 posts · 20 votes

8y

Some very good points made here, as usual!

In general, I've noted that newer investors seem enamored with TK, but that more experienced REIs downplay them. The discrepancy comes either from a crappy experience, or realization that yes, purchasing cheaply is STILL better than just cash flow positive on retail priced asset.

I've often wondered if I'm just straddling and noncommittal when I run TK numbers. I KNOW I SHOULD pay less, but that siren song of easy, low stress positive cash flow just sounds so good. Certainly better than hunting for deals, assembling an out of state team of contractors and PMs.

It's a real dilemma...

0 Reply

Jeffrey Nordin

Rental Property Investor · Lodi, CA · Member since 2017 · 51 posts · 20 votes

8y

@David Khalfin, Mike, Lane, Jennifer and Jody do make a number of succinct, actionable suggestions:

1. Fly out and look before you drop 30-80K

2. Call a local REA or PM for third party insight

3. Check comps

4. Schedule visit with local Meetup or BP group to attend

0 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

This is very helpful @Mike D'Arrigo - i am in a midst of talking and reviewing multiple TK options.

The more I am getting into this, the more I am realizing that I have to be on the lookout for these red flags that you summarized.

I have, in my opinion, talked to some nice operators that seem to be dealing only with A/B neighborhoods and fully renovate and sound very trustworthy but then the margins are not very favorable (around 7 COC). I think with the sellers market out there, finding good TK provider that offers closer to 12 coc is becoming quickly unrealistic.

Will keep looking though )

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David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

thank you @Jeffrey Nordin - this summarizes the next action plan for me.

I do agree with many here that you only gain valuable real-life experience after you actually buy and hold a few.

To me it is a struggle not only whether to buy locally or far away, but also how to restrain myself from jumping into bad deals.

Podcasts really help - when I hear RE pros say that they skipped the whole year because they could not find a proper deal, it's encouraging,

I guess it is time to start learning how to be more creative in RE!

0 Reply

Ken T.

Investor · Boston, MA · Member since 2017 · 48 posts · 39 votes

8y

Originally posted by @David K.:

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

Hey David,

I can definitely relate to your post. I also work full-time and do not have time for other real estate investment strategies (e.g. flipping, house-hacking, etc.). I also purchased my first rental property through Roofstock this summer and my second through a different company this fall. I'm very impressed that you've already got 5 properties! As for your question, my goal is to obtain 10 properties with conventional financing (which seems to be the limit based on all the podcasts). Once I've hit 10, I plan to figure out how to 1031 the properties into larger and hopefully multifamily properties or completely pay off the lower mortgage ones to continue expanding the portfolio. As for repair costs, I am try to be conservative with my calculations. I haven't had too many repairs yet so I'm hoping that the amount I've budgets for repairs will gradually build up over time and be sufficient to cover any high expense repairs in the future. What are you thinking?

Ken

0 Reply

David K.

OP

Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes

8y

Ken,

I agree with the approach - that is what I have been hearing many pros here advise novices like me do, i.e. get some small investments and let them run for a while to build some equity and cashflow an then flip them into the small MF and then run with that for some time and eventually flip into a larger MF and so on.

But, to be able to 1031 them into a larger investments:

1. One needs to be able to sell individual investments around the same time - not easy task perhaps

2. One must find a larger investment deal within the 1031 time margins - perhaps even a more complex task. i have been looking to invest into 4-plex for the past 2 months and have yet to come up with at least a single lead (remember - passive w2 investor)

No need to be impressed with my 5 properties - i have yet to prove to myself that those were wise investments )). I already have a feeling that one of them was probably not very wise because I bought it for cash and cheaply so most likely in a poor area and will unlikely be able to refinance it. i will just pray that it continues to rent out and generate cashflow for me. At least the PM thinks that it is not so bad (the PM was managing it before I got it, with prior owners). I don't mind because this is the fast and sure way to learn things.

1 Reply

Jeffrey Nordin

Rental Property Investor · Lodi, CA · Member since 2017 · 51 posts · 20 votes

8y

I'll just parrot Kiyosaki here, because I think a lot of us newer folks have similar concerns:

1. Risky investments are made less risky by applied knowledge

2. There is no risk free investment, RE or otherwise

3. JUST DO IT (but maybe start smaller and learn)

4. Deal with people who have done this before

5. Don't listen to anybody who hasn't done what you want to do

Good luck to everyone out there!

2 Reply

Turn Key out of state - what is your strategy

Turn Key out of state - what is your strategy

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