First out of state purchase

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First out of state purchase

Nick Maugeri
Realtor · Modesto, CA. · Member since 2018 · 57 posts · 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.

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Most Popular Reply

Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 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.
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  • Eric Ippolito
    Los Angeles, CA · Member since 2019 · 35 posts · 16 votes
    7y

    @Nick Maugeri you're expecting to get $500 cash flow a month? After all your expenses? That seems amazing for SFH

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

    @Nick Maugeri you're expecting to get $500 cash flow a month? After all your expenses? That seems amazing for SFH

     Yes, sir. I cheated a little and already set aside a lump sum for repairs and maintenance that are expected. Many of the large cap ex has been taken care of within the last two years - and with a home warranty on the property; the deductible will be sufficient for some of the larger repairs. Anyway, the monthly all in is $699, the existing market rent is $1200. So, after some years, I should be able to meet that cashflow potential. 

    0Reply
  • Michael B.
    Newbury Park, CA · Member since 2015 · 157 posts · 121 votes
    7y

    @Eric Ippolito - that's a normal return especially in Midwest markets. I invest in Michigan and my rule of thumb is $450 cash flow after PITIM for every 10k invested (leveraged). Most of the time I do even better than that. Btw. I live in Simi Valley, CA so Michigan is not my backyard. 

    2Reply
  • Michael B.
    Newbury Park, CA · Member since 2015 · 157 posts · 121 votes
    7y

    @Nick Maugeri you should meet the cash flow potential as soon as possible IMO. The market around you will keep moving. Contractors will want their money and don't give you price cuts to upkeep the house. As a business owner, you have to adjust to market conditions. Work with a management company to keep the unit filled at top market rents and don't be scared of a vacancy because of a rent increase. 

    The proper way to hedge against vacancy loss is to get MORE UNITS ASAP. More units will statistically decrease the average overall vacancy if the portfolio is managed by a professional company. Real estate seldom works on a small scale because one vacancy as a single property owner means your business is running dry. If you have two units then one vacancy will be carried over by the other house - which is why it's important to invest in markets that provide high cash flow. 

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

    @Nick Maugeri you should meet the cash flow potential as soon as possible IMO. The market around you will keep moving. Contractors will want their money and don't give you price cuts to upkeep the house. As a business owner, you have to adjust to market conditions. Work with a management company to keep the unit filled at top market rents and don't be scared of a vacancy because of a rent increase. 

    The proper way to hedge against vacancy loss is to get MORE UNITS ASAP. More units will statistically decrease the average overall vacancy if the portfolio is managed by a professional company. Real estate seldom works on a small scale because one vacancy as a single property owner means your business is running dry. If you have two units then one vacancy will be carried over by the other house - which is why it's important to invest in markets that provide high cash flow. 

    I agree with all of this and love this concept. I have acquired three in the last month of there and I am realizing that the cash flow is going to be forced up one way or the other. It seems likely I made a questionable decision in honoring the existing lease; however, I wanted to enter the market on good terms. I am trying to acquire more units, I have quite a bit more success than expected with creative finance options - but, it sucks not being able to get my realtor her commission! That is the largest problem that I am having right now, along with liquid capital. 

    0Reply
  • Account Closed
    Rental Property Investor · San Diego, CA · Member since 2019 · 15 posts · 3 votes
    7y

    @Maureen McCann hi Maureen! Don't know if you'll remember me I shot a video of you a few years ago. And now I'm looking to invest in real estate and I'm on BiggerPockets a lot. Nice to see you here!

    0Reply
  • Kris Mead
    Rental Property Investor · Hopewell Junction, NY · Member since 2019 · 81 posts · 38 votes
    7y

    @Nick Maugeri

    Fantastic job! I am also actively buying in the Little Rock market

    Questions for you:

    Where are you finding 85% LTV financing? What were the terms/rate?

    I’m also curious how managing from afar will work out.

    -Kris

    0Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    7y

    @Nick Maugeri don’t you have to honor the current lease? I was under the impression you couldn’t raise rents until the current lease was up. Correct me if I am wrong. Congrats on your new purchase.

    1Reply
  • Judy Murphy
    Investor · Copper Center, Alaska/Indiana · Member since 2018 · 44 posts · 33 votes
    7y

    @Nick Maugeri

    If the tenant is in a long term lease (6-12 months), I believe regardless of who owns the property, then that lease has to be honored. There are a few exceptions of course...

    One exception is that the lease specifically states the lease can be terminated upon sale of the property.

    The other that comes to mind is if the buyer plans on occupying the property. This scenario requires an eviction.

    Just something to consider when purchasing tenant occupied property. A little more research will clear the muddled waters!

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

    @Kris Mead I called around a bunch of local lenders and settled with one that can do 85% LTV, 30 year fixed varying from 4.7% - 5.37%.

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

    @Ryan Proffit I know every state has different landlord tenant laws and there are some ways to get around things. This lease had a clause that allowed me to give notice to cancel lease and raise rents after change of ownership, I chose not to do so.

    0Reply
  • Ryan Proffit
    Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
    7y

    @Nick Maugeri ok I like it. I’m getting ready to buy a property and am wanting to raise rents so I was curious. Thanks.

    0Reply
  • Andrew Baker
    Rental Property Investor · American Fork, UT · Member since 2017 · 11 posts · 10 votes
    7y

    @Nick Maugeri congratulations!! That's so incredible you were able to find this property! If you don't mind sharing, what were some of the criteria you had in mind for picking an OOS property to invest in? And how did you gather that info so make sure certain areas fit your standards?

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

    @Andrew Baker I chose the market because there are existing renovations happening already, this way I didn't start it as the fixing and flipping and investing has already been happening.

    For this first one, I just wanted to buy something that was going to be low maintenance, with a purchase price below market value based on comparables. Having a tenant already was a bonus.

    Now I have been purchasing and offering on sfh that need very few repairs done, and homes those same homes I am buying below market value. I've just closed on a house at 65K that should have sold for 80k - 84k. It needs about $400 to get it rent ready.

    Not sure if that answers your question or not, but that's what I am looking at.

    1Reply
  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    7y

    Congrats and thank you for sharing .

    [email protected]
    0Reply
  • Jake ThorntonPro Member
    Camas, WA · Member since 2019 · 44 posts · 36 votes
    7y

    Congrats and thanks for the inspiration!

    0Reply
  • Stephanie Gledhill
    Huntington Beach, CA · Member since 2019 · 49 posts · 21 votes
    7y

    @Nick Maugeri

    You said you spent a lot of time interviewing real estate agents. How did you screen them to know they would be looking for the “right” property. Most agents just want to sell “something” and get a commission. Thanks for sharing. 😀

    0Reply
  • Tracey Leung
    Member since 2019 · 9 posts · 1 vote
    7y

    @Nick Maugeri Congratulations!! Thank you so much for your inspiring sharing!  I am from California and new to OOS rental.

    How did you start the connection and interview with the realtors?  Did you google "realtors in the city", then email/call them? Do the realtors work differently with a local buyer vs an out of state investor?

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

    @Stephanie Gledhill you're absolutely right! Most of them operated in that fashion, as a result - I went through a ton of folks. So, when i found my current realtor and explained what i was looking for, she analyzed and personally viewed five properties I sent before reaching back out to me. If a realtor sends me a deal outside of what I have described more than once, I move on to the next realtor - they are just looking for a sale and not a partner.

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

    @Tracey Leung I found that doing a ton of research on realtors resulted in getting no where. I was basically looking for the best realtor in the area and bringing little baby commission their way, that's not appealing to them. I started hitting the 'contact realtor' button on realtor.com for the worst properties I could find. Then, the process of vetting by fire, as I call it, started because I knew those realtors were about making things happen any way they could - even on the worst homes out there. Eventually, I found a rockstar.

    0Reply
  • Andres M.
    Rental Property Investor · Staten Island, NY · Member since 2017 · 75 posts · 13 votes
    7y

    Hi @Nick Maugeri. When you said you had a bit more success than expected with creative finance options and that it sucked not being able to get your realtor her commission, could you elaborate more on that if you don't mind? I'm very interested to know which finance options you've been using.

    And by the way, that's great that you found a lender to lend you 85% LTV. I have a couple of out of state SFHs and I've had to put down 25% every time. I'd love to be able to only put down 15%. Thank you for mentioning that.

    0Reply
  • Cassi Justiz
    Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @Nick Maugeri, 

    This looks like a solid investment! Congratulations! Hopefully you are able to raise the rents up gradually and keep the good tenant. 

    0Reply
  • Charles Bruce
    Rental Property Investor · Bridgeport, CT · Member since 2018 · 49 posts · 20 votes
    7y

    @Nick Maugeri you just gave me motivation i thought out of state investing was harder then it looked

    0Reply
  • Matthew Thorson
    Rental Property Investor · Seattle, WA · Member since 2018 · 1 post · 0 votes
    7y

    @Nick Maugeri grats on your first OOS! I’m looking to do the same and I’m curious if you have any tips on finding a good realtor? What was it that set her apart from the rest and what are the things you were looking for? Thanks!

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

    @Andres M. Sure, with the creative finance options: I have been offering an amount to purchase with seller financing and lease option to purchase, as well as wrap around mortgages. Most of the sellers are hesitant but after about five of those offers, I was able to speak directly with the seller. I just closed on a lease option to purchase for 5 years and have another one in the works.

    I couldn't buy a property outright, so I talked them thru a refinance to lower the payments in order for me to take over the loan.

    0Reply
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