I live in CA and BRRR in Kansas City, answers to FAQ from BP

[Lee Ripma]

I live in CA and BRRR in Kansas City, here are the answers to the questions I am most frequently asked by BP members:

@Janae Lacey

Did you go to Kansas City or did you buy sight unseen?

I went to Kansas City before I bought property to look at neighborhoods and get a feel for different areas. I also went to Kansas City about once a month during the rehab. I had to fire my contractor halfway through my first project and that is when I started going monthly.

How did you build your team?

I found my first realtor/rehabber through Bigger Pockets. I closed my deal with him and then he started rehab. Halfway through I realized that I had to fire him. I found a licensed GC and started giving him small jobs, first the exterior paint, then the interior paint, then I just had him finish the job as he did good fast work for me. I found him through home advisor when I was looking for bids for exterior paint. I met my flooring folks through another investor I met in Kansas City. My best referrals for GCs and subs come from my network in Kansas City. I got my network in Kansas City from BEING in Kansas City.

What do you think the best approach to building a team is?

I think the best approach is to not waste people’s time and treat people who do complete work for you well. You don’t waste people’s time by actually having a deal under contract. Then they know you are serious. If you don’t have one under contract you have the capital to get one under contract. You don’t waste people’s time by expecting them to tell you everything, you’ve got to do some legwork. You need to know what kind of property you want to buy, you need to know what kind of returns you want to get. You need to know if you want something turnkey/ready to rent today or you want something that is value add. You need to be REALISTIC about the returns you can get for each class of property.

Should I use a local lender?

I think you should use a local everything when investing out of state. You need people who know the markets. Small local banks are the best for commercial loans. You can get a commercial loan on a property that is under 5 units. You can even get one for a single family home. In Kansas City the rates/terms for a commercial loan are: 20 year am, 5 years fixed, 5.5-6% interest. If you are using a commercial loan then underwrite your deals with those terms. You can also use a residential loan, again, I would go with a local mortgage broker.

Will people/banks work with me if I’m from out of state?

Not all will. Banks/lenders can be especially hard. You’re going to need to put in some legwork to get to know these folks, meet them in person. Again, invest in the relationships with these folks so they know you are not just going to run off with the money and make them foreclose on you. It’s easy to tell someone no over email. It’s much harder to in person.

Do you go to Kansas City now?

Yes, I go about every other month for 3-5 days. I can fly direct from LA on Spirit at a very reasonable rate. I fly there, rent a car, and stay in one of my properties, with a friend, or in a hotel.

I don’t want to travel there, learn anything about the market, or educate myself is this strategy for me?

No! It sounds like you want to be a passive investor, which is 100% fine. You can loan money to folks or partner with folks who do want to be active. I personally pay 10% interest for rehab funds to my friends. You can find syndication deals with IRRs of 12-20%. Being passive is a great way to watch the process and learn, then decide if it is for you. Just make sure that you’ve thought about the downsides and what you’re going to do in worst case scenarios and only invest with people that you trust. You will have to spend time getting to know people so that you know if you trust them and trust their numbers.

I don’t know anything about construction but I’m willing to learn, is this strategy for me?

It could be. You can learn enough about construction to estimate a rehab budget. How do I know this? I did it! You won’t be swinging the hammer yourself, you just need trusted contractors who can do the work for you. Again, you’ll have to spend some time getting to know contractors and finding ones who you can trust and like working with. Some contractors specialize in working with out of state folks and are very professional. Some contractors are absolutely terrible. You’ll need to network to find good contractors. You’ll need to treat people well to get them to want to work for you again.

Anything else you think I should know?

Invest in relationships with people. People bring you deals. Not the internet. Treat people well and be respectful of their time so they want to work with you.

[Gerard J.]

@Lee Ripma Thanks for your thoughts. I've only own the property about 4 months. So far I've had no issues. I expect not to have too many issues the first year as this is a rehabbed turnkey property. This is also in a slightly higher rent area - currently I have it rented just under $1200 a month for a 3/2 SFH. So I expect that the tenants are from slightly better economic pool, which hopefully translates to more dependable and responsible tenant. Hopefully. :) One thing I did not have more direct involvement in was the screening of the tenant. I put my trust in my PM who seems to have good handle on things. More years of experience will surely strenghten my ability to evaluate tenants, property managers, contractors, and other business players.

As far as the location of the propery itself, I judged the location by it's proximity to employment areas as well as general feel of the place. I'm a suburb kind of guy and this place had a nice feel for me. It's only 9 minutes from downton KC to the west and about 9 minutes to the new Cerner facility to the south. I also used the crime map from realtor.com and trulia to give me a  general feel of the safetiness factor. Although growing up in the urban part of LA, my tolerance for crime is a bit higher.   :-) 

Thanks again for your wonderful write-up and much luck on the rest of your investing journey.