How can I get over my fear of out-of-state investing?

23 Replies

Hello BP, 

I'm going to buy my first out-of-state rental property (MFR), since the numbers don't make sense for where I live (Los Angeles).

However, I'm so afraid that I am going to be scammed and lose all my money, that I'm afraid to pull the trigger on a deal. 

I have this irrational fear that I could buy something from someone who doesn't even own the property, or some buyer/seller agent are both scamming me, or that I buy a "lemon" that isn't even really a cash-flow positive property. 

I've met some agents online and through BP, but why on Earth would they want to offer ME a good rental property? Aren't there others just lined up to buy it? Or why not sell to their own company? Am I crazy or did I just win the "rental" lottery?

I'm definitely new to out-of-state RE investing, so if anyone has any tips/checklists of things I need to do to verify an agent/deal, please let me know. It might just give me the confidence I need to buy :)

@Daigo Kurosaki  

During the closing process you will (or should) work with a title company to get clear title & title insurance.

As for the neighborhood & building I'd recommend booking a flight out there taking a look at the building & neighborhood. Get a feel for what you are buying. 

Chances are they have shown the property to other investors but no one has pulled the trigger yet.  It doesn't mean it's not a good deal, just wasn't the right deal for them.  Have you visited the property in person?  Have you met these agents in person?  I think those are the bare minimums I would do for a first out-of-state deal.

Well, there is good news. There is literally nothing about a property that you can't check up on and verify. As long as you know how to do proper due diligence, you can ensure you aren't being scammed. There are a lot of amazing teams out there who would never scam you. I've always bought out-of-state rental properties myself and it's worked out great. It's all about who you are working with. 

As far as those agents, the first question would be to ensure the property really is that good of a deal. Usually the best deals don't even make it to market. That does depend on the market it's in, but agents are usually too good at knowing how to run investment property numbers.

You leave out of town and you trust your friend to house sit.  You let them around all your valuables and trust that they won't dig into your personal effects.  You trust them like this because you got to know them.

It's the same thing for buying an investment -- you need to trust who you are buying from, not just what you're buying.  If someone is reputable and has integrity, they're not going to screw you over.

@Daigo Kurosaki  

  I think I sent you my e book on the do's and don'ts for out of state investing.. but if not ping me and I will send.

There are literally 50 markets and 100 plus TK companies.. one thing you will want to do is compare these companies side by side and see how they pencil out.  Anyone can sell you  a property.. but remember those that sell it to you get paid that day then its up to you and YOUR PM... so between choosing the right turnkey company and in turn the best PM those will be critical to your success. also I always recommend you steer clear of the very low value assets or as others have mentioned the headache properties. As well as getting to talk to the owner of the companies that are providing the assets is important.. If your using a RE broker that is in the market place they will have a good handle.. If your talking to agents that live all the way across the country from where your buying the property that's another matter and a strange phenomina these days.  I mean I am a RE broker in Oregon but I don't sell property in Atlanta or Philly.. I sell it in my market.. So what I am trying to say is find a local market expert.. that is key as well.. again in my opinion.

We invest out of state and do very well. Have you PHYSCIALLY gone and drove around the area you want to invest. Walked some houses and MET with the people. Out of state investing is expensive too, because of the travel costs. That beings said, meeting the people "casing" the joint and putting your eyes on a situation goes along way to making one feel more comfortable! 

Let me know if I can help! 

P.S. Being "nervous" scared is GOOD because it keeps you on your toes and ready to react. Just don't let it hold you back and prevent you from getting started.

@Daigo Kurosaki

A couple quick thoughts....

1. Being nervous or scared is not a bad thing like @Elizabeth Colegrove  said it keeps you alert. 

2. IMO I would try to stay away from a marketing company that is simply marketing a property. Now it does NOT mean that it is a good deal, I would just prefer to be buying straight from the person that is going to be managing them. 

3. This is a long term investment for you and a large cash investment. I really would NOT buy a house like that without seeing it in person. There is nothing that someone could tell me or show me via pics and data that would allow me to buy a house like that. Now, perhaps, after I had bought several properties from the same company and saw there style of management and customer service then I would consider. But definitely NOT my first house. 

4. Lastly, this is the MAIN reason why I am in love with @Jay Hinrichs   and @Brie Schmidt website turnkeyreviews. It gives us a place to look at what is happening around the nation with different turnkey providers. It truthfully, overtime, will pull back the curtain on a lot of so called turnkey companies. And even better it will prove who the best turnkey providers are across the nation. Not on their opinion, but on real life investors who are buying turnkey rentals across the nation. So if I was you, I would try to do as much research their first, as you will get a lot of real feedback from real buyers. I think it could save you a lot of headache. 

FYI -- I HAVE NO AFFILIATION OR OWNERSHIP WITH THAT COMPANY.

Anyways, just a couple thoughts, good luck on investing. 

Andrew

Originally posted by @Daigo Kurosaki :

Hello BP, 

I'm going to buy my first out-of-state rental property (MFR), since the numbers don't make sense for where I live (Los Angeles).

However, I'm so afraid that I am going to be scammed and lose all my money, that I'm afraid to pull the trigger on a deal. 

I have this irrational fear that I could buy something from someone who doesn't even own the property, or some buyer/seller agent are both scamming me, or that I buy a "lemon" that isn't even really a cash-flow positive property. 

I've met some agents online and through BP, but why on Earth would they want to offer ME a good rental property? Aren't there others just lined up to buy it? Or why not sell to their own company? Am I crazy or did I just win the "rental" lottery?

I'm definitely new to out-of-state RE investing, so if anyone has any tips/checklists of things I need to do to verify an agent/deal, please let me know. It might just give me the confidence I need to buy :)

 Hi Daigo,

You got some awesome comments above from very reputable BP contributors.

I'll chime in with 2 blogs that I wrote for BP a while back.

I hope you find them useful.

http://www.biggerpockets.com/renewsblog/2014/11/15/3-types-of-risks-real-estate-investors-regularly-take/

http://www.biggerpockets.com/renewsblog/2014/07/26/sight-mind-real-estate-investing-afar/

Thanks and have a great day.

@Daigo Kurosaki  Another choice is to look around for a boots on the ground partner in areas in which you might like to invest. Someone who has skin in the game themselves has every motivation to find a good deal, as well as the availability to run around checking out individual opportunities as they arise. Let me know if you have any interest in or questions about the Philly market, which attracts a fair number of out of town investors.

I recommend staying away from wholesalers. If you buy a property listed on MLS, you're minimizing the risk of being taken advantage of because of its exposure in the market, legitimized by a licensed broker/salesperson. If you're going to buy off-market deals, build a relationship with that person, and fact-check the things they tell you about the properties they own. Find out what deals they have done in the past.

If you ever are looking for properties in the Dallas/Fort-Worth market, let me know! I own a few and I am always willing to help someone look. Good luck to you!

I agree with Michael and others above that this issue is more about PEOPLE than HOUSES.

You SHOULD be scared to invest in a remote market based upon phone calls, emails, and digital pics, etc. from someone you don't know.  You MUST have someone ON THE GROUND in the market that you TRUST, or I think you'd be setting yourself up to be taken advantage of sooner or later.

If I was going to invest remotely, I'd find that person (maybe a relative or friend from school days or whatever) AND I'd regularly visit that market and that person myself.  Personally, i have zero interest in dealing with that complexity, hassle, and risk.  But then again, I don't live in L.A. where I know how hard this is because I have been marketing (for a client) there for the past 2 years...

Plan for success by doing your due diligence for the market you're interested in. Line up a good broker, PM and lawyer. Ask around for recommendations for those in your given area. I would bet you can find great contacts in any  major US market here on BP. I don't think there is any need to be afraid to invest out of state; if you are, then you probably haven't done all your homework yet. Best of luck. 

Daigo, I would not call your fear irrational, I would be very hesitant with out of state investing. I wrote some tips about in this article which you might find helpful: http://www.biggerpockets.com/renewsblog/2014/12/23/investing-out-of-state-essential-items-to-vet/

Due Diligence is critical.  Once the comfort level is there, pull the trigger.  Don't over analyze...

I bought out of state in an area I'm familiar with and like to visit.  I can visit by car or plane fairly easy..Most all PM handled from my computer, by me...good luck!

I would just say find a good market for what you want to do, and a good broker in that market.  If you satisfy both of those criteria, the deals will come along.  If he's a good broker he'll have them and he'll be honest in dealing with you.  Get references from people he/she has worked with, and get referrals from the broker on carpenters, etc. that he/she has worked with in the past.    I like Philly a lot like Nancy mentioned above. I'm in the middle of my 3rd deal there now and I live in Seattle.

I agree with what many have said about finding a good PM in the area. When I have clients wanting to invest in a property, I will go check it out for them. I send them pictures and give them a list of any repairs I think it will need and bids so they know an approximate fix up cost. As a property manager I want to make sure my clients are not getting a "lemon", because that turns into me investing more time in order to get it rented.  I have built relationships with my clients and I would never want them to be taken advantage of. You definitely want someone in the area you can trust. 

I hope it's ok to plug a book.  I'm just finishing up "The ABC's of Real Estate Investing."  There is a lot of good info and strategies for insvesting in out of state.  The main points are  research and know the market your planning on investing like the back of your hand and finding a team local to the area that will help you be succesful.  Also, the arthor strongly discourages investing in any property without phyically seeing it.  Do as much research as you can to zero in your market and then go physically look at properties.

Hello Daigo. Welcome to the first step of an exciting journey!

A lot of good stuff has already been said. Our clients are mostly from out-of-country, so the barrier to invest is even bigger for them. From their feedback, here's what I've learned that helps them overcome their fear and move forward:

1) See if you can find someone within your existing network that can recommend you a turnkey provider. It's always easier to build trust through someone you already trust.

2) Meet the turnkey provider in person. Get to know them, the market, and do your due diligence on them. Ask hard questions. Ask for referrals.

3) If you don't have peace, move on to the next one.

4) Don't give up too quickly. It might take a while to find the right people, but it'll be totally worth it.

Best of luck!

@Daigo Kurosaki  , some parts of LA can actually have good/decent returns. Boyle Heights, Long Beach, and Pomona are all good examples. Depends on what kind of landlord and investing you want to do though. In fact, places like BH and LB have cap rates comparable to out of state options too.

Hey @Daigo Kurosaki  , lots of sage advice already. I'll just share my experience.

I was pretty much in your same shoes last year. 

To help alleviate my fears, I flew out to meet the seller and his team in person. We spent a few hours talking. My purpose wasn't to fire off a lengthy list of detailed questions, because I'd already gotten those out of the way in the numerous emails and telephone calls with him and his team in the weeks prior to the visit. I just needed to see if I felt comfortable could trust the team. 

Seeing the property and the surrounding neighborhood first-hand also gave me the kind of reassurance that Google Maps and digital photos were not able to for this first-time, out-of-state investor. 

@Daigo Kurosaki  You are worried for the wrong reasons. Outright fraud is highly unlikely due to complex legal nature of RE transactions. Title insurance, title companies, lenders etc all force more diligence on this investment than any other. The thing to worry about is to know what you are buying and whats a good deal. Thats something that takes time and effort. You can't just go online and buy turnkeys from a random website and expect to make a good investment. You will own the house but may not make any money. Thats what you should focus on.

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