How do I manage a rehab from out of state?

Question

I'm reading everything I can about out of state investing, and the BRRRR method. The biggest challenge in my mind is how to approach the rehab from out of state. I've researched a couple companies that offer a quasi turnkey service. The investor buys a distressed property and they handle the rehab. The problem is these deals don't seem to pencil out when it comes time to refinance. The cut they take to manage the project is too large.

Turn key is definitely not for me. It doesn't leave enough meat on the bone. I am reading David Greene's book. It's teaching me a lot, but I'm still not confident on the rehab process. How do I approach this phase of the process? I'm sorry, I know my question is vague. I'm having trouble knowing where to start.

Mike D'Arrigo · Answer

Account Closed I know you say that turn key is not for you but BRRRR isn't for everyone either. There is no guarantee that you will have enough built in equity to recapture what you put in to it. It's pretty hard for an inexperienced, out of state investor to pull it off. The only reason turn key companies can make a profit is because they are usually buying further up stream at better prices and not off the MLS, they have economies of scale on the material costs and have better control over their labor costs. There is just no way an individual can rehab a house for anywhere near what a turn key company can do it for. All the research and reading in the world isn't going to give you those economies.

James Wise · Answer

If you're paying another company to manage a rehab for you your always going to have to pay a big ole chunk of the money to them to get the deal done. You are essentially paying someone to run your business for yourself. Only things you can do to avoid this would be to buy local or readjust your expectations. Instead of looking at the market hoping to BRRRR 100% of your funds back out of the deal hope to end up with only about 10% of your money into the deal. Anything under 25% into the deal should be considered a win.

Lee Ripma · Answer

Account Closed

I do it by having local partners in the markets I work in, I put up most of the cash, they put up most of the on the ground work and project management. I only get half the deal, but it works for me, because I get the half I can do from out of state.

There is no BRRRR without work. I didn't know anything about rehabs when I started and really went through a huge learning curve on my first one. It worked out for me, and I applied the lessons I learned on future deals.

SoCal actually has a great returns if you buy right. At this stage in the market it is hard, but not impossible.

So what do you really want to spend your time doing? I like being involved in my rehabs and I like that I can get very high to infinite cash on cash returns once a project is done. But the projects I do take a lot of time and work, things go wrong, I deal with them. Some people wouldn't want to deal with them!

So ask yourself what you've got and what you want. Think about your goals and work backwards. There is no reason you have to do BRRR out of state, it's not for everyone!

Clayton Mobley · Answer

Account Closed Unfortunately the only real answer is that you have to keep building a network until you find a great contractor in your chosen market.

I'm a full-service turnkey provider, but I would 100% recommend steering clear of the pseudo-turnkey you're talking about. We call them 'pay to play' and they basically do the same rehab they would do anyway and let you have the 'fun' of paying as you go and the added risk of owning a property that no one can live in yet. You don't show up to give your two cents on which cabinets to use or where to put the outlets.

As Mike said, turnkey companies have economies of scale and streamlined processes that make it possible for us to make money. Not only will you not be able to replicate those systems at this point in your career (and from a distance), but a so-called turnkey company that 'lets' you buy distressed and then foot the bill for the rehab also isn't going to change the way they do things because you're on the deed. They'll do the same job with the same people and the same products they would do if they owned it during rehab, but you're the one paying a mortgage without any rental income.

If you're new and learning a lot, you're likely getting that itch to just GET STARTED, no matter what that means. It's very common, we've all been there. If you want to do the BRRRR method out of state, you have to start with the understanding that it's just going to be a bit harder to get going, to build a solid foundation. DIY methods like BRRRR are tough, it's the price you pay for the potentially higher returns (ie forced equity). Out of state investing is hard because you can't be there on site to manage, you don't know the market, etc. Put them together and you just have a challenge, pure and simple. Not one that is impossible to overcome by any means, lots of people do BRRRR OOS, but you have to put in the time and legwork to build your team before you start deal hunting.

Use BP as the resource it is. Reach out to folks in your chosen market. Maybe go to a local REI meet up if there's one near you to see who knows who, if anyone else is looking in the same places. Build your network. When you think you've got a good team lined up, fly out to meet them. Tour the areas you're looking, go see some of your contractor's handiwork, take a look at some of the props being managed by your PM to see if they look well maintained. Take your time and be picky about who you work with.

Best of luck!

Clayton

Brian Ploszay · Answer

The turnkey is mediocre.  Often, you can't resell the property and recoup.  Hence they are overpriced.

I have a very different opinion for you.  Stick to Southern California because there is an acute housing shortage.  Therefore it is good real estate.

How do I manage a rehab from out of state?

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