Advice for buying a rental property

25 Replies

Hi BP.  I live in Los Angeles where my wife and I have been having trouble buying a home for our residence.  We took a cash out refi on a rental property that she owns in Murfreesboro TN, which we were going to use for a downpayment.  We've been in escrow twice now, this second time is looking likely to fall out on Monday.  It's starting to look like we are priced out in our market, as anything that we can afford always seem to come with major flaws.  

We are considering changing direction and buying a rental property out of our Los Angeles market.  I would like to hear some feedback and advice on how we should proceed.   As I said my wife owns a condo in Murfreesboro TN that is valued at $109K.  It is about $200 a month cash flow positive.  She owned the condo outright, but we took a cash out refi for 80% of which we have about $75K remaining.  So like I said we are considering using this money to buy another rental property.  Cities we are considering include, but are not limited to Pittsburg, Philadelphia, Memphis, Atlanta, Milwaukee, and Riverside County, CA.  Any advice on how to proceed?  Keeping in mind that I won't be familiar with any of these areas should I use an agent or let the seller's agent double end it?  What about turn-key rentals?  That seems to be a hot button issue.  If yes on turn key, would like to know specific reputable companies to buy from.  Any other advice appreciated.

You're heading in the right direction.  The buy/rehab/refi and repeat has been very good to me...and many others I have taught it to.  One of the secrets is to never spend the money...use it an unlimited number of times though.  This is where the refi comes  in to play.  The refi must get enough cash out to be able to get into the next deal...and each deal must cost no more than the cash gained from each of the previous refis.  If you follow this method, you'll continue to build without actually spending any money.

Now, with all this said, after the refis, each property must still cash flow at a minimum (decided by you...mine is 300/month).  You are doing this not to get the next property, but to get the next CASH FLOWING property.

Since many markets will not allow for this (to expensive to get into it), many investors (CA investors are a great example of this) are flocking to other states in the midwest (like MI) where the REI can flip in their state, and buy all cash from the profits in states like MI...where they can then CF at a minimum of 300-400/month. Do the refi, and the rest is history. They don't need any new money this way...and never spend any money since the last refi in the string of refis gets them the original cash back.

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@Dustin Cook

Welcome to BiggerPockets!

What kind of poker games do you play?   I'm a poker player myself and love the game.

It sounds like you've come to the same realization that many other investors, particularly in California, have come too.  The market is pricey and it's hard to acquire properties that generate decent rates of return without having to come out of pocket with a large down payment.

There are many great markets in the Midwest down south to Texas and over to the east where you can get better value for your investment capital and leverage into more real estate and get better returns. 

You can try to find a reliable agent but you'll probably find most of them are not competent enough working with a real estate investor. Many of them just don't understand investments and what we want.

An alternative is to assemble a team within the local market you decide upon to help you acquire, renovate, rent, manage, your investment.

Yet another alternative, is to work with a competent full-service provider of investment properties which will save you a lot of time.  This option is usually best for at least 80% of out-of-state investors.

Continued success!

Medium norada real estate investmentsMarco Santarelli, Norada Real Estate Investments | (800) 611‑3060 | http://www.NoradaRealEstate.com

@Joe Villeneuve

Thank you for your insight, what you describe is very appealing to me. 


 Thank you for the welcome Marco.  I play 20/40 limit hold em mostly, but I play all of the games.  I prop at one of the big casinos out here.

The issue with finding a reliable agent is indeed my main concern.  This is part of the reason I was considering acquiring a turn-key rental.  Do you have any opinions on those?  Since you say that full-service provider of investment properties are best for 80% of out of state buyers, I would probably fit into that category.  Do you have any tips on how to find such a provider or have specific providers that you recommend?

Originally posted by @Dustin Cook :  
  
The issue with finding a reliable agent is indeed my main concern.  This is part of the reason I was considering acquiring a turn-key rental.  Do you have any opinions on those?  Since you say that full-service provider of investment properties are best for 80% of out of state buyers, I would probably fit into that category.  Do you have any tips on how to find such a provider or have specific providers that you recommend?

In full disclosure, my company is just what I described you should be looking for above.  However, to help educate you on the subject and provide you with some general tips and advise I suggest listening to episode #004 of my podcast.  The episode it called, "Turnkey Real Estate Investing Explained".

There I explain what those terms mean, common pitfalls investors make, and a 5-point system to help you compare turnkey providers.

Medium norada real estate investmentsMarco Santarelli, Norada Real Estate Investments | (800) 611‑3060 | http://www.NoradaRealEstate.com

Originally posted by @Dustin Cook :
   
Thank you for the welcome Marco.  I play 20/40 limit hold em mostly, but I play all of the games.  I prop at one of the big casinos out here.
 

I'm more of a tourney player, but enjoy cash games as well.  Played in WSOP events since 2007.  Still no bracelet!  :-|

Medium norada real estate investmentsMarco Santarelli, Norada Real Estate Investments | (800) 611‑3060 | http://www.NoradaRealEstate.com

Oh ok, I didn't realize you were describing turn-key and full-service provider were one in the same.  I'm learning the technology on the fly.  I've been listening to podcasts on the subject.  I've pulled yours up and will listen to it now.

@Dustin Cook Have you thought about buying 2-4 units in Los Angeles and living in one? This way you'll be able to afford way more here. I'm assuming you don't own anything in CA yet. With $20K-$30K down (using FHA financing) you can get a decent property in LA. I'm not opposed to out of state investments (although I wouldn't invest out of CA myself) but going out of state before you purchase something here seems like a lost opportunity.

323‑455‑7575 | http://www.RezaReport.com | CA Agent # 01874963

Originally posted by @Ewa Reza :

@Dustin Cook Have you thought about buying 2-4 units in Los Angeles and living in one? This way you'll be able to afford way more here. I'm assuming you don't own anything in CA yet. With $20K-$30K down (using FHA financing) you can get a decent property in LA. I'm not opposed to out of state investments (although I wouldn't invest out of CA myself) but going out of state before you purchase something here seems like a lost opportunity.

 If we were to buy in LA it would be for our primary residence.  In fact we are currently in escrow in Lincoln Heights, though I am expecting it to fall out of escrow as we are difficulty with the bank and the seller.  Definitely not interested in rental properties in LA.   Riverside County may be an option though as it looks to have great price to rent ratios. 

@Dustin Cook - All real estate is local, so while it is great start that you have made a list of possible markets, I would narrow that list down before you spend too much time searching for deals. A way you can do this is by researching the population growth, employment, type of housing stock, costs of ownership, etc in each market.

Once you have chosen the market you want to invest in, thoroughly study it. Travel there, walk/drive the streets, get to know the prices of each neighborhood, and most importantly, talk to as many people as you can. There are many idiosyncrasies about a market that Zillow will not tell you, but are very well known by locals.

Originally posted by @Rick C. :

@Dustin Cook 

Thanks Rick, good advice.

Hi @Dustin Cook ,

Seeing that you are possibly interested in investing in Milwaukee, and in turnkey properties, I suggest you speak with @Mark Shaffar ,

Thanks for the contact Darius

I agree with Ewa reza above. I think your not really looking in your area very good and or have not found anyone to really help you look.   I would try hard to find something where you are going to live first. You can live in it or manage it yourself.  Even if you have to do some repairs later  perhaps you can  find a smaller house that will be adequate that you can get into.  Probly should talk to MArco, above,   also. 

It is easy to buy out of town but that comes with a lot of potential pitfalls and up front you loose 8-10% to a PM person- good or bad

IF you are trying it is not uncommon to have lots of them  (fall) out of escrow! Take it as a good sign.

I personally believe that if someone is going to invest out of state they should do one of two things:

  • Work with a turnkey provider
  • scale quickly enough to afford your own in house team 

I interview tons of TK buyers who have had great experiences buying turnkey out of state.  What I have found is that once they find someone they like and trust, the rest is easy.  

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

Originally posted by @Marco Santarelli :
Originally posted by @Dustin Cook:  
  
The issue with finding a reliable agent is indeed my main concern.  This is part of the reason I was considering acquiring a turn-key rental.  Do you have any opinions on those?  Since you say that full-service provider of investment properties are best for 80% of out of state buyers, I would probably fit into that category.  Do you have any tips on how to find such a provider or have specific providers that you recommend?

In full disclosure, my company is just what I described you should be looking for above.  However, to help educate you on the subject and provide you with some general tips and advise I suggest listening to episode #004 of my podcast.  The episode it called, "Turnkey Real Estate Investing Explained".

There I explain what those terms mean, common pitfalls investors make, and a 5-point system to help you compare turnkey providers.

#5 is a Great podcast... but really itching for all the spreadsheets you were mentioning.. 
could you put together a blog post or comprehensive list of all these? That would be awesome!

Hey Dustin! Where in LA are you? And even more...does that mean your wife went to MTSU by any chance? I graduated undergrad from there, and I still go visit friends there quite a bit. Very cool she owns the condo there!

I love out-of-state personally. Not everyone does, but I definitely do. I've always bought turnkeys and they are all I care to buy. No hassle, out of sight out of mind but I still get the checks, and I trust experts way more than I trust myself to deal with a property.

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ | CA Agent # 01911993

Originally posted by @Ali Boone :

Hey Dustin! Where in LA are you? And even more...does that mean your wife went to MTSU by any chance? I graduated undergrad from there, and I still go visit friends there quite a bit. Very cool she owns the condo there!

I love out-of-state personally. Not everyone does, but I definitely do. I've always bought turnkeys and they are all I care to buy. No hassle, out of sight out of mind but I still get the checks, and I trust experts way more than I trust myself to deal with a property.

 Hi Ali, we are in downtown LA.  My wife grew up in the California as well.  She bought rentals in Las Vegas and Murfreesboro as an investment several years ago.  She has since sold the properties in Las Vegas.  These properties she bought on her own, they weren't turn-key.  They've all done pretty well, besides a multi-unit low income apartment building in Las Vegas which was a nightmare.

@Dustin Cook  I feel your pain man. I would really like to own something in LA.  I've always got my eye open, but the prices are insane and I dont have enough experience yet to find those good fixer up-ers.  I looked at a 850sq ft 2 bed 1 bath with a tiny tiny yard in mar vista asking 750k. Very curious to see if that sells.

I ended up buying my first rental instead 3 months ago in Memphis through a turnkey company. Its just the beginning but so far things are great I have a new 2 yr lease. 

Despite what people would advice I didnt go out there. I had enough trust in the team they have. I did "drive" the area for hours on google though haha. Its close to a nice park and a big mall. 

@Joe Villeneuve Have you done buy rehab refi outside of your local area at all? Im assuming your getting this properties at discount and paying cash? I would love to do something like that. Its got to be so much harder to do something like that from a far especially without any roots there to begin with.  

[email protected] | 6172709592

@Brie Schmidt Ive heard your story on the podcast.  What you have done is extremely impressive you should write a book about it.  How were you able to scale so quickly? Did you have access to alot of capital and or connections? 

[email protected] | 6172709592

Originally posted by :

@Joe Villeneuve Have you done buy rehab refi outside of your local area at all? Im assuming your getting this properties at discount and paying cash? I would love to do something like that. Its got to be so much harder to do something like that from a far especially without any roots there to begin with.  

 It's pretty easy to do it from afar...if you have someone with boots on the ground.  I haven't had any problems yet.  Just gotta have a system

Oh I bet. But Murfreesboro...that's awesome! That town has grown soooo much. She definitely should have caught some good appreciation I would imagine. And not a shabby place to visit if she wants to check up on the properties! :) Very cool.

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ | CA Agent # 01911993

Originally posted by @Billy Maloney :

@Dustin Cook

Congrats on your new property!

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