Identifying Your Sub-Market

Investing from out of state is not easy to do, but can be done with research, patience, and a large bit of know how.  If you have been following along you know how I recommend determining a major area to invest in.  Now it is time to decide where to focus your investing efforts within that market in order to profit without major headaches. 

This is where you have to start building your team.  Once a major market area has been identified, you should begin to contact realtors.  I personally look for a realtor that already works with out of state investors.  That way they have a bit of an idea of what they can expect from me as an investor and also have some idea of what an out of state investor wants.  In the past I have called brokerages and interviewed realtors over the phone to make sure that they are ok with the type of investing I do. (Multiple offers a low prices etc.)  If not, I called the next.  I have to say that it has taken me as many as 20 conversations to find one I am comfortable with.  I am now considering using faxes instead that outline my chosen strategy, my experience as a Real Estate Investor and asking if they would like to work with me to contact me.  Time is of the essence to me currently.  One word of warning if you choose to make calls, do not let just one realtor who says that the strategy you would like to employ won't work completely dissuade you.  That is a short sighted realtor that will have a rough time surviving the current economic situation. 

Once you are comfortable that you have the right realtor, I would ask their advice on what areas other investors seem to target right now and also WHY they target that area specifically.  I also make it clear that I want to familiarize myself with the market a bit and then schedule my first few visits to the area.  Yes that is visits (plural).  I then have them start sending me new listings for the areas that they recommended and also ask for any sold listings in the same areas for the last 90 days.  I am looking for what the average home lists for, and what they will eventually sell for.  I pay particular attention to what any homes that are rented out are listing and selling for.  Once I am familiar with the areas recommended on paper, I schedule my first visit to the area.  I like to be able to look at any new listing in my target areas and know if it's a low, average or high listing price on average and what it will rent for.  Until I can do that, I don't buy anything. 

Also once you have a good realtor, your hunt for a good Property Manager should start.  Property Managers are a major piece in the successful out of state investor's puzzle.  Bad ones can literally take the wind out of your sales, and good ones can help you create a successful portfolio of properties in the area.  I certainly ask for referrals of course.  However, I like to have a conversation with a Property Manager to explain how I want this part of my business run.  Once again if they cannot work with me in a situation that is VERY close to my vision.  I want a Property Manager that is not so big that I get lost in the shuffle if I only have one or two homes with them for a while.  I also do not want to deal with a brand new property manager that may be or soon get in over their head.  I make sure that I get references and check them thoroughly.  I also ask them wjhat the vacancy rate is in my various Area of Operation for the average rental.  If they cannot answer this to a reasonable degree of certainty, then there is a sign of a manager that may not be the best you can get. 

 One bad manager into being an out of state investor, I learned that for starters, they are survivable.  The key is to keep an eye on your properties.  I like to view each unit as it turns if possible.  If you cannot personally make the trip, please at least work with someone that will provide before and after pictures of unit turns.  As for warning signs that you have a bad one, if your rent is not getting to you EVERY month with an accounting of all expenses for the month you are in a dangerous situation.  This is non negotiable and you should consider finding a new one if it is happening to you.  I personally have a stipulation that if there are repairs necessary of over $100 in any given month, then I must give personal approval before work is done (excluding emergencies). 

 Once I have a good PM in place, I run any deal I am getting by them to see what it will likely rent for.  I want someone that will give me advice on rental rates and also on what type of features will keep me competitive in a market  and deliver me a good amount of rent.  This is invaluable information when running a rental business of any kind, but especially so in the out of state investing arena.  This advice should keep my vacancy rate down, and my ROI up.