First out of state purchase

Real Estate Deal Analysis & Advice
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First out of state purchase

Nick Maugeri
Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $90,000
Cash invested: $15,000

Our first out of state buy and hold. Purchased with an existing tenant and currently honoring a lease that is $300 below market value. A new lease will be established to the realized market rents. Realized cashflow in year two should be $500 monthly. This was a safe investment, but it got the ball rolling. With appreciation, we should be able to refi and pull out quite a bit of our initial investment.

What made you interested in investing in this type of deal?

Safe and stable, with existing tenant and new roof - unrealized cashflow in this property was the most appealing.

How did you find this deal and how did you negotiate it?

Local realtor, who is the best, negotiated by offering multiple offers on one property.

How did you finance this deal?

Conventional finance at 85% LTV.

How did you add value to the deal?

Raising rents after existing lease expires by $100 after first 8 months of ownership.

What was the outcome?

Buy and hold long term.

Lessons learned? Challenges?

You have got to have persons that are competent, willing and able to operate in an effective manner, that are willing to operate at your standards.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Absolutely, any day of the week.

11Reply
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Most Popular Reply

Dan H.Pro Member
Investor 路 Poway, CA 路 Member since 2015 路 7k+ posts 路 8k+ votes
7y
>A new lease will be established to the realized market rents. Realized cashflow in year two should be $500 monthly. This is a topic of a few threads on BP. Are you better off raising rent to market or staying slightly below market. What we do is our mediocre tenants' rents stay very close to market rate. Our best tenants we let their rent a little below market rate. Why do we choose this route? A tenant moves out there is a cost. A cost from the vacancy and a cost to flip the unit to the next tenant. Many PMs charge for new tenant placement. The new tenant has a certain amount of risk no matter how well you screen them. It could be little stuff like they are high maintenance and complain about everything, it could be that they are a little messy/dirty, it could be they try to bend the rules, it could be that they do not get along with the neighbors, etc. A lot of these issues are difficult to ascertain in a screening. So we choose to keep our best tenants a little below market rent because it makes our life easy and can be the financially prudent decision. Something for you to consider. Best of luck in this new chapter of your life.
12Reply
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  • Maureen McCann
    Specialist 路 Birmingham, AL 路 Member since 2014 路 81 posts 路 68 votes
    7y

    Hi @Nick Maugeri, congrats on your first OOS investment!! You now have some great experience to give many BP newbies who are looking to do OOS investing. Thanks for sharing!

    Best wishes!!

    5Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Maureen McCann yes, definitely can offer some insight. Thanks for the response on this 馃憤

    1Reply
  • Meghan Latenser
    Rental Property Investor 路 Kansas City, MO 路 Member since 2019 路 13 posts 路 9 votes
    7y

    Congratulations! Hopefully, this is the first of many!

    0Reply
  • Tristan Taylor
    Member since 2019 路 13 posts 路 5 votes
    7y

    CONGRATS!

    0Reply
  • Dan H.Pro Member
    Investor 路 Poway, CA 路 Member since 2015 路 7k+ posts 路 8k+ votes
    7y
    >A new lease will be established to the realized market rents. Realized cashflow in year two should be $500 monthly. This is a topic of a few threads on BP. Are you better off raising rent to market or staying slightly below market. What we do is our mediocre tenants' rents stay very close to market rate. Our best tenants we let their rent a little below market rate. Why do we choose this route? A tenant moves out there is a cost. A cost from the vacancy and a cost to flip the unit to the next tenant. Many PMs charge for new tenant placement. The new tenant has a certain amount of risk no matter how well you screen them. It could be little stuff like they are high maintenance and complain about everything, it could be that they are a little messy/dirty, it could be they try to bend the rules, it could be that they do not get along with the neighbors, etc. A lot of these issues are difficult to ascertain in a screening. So we choose to keep our best tenants a little below market rent because it makes our life easy and can be the financially prudent decision. Something for you to consider. Best of luck in this new chapter of your life.
    12Reply
  • Lance Castillo
    Member since 2019 路 19 posts 路 11 votes
    7y

    Did you have to find a property manager, did the property already come with one, or are you planning on managing from afar with software?

    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Dan Heuschele I absolutely agree, that's why I chose to honor the existing lease - she has been a good tenant for the previous owners. However; $300 below market is too great of an unrealized gain. I think in this particular instance, customer acquisition cost and tenant turnover will be worth it in the end to get the property at least $100 below market rents.

    Thanks so much for your response and insight 馃憤

    1Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Lance Castillo I am using a contractor and realtor as a go between for showings, lease signings, and key transfer. Also, I am using cozy.co to manage from afar, except on this deal. This particular tenant is old school and wishes to Mail a check every month. There has been no issues so far using this method and I have coordinated with the tenant and my contractor via phone to do some deferred maintanance.

    3Reply
  • Dan H.Pro Member
    Investor 路 Poway, CA 路 Member since 2015 路 7k+ posts 路 8k+ votes
    7y
    Originally posted by @Nick Maugeri:

    @Dan Heuschele I absolutely agree, that's why I chose to honor the existing lease - she has been a good tenant for the previous owners. However; $300 below market is too great of an unrealized gain. I think in this particular instance, customer acquisition cost and tenant turnover will be worth it in the end to get the property at least $100 below market rents.

    Thanks so much for your response and insight 馃憤


    If you turn it over you should get market rent due to the risk associated with a new tenant and because it is market rent. Why discount it tot he unproven tenant? I do suspect $300 below market is too much below market and financially amounts to tenant charity which is not what I am recommending. But $100 below market rent (or maybe even $150 below) to keep a good tenant could be a win-win. You do not need to turn the unit over with the associated cost and vacancy nor take a chance on a new tenant. The tenant gets a place slightly below what she could find a comparable place for. This will all depend on if she can afford $200/month increase. She may think she cannot but when she realizes the value she is getting may find a way. If she is a good tenant I suspect $100 below market (and maybe $150) is worth keeping her. Make the decision when her lease is up. Good luck
    1Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Dan Heuschele that's the plan and exact mindset I am approaching this with. Thanks again, very valuable insights

    0Reply
  • Danielle Wolter
    Rental Property Investor 路 San Diego, CA 路 Member since 2019 路 290 posts 路 253 votes
    7y

    Congrats on your first out of state @Nick Maugeri! 

    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Danielle Wolter thank you so much!

    0Reply
  • Daniel McFadden
    Member since 2018 路 4 posts 路 2 votes
    7y

    Congrats on your first property! Going through the same process of purchasing our first investment home with a tenant already occupying the property. It's not out of state but it's a different city that's almost 2 hrs away.

    2Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Daniel McFadden congrats! And thanks! After closing three deals this month, a ton of the success is about follow through! Good luck 馃憤

    0Reply
  • Lance Castillo
    Member since 2019 路 19 posts 路 11 votes
    7y

    That's really awesome Nick. One last question. Did you find your contractor through your real estate agent or did you do some searching in the area yourself?

    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y

    @Lance Castillo I did some research they the BP resources and on my own but ultimately went with a contractor that my realtor recommended. After interviewing him, he received a very small and easy job. I used the feedback from my tenant and made the decision to use him again. After the same round of applause by someone else, he now gets most of my work.

    1Reply
  • Brett Beaman
    Member since 2019 路 8 posts 路 1 vote
    7y

    Congrats Nick!  Sounds like an awesome deal.  Did you see the house in person before purchasing?  I'm also hoping to purchase an OOS rental in next 6 months and would by my first investment as well. Any one specific reason you can share as to why you purchased in the market you did?

    0Reply
  • Martin Tyler
    Member since 2019 路 40 posts 路 17 votes
    7y

    What market is this in??

    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y
    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y
    Originally posted by @Brett Beaman:

    Congrats Nick!  Sounds like an awesome deal.  Did you see the house in person before purchasing?  I'm also hoping to purchase an OOS rental in next 6 months and would by my first investment as well. Any one specific reason you can share as to why you purchased in the market you did?



    @Brett Beaman I did not see the property in person, I live in the Central Valley of CA and purchased this thru the eyes of my realtor and a contractor as well as photos. I purchased in the market after doing a considerable amount of research on the demographics and believe that it is an emerging market. I was between FL, AR, and TX; if I had to say the one factor for choosing AR - it was that I found a bad to the bone rockstar realtor. After researching and networking for months, and interviewing at least 40 realtors, she hit it out of the park for me.

    1Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y
    Originally posted by @Martin Tyler:

    What market is this in??

     Near Little Rock, AR.

    0Reply
  • Brian G.
    Rental Property Investor 路 Los Angeles, CA 路 Member since 2013 路 1k+ posts 路 1k+ votes
    7y

    @Nick Maugeri

    Shout out to Motown. How long have you been investing in AR? I鈥檓 contemplating going OOS though I would prefer purchasing in Modesto since I have family there and my sister-in-law owns her own prop mgt. company but prices are inflated.

    1Reply
  • Michael B.
    Newbury Park, CA 路 Member since 2015 路 157 posts 路 121 votes
    7y

    Congrats on your first out of state rental! Keep it up! Let me know about your experience with the carried over tenant. In my experience, every single tenant that I carried over turned out to be bad. They usually stopped paying at some point and had to be evicted. I carried over 5 different tenants this year alone and 4 of them had to be threatened with eviction to get them out. With one of these tenants I'm still on the brink but my property manager thinks he can get him in line. In my experience it's best if there is a month to month lease to raise the rents to maximum right away. This will get the old tenant out. After that, fix up the house and put a good screened tenant in there that can afford to live there. 

    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y
    Originally posted by @Brian G.:

    @Nick Maugeri

    Shout out to Motown. How long have you been investing in AR? I鈥檓 contemplating going OOS though I would prefer purchasing in Modesto since I have family there and my sister-in-law owns her own prop mgt. company but prices are inflated.

    Been researching AR for about 5 months but I have only recently started buying there. I have done three deals there in the last month or so. I would love to buy locally as I am pretty handy and can fix a lot of things. The barrier to entry is too high for me here, although I did do a live in refinance here. I am scheduling my realtors exam presently and will then be able to buy houses here in CA with some creative options after having direct access to sellers!

    0Reply
  • Nick Maugeri
    OP
    Realtor 路 Modesto, CA. 路 Member since 2018 路 57 posts 路 32 votes
    7y
    Originally posted by @Michael B.:

    Congrats on your first out of state rental! Keep it up! Let me know about your experience with the carried over tenant. In my experience, every single tenant that I carried over turned out to be bad. They usually stopped paying at some point and had to be evicted. I carried over 5 different tenants this year alone and 4 of them had to be threatened with eviction to get them out. With one of these tenants I'm still on the brink but my property manager thinks he can get him in line. In my experience it's best if there is a month to month lease to raise the rents to maximum right away. This will get the old tenant out. After that, fix up the house and put a good screened tenant in there that can afford to live there. 

    Thanks for the insight! I will surely keep the post up as progress continues. The tenant seems to be alright, and I hope that I do not have to evict anyone. We will find out, I suppose. I will certainly be talking with this tenant as the lease nears expiration. I am not sure that they will be able to afford a ton of increase, which is unfortunate, they are incredibly good tenants - or seem to be thus far. Thanks again for the insight and advice!

    0Reply
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