Buy and hold out of state

17 Replies

I have read several posts from investors who are in one part of the country buying rental (buy and hold) property in another state / area of the country. My question is how do they perform the due diligence to check out a property to determine if it is a worthwhile investment ? Do they travel to the area or have feet on ground to look into it ? Thanks

I know some have traveled to the area and met with the Turn Key company and property management company prior to purchase (recommended by many here on BP). Of course do your research on the TK company (turnkey-reviews.com). Regardless if you do or don't travel to the area, make sure you do research on it prior to purchasing, ask local PM companies on the area the property is in, and be sure to always get an inspection done.

I am not sure what the true definition of a TK company is. I know that my company manages over 450 homes and 50% of of our owners do live in the state or the country.

Being an investor ourselves we help look at the property and give them our thoughts of what we think and for us more importantly is the client buying a headache and then going to hand it over to us and now it's our headache. 

We have a lot of success with how we do our biz model but again not sure if there is some standard protocol. 

@Chris Seveney

  no real direct protocol.

Everyone is different and has different risk tolerances.  For instance buying a 50k rental in the mid west may be small change to some so they say what the heck I don't need to see it I will shop just like I shop at Amazon and buy it basically on line.

Others will spend much time and money checking it out.. flying there and making certain its for them.

I do think one way to dial for dollars is to contact those that bundle it up for you IE turn key type companies.. and I think a lot of time can be saved by talking with a few reputable PM's in a given market.. they will for sure be able to tell you were the management intense areas are.. and one's that are easier for them to manage. ( Ie code for quality of tenant) 

Hi Chris,

It's important to have a relationship with a broker in that state. For example, I'm working with Asian clients, cash buyers, who are buying a condo with me in Manhattan site-unseen, which will cost in the low seven figures. I am their eyes and ears and they trust me implicitly to identify a strong property that they will love. The property will be their pied-e-terre in about four years, and will be rented out until then. It's crucial you work with someone who you trust and who has your best interests at heart. My firm, Brown Harris Stevens, has relationships with our affiliates of thousands of brokerages throughout the Continental US and the world- I'd be happy to make introductions for you, if you like.

I hope this helps.

Best,

Barry

I have bought two rental properties in HI (SFH) and we visited for a week with the sole purpose of locating a property. We dealt beforehand with a local broker via email then got house tours during our week stay. I wouldn't do it any other way.

I recommend a hands on approach. Doing your own due diligence on the market and subject properties. You can have RE agents and PMs assist you, but they are no substitute for doing your own home work. For those not want to do the background work, I recommend investing in a REIT.

I think a lot of it depends on what level of due diligence is needed. My properties I've always been able to do everything I needed due diligence wise from long-distance, no problem. But I also have always bought turnkey, so the only due diligence I've needed to do was verifying the provider and the product and property itself. Had I not been working through turnkeys, it would have been a totally different ballgame because I'd be needing to check more into the areas, the local economies, etc. I would never buy sight unseen if I were doing it all on my own, but I will with turnkey. 

Definitely no set way you have to do everything, but basic things you always want to verify-- location, quality of the property (property inspection for sure), market rents (especially if needing to compare to what is being advertised), taxes and insurance costs, major due diligence on the management company since essentially the fate of your investment largely lies in their hands, tenants, etc. Oh and deed/title stuff.

Taking a visit to the area you want to invest or invest in an a distance area you already know is the best way to go.  Having someone in that area that you can trust and truly be able to be an assistance to help you find properties with your best interest in mind.   I would guess that would include some here on BP, but that require you to some due diligence on that person before doing business with them. Thirdly and my least favorite is the TKs.  In time, I probably will end up doing some business with the more higher rated ones.  So you are now in the drivers' seat and we have to decide what works best for your particular situation.    

I have never purchased anything out of state but have sold a lot of property to out of state owners.

Everyone is a little bit different.

Some people start with emails, progress to phone calls and then fly out to tour the town.

Some are comfortable buying after many email exchanges and phone calls.

Others exchange a few emails and start buying right away.

I live in Maryland and have 3 properties in Florida.  2 of them were rehabs, 1 a total rehab.  I feel comfotable doing this because my son is on the ground and knows the area, the workers needed and the tenants we rent to.  I wouldn't do it without him.

We live in AZ, but SoCal has been like our second home for decades, and that's where we bought a couple of rentals.  Before we decided to buy, I did a lot of research online about homes within our budget, and then we drove around those areas.  I next sought recommendations of a RE agent and totally lucked-out.  A stranger online recommended her.

From day one, the agent proved to be the right person for the job.  We were compatible both from a business and personal standpoint.  I'd send her listings, she'd send me listings, and we'd go through them on the phone or online.  Then she would visit our choices, take pictures, and give us a report about the pros and cons of each one. 

We visited the house in San Diego County before we bought it, but we toured it with her and the home inspector.  We carried the paperwork, too,  just in case it checked out.  It did.  However, we'd never even stepped foot into the OC condo before we bought it.  I'm not crazy about that property, but we've never had any problems with it, and both properties perform well.

While we'll invest long-distance, we feel most comfortable with properties just a few hours away in an area in which we're familiar.  I inherited properties in NorCal, but instead of being six hours away like the ones in the southern part of the state, these are 12 hours away, too far for us personally.

In our case, the only due diligence we did was check for the location of earthquake faults on the State of CA's hazard site.  We were not buying anywhere near a fault line.  

I have my realtor (my mom) look at the property. I get pictures and a good idea of the condition of the property. If the numbers work I make an offer contingent on the home inspection. If everything is good I buy it and market it for rent. I don't see the house myself until closing. I wouldn't recommend this unless you have trusted people where you are looking to buy. Even though I buy out of state is in my home town. I go there multiple times a year and have a list of people I can call if I have an issue. It makes me able to self manage. I only buy single family right now. I probably would change my strategy of I was buying multi family.

I live in San Diego and invest/ manage properties in AZ.

It depends on your goals 

if you are purchasing to buy and hold turn key or not I would get in touch with the area, visit, know your numbers, and really do or verify the due diligence. The better the deal usually the more challenging neighborhood. The deals that read well on paper and are turn key usually cost a little more because vacancies are lower etc...

Looking to wholesale or flip you can mitigate alot of your risk by buying right. Again due diligence is key.

Personally I spend at least a few weeks in every area I am thinking about investing in. I hear great things about Tennessee and Texas but i have never been there and I prefer to be within 10 hrs maximum of my hold properties.

Due diligence is the name of the game for investing out of state. Booths on ground is inevitable and the only way to ensure this is through a TK.

I invest in the midwest (Kansas) and I live in Toronto Canada, I did all my due diligence from the distance: I have not even visited KC for the first time, but like every other person has said, each case is different.

There are a couple of TK providers around and within BP nation.

Happy investing

@Chris Seveney

Like others have said, it can depend greatly on your investment goals and capacities.  Personally I have bought buy and hold properties only through turnkey companies.  After doing due diligence on the company, I want to be sure to fly out and visit the area before I close on the first property with that company.  Then, its all about building trust.  If I go through  with the purchase and the property and PM performs well, and there is good communication, then I may feel comfortable purchasing additional properties from them sight unseen.  I still do due diligence on the properties and neighborhoods - but it is mostly online and asking lots of questions .  This is how I have operated thus far.  

@Chris Seveney

I've seen investors like yourself set up tours of a few turnkey providers and/or realtors in a few cities they are interested in. Sometimes a picture is worth a thousand words. Advertised ROIs and actual ROIs are two different things. You might buy a cheap house in a cheap neighborhood that looks like it has a great ROI until your two biggest variables of vacancies and maintenance kick in and kill your cash flow. Checking out a property to make sure the rehab and location will lower your subsequent maintenance costs and attract a quality tenant are very important.

Originally posted by @Chris Seveney :
I have read several posts from investors who are in one part of the country buying rental (buy and hold) property in another state / area of the country.

My question is how do they perform the due diligence to check out a property to determine if it is a worthwhile investment ?

Do they travel to the area or have feet on ground to look into it ?

Thanks

Most of my customers don't ever see the properties outside of the pictures that I send them. I do the initial property inspections and send details about the repairs, comps, and lots of photos. Once under contract they have a home inspector produce a property condition report. In some cases, when the repairs require it we have a contractor inspect and provide and estimate during the inspection period.  For rental properties we also have a property manager who services the neighbourhood provide expected rental rates.

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