Disaster!!Out of State Lessons/ ROI Found after bumpy Start

44 Replies

Ohhh shooot! I often hear I can't invest in this market. I get it! I went to look in a less expensive market myself. My answer,  Dayton, Ohio. My husband had been there for training  for the AirForce so we had a little knowledge. In our heads it seemed like a good deal. The idea was ......buy a house or several which were turn key and preferably section 8. I found a flipper who did rehab, rented them out and had a management company in place. Essentially it was turn key all the way. We thought  we had  done this right.  The numbers and the rehab that had been done looked good and even if we had missed something we were in for less than 70,000 on every property.  We felt like we did all the things:

  • We went to go visit the properties and met the property manager.
  • We drove around neighborhoods and spoke to a variety of agents and brokers as well. 

Cash on cash seemed great. Imagine, 58,000 for a triplex that was in good condition that was grossing almost 1450 a month. We knew going into Dayton that appreciation was not going to be likely or much if at all. Despite this we went in on our first property and followed quickly with another 7. What we had not counted on was the tenants that had been put in these units or the management companies. Our first management company had the worst books ever. Yes, they always answered the phone but that was about it. The books were off on a regular basis and tenants were never served with notices. Those wholesalers, Right Choice Investments put whoever in these units to show they were rented. We switched management companies but that cost us money as we were ending the contract early. Anything to get out, was the goal. As it turns out, I went from bad to worse. My next choice had been RPM. This was a huge company that I was certain would be able to do the work. When we switched , we had 2 tenants that needed to be evicted and one unit that was empty. In the six months that I had been with RPM it took them 3 months to do the evictions, and the unrented unit never did get rented as they "don't do section 8." As it turns out, they never actually visited that property. The 2 evictions became 3 and each unit was left completely trashed. I was given bids for the work that literally included 5$ for a light bulb being changed and 13,000 in rehad work to 700 sq feet. From the pictures you would think maybe 2000. There was nothing structural, flooring, repaint and clean out. I considered going to Dayton myself and just doing the work. This company did everything by departments so it was never the correct department. Needless to say, we left this rental company as well but I was over the edge. How was I ever going to make this work! I actually found someone on BP and was just going to discount and dump all of them through a local agent when a third rental management company was suggested. Bob at Roost has been awesome. We are rehabbed at normal rates, rented to good paying tenants and are well on the path to the success we had hoped for to begin. Lessons were learned along the way for sure BP. The please do not do as I did lessons in all of this are :

  •  Go slow- I didn't wait long enough to figure out that it was or wasn't working before I bought 7 more properties and suddenly was in it for 15 units.
  •  Really look to see that tenants are paying ( also I have learned that Section 8 and other housing agencies will pay but it might (will likely) be late depending on the agency. If you need this cash -(all of it to cover your bills each month) BE CAREFUL!
  • Management matters- They will likely answer a phone call to get your business but go off of referrals after that. If I had to do this again I would have asked them for an estimate on a rehab that had been quoted to someone else. Previous management companies were charging if it was leased or not - there was no incentive to have it leased up.. I feel dumb that I didn't catch this no incentive piece. This agency also does not charge a lease up fee if the previous tenant has to be evicted. I love this as I FEEL like it ensures skin in the game. I wish I would have looked for this before.
  •  Tenants- I didn't vet these tenants and just trusted it would be ok. They had no income. I never asked for rental aps and I should have. 

Good Luck BP! It can be done. I / we are doing this and the investment is good despite a SUPER ROCKY start.

All the best!



As someone who’s going to be jumping into the Dayton area, I appreciate you sharing your experiences! We’ve seen RPM on a broad list of contractors...is this the same company and they just do “management” as well as contract work? 

Glad things are going well now, others may disagree, but if I were going to do section 8, would not want to do it long distance, way too many problem tenants.

this will be a roller coaster ride for you... rents at 400 to 500 a door just are.. and section 8 is in no way guaranteed you simply have not owned them long enough to understand this..  what happens is they lose there vouchers mid lease..

why.. they lied on their application.. they now earn too much money.. etc etc.. so yes while the tenant is qualified you get paid but they do become unqualified at times.. so prepare for that.. and when you get one kicked off the system.. its a nightmare eviction..

But glad your turned around for now.. keep us posted after you get a few more years of history on these units..

There is a reason a 3 unit sells for what you paid for it.. the market is pricing for risk.

@Paige Kelsey

This is really great, Paige. As someone who lives and operates in one of the best cash flow markets in the USA, I sympathize, I really do. We see a lot of people from out-of-state buying lemons here and not getting any lemonade back no matter what they do. Going slow, building good relationships, being willing to go through bad management companies until you find good ones, understanding that you've got to work through bad decisions -- these are things I tell people about all the time.

I went to get a new phone and met this young man who's moving across the state to Philly. As soon as he learned I was in real estate, he asked me if he should rent out his current condo or sell it. I asked him who was going to handle property management if he rented, since he would moving across the state. He gave me a grin and said, "Well, I was thinking you might!"

I'd know the guy for five minutes and we met at an AT&T store. I just looked at him and reflected on just how many times and how hard he's going to get screwed if this is how he selects a long-distance property manager...

@Account Closed - I went to your profile to see what experience you had to come up with a statement like," low income junk just doesnt work out.". I actually think there are plenty of folks on BP that would not agree with you. I actually am one of them. We have a mix of a and b level rentals but also obviously do low income. I certainly have learned my lesson through this process but I also believe that it is important to be good landlords no matter where you are. I have some good tenants that I have met personally. Folks are working poor who struggle to make ends meat. Some of them are great tenants and I am happy to be their landlord. Thanks for your opinion but I like my portfolio as it is.

@Lisa Nariyoshi - hey!!! Just posting my experiences in hopes that they might help someone else!!! The end. If that's not you, that's ok. I am not saying someone should follow me just this is the experiences I have had and the mistakes I know i made. I thought it could be helpful and wasn't trying to get in a debate on buying these rentals in the first place and if you think that was good or bad.  Fact is i feel like I learn a ton from others and was just trying to give back. Good luck to you in however different tour buying strategies may be from mine.

Hi Paige, Thanks for sharing your experience. Was wondering what attracted you to Dayton (besides your husbands job connection). When I researched the market, My eyes lit up when I saw how low the entry points were to get in the market but so far my research is telling me it’s a town in decline and decay. So I am back on my fence. Would love your thinking on why you chose Dayton.

@sam josh I liked that there were a couple big military bases there. We also knew the owner of the minor league baseball team in Dayton and know he threw a ton of money in. You know fact is that I heard on one of the podcast that one of guys talked about diversity in his portfolio. I like the hands on of real estate but like in stocks I didn't wsnt to be killed by just one market or segment of the market. To that end we havet commercial, residential, vacation rentals, long term  and low income in 3 different markets in my portfolio. I wouldn't go super big in a different market unless it was probably a triple net commercial dealor a trailer park which I seem to find fascinating for some reason.Bottom line to answer the question is military and our friend with the team 

Page, great diversity point. You buy one Multi for a million dollars and your screwed if it's value drops. You spread that million out over 5 properties, condos, singles, and a multi, in different economic classes and you get diversity that improves your odds without even getting into commercial property. 

@Paige Kelsey It's great to see you sharing your experiences. Dayton really is a great market to invest in.

Fortunately, on your third attempt you found one of the good local property managers. The first two you had are both have terrible reputations locally for the reasons you mentioned. Not to mention the first one is unlicensed, or at least was the last time I checked. Unfortunately, you are not their first victim, I doubt that you will be the last.

It really emphasizes a couple points.
  1. Property Management is absolutely critical to your success. 
  2. Get referrals from other investors whenever possible.

Best of Luck to you, it sounds like you're all set to do well.

Paige, thanks for posting your experiences. Great lessons for sure!

If anybody is looking for good property managers in Dayton, I’ve personally worked with or heard good things about Whitaker Properties, Makgregor, OTB, and now Roost (thanks, Paige!). If you are investing in the high cash flow part of town, your property management team and tenant screening procedures will make or break you. 

I had Whitaker for a while. For months, they couldn't rent a property they stated was ready to go. I fired them, and had it rented shortly thereafter.

I also have not been able to find any indication that they are actually licensed to do Property Management.

Darrin, not sure how OH works in IL you need a real estate brokers license to either work as a property manager, no separate license for property managers. Unless your managing for condo associations, that requires a separate license altogether. 

When I bought turnkey I always stuck with properties that rent for 900 or more a month. That way it’s easy to sell to retail buyer to go into bigger and better stuff.

@Paige Kelsey thanks for posting this really interesting. I think your post can be phrased down to two main points for Out of state investors especially new ones.

1. If/when you find a good PM keep them as they’re worth a lot.

2. Avoid these lower income rents (500,600,650 etc). Like @Lane Kawaoka said stick to higher rents. I personally have a 750 minimum but everyone is different. These 550 type rents in multifamily can be tough

2a. Section 8 often isn’t worth the hassle. This however does depend on area

@caleb heimsoth I do totally agree with the first one but  I actually didn't say that about the rents- somebody else did. Moreover, I have not had a bad experiences with substidized housing  and............ I actually like Section 8- it is hard to get on that list. Folks DO NOT want to lose that so I think they take better care of the unit than if they were not. The thing I did say about that is that it can take longer for agencies to pay so you have to be ready for that.  Thanks for posting Caleb!! Happy Saturday!

Thank you for sharing lessons learned. Can you share how you identified Dayton was it becuase your husband was stationed there? Did you use your own capital to scale from 1 to 7? Could you share how you scaled?

Appreciate your feedback and I am with you, I also would consider doing some of the rehab myself especially when a contractor goes crazy with their scope of work...

Thanks for sharing your story.  I too had a bumpy start with my out of state investment property.  In my journey of real estate investing, I've discovered that these mistakes, no matter how unpleasant, are somehow necessary to reach the place we want to go.   While I would have loved to avoid aIl of the negative experiences,  I am now that much better at what I do as I have learned what needs to be changed or improved in my business.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you