All Forum Posts by: Rob Cee

 local investor who is not involved in my deal and pay them to attend the inspection on my behalf and give their opinion as a disinterested third party.  

We make between 9% and 16% ROI on our AZ fourplexes, since we bought before/during the appreciation of real estate. It would be very tough to find those numbers out there now.

Fix up costs were in the 4 digits.  That includes electrical upgrades (the buildings have aluminum wiring, so we hired an electrician to go through and do alumicon retrofits), installing drip irrigation/plants/rockscape, and buying coin-op laundry machines for the laundry rooms.

Yes, we financed with a 25% down payment.

Our PM charges us 6% of rents plus lease-up fees.  We were one of his first multifamily owners he managed for, and likes the way we want our properties run (strong tenant screening, strict rent collection, etc.).  He charges other multifamily owners more now since they often approve tenants who are headaches to deal with.

We had some initial trouble with a couple of the inherited tenants, but we expected that.  The previous owner rented to anyone with a pulse and some cash, and when we did the walk-through during escrow, we could tell they'd be trouble.  We haven't had much trouble with any of the tenants we've approved our PM to rent to except for one that we had to evict for not paying rent, and even she left the unit clean and empty.

We're looking at CO, NC, and GA right now, based on them generally being landlord friendly, having growing economies and populations, etc.

If I can remember all your questions (since they are on a different page now)...

I started buying long-distance 3 years ago, price points at the time were $55k-100k but those same properties now would be considered in the $80k-110k range. They are all extremely nice condition, some 2-stories, good neighborhoods, etc. Uh oh forgot your other questions already. Oh I financed them.

The mistakes you mention for local investors are true, but they can apply to long-distance investors as well. There are a ton of investors making a ton of mistakes every day. Where the properties are isn't the issue, it's how they buy (prices, cash flow, hoping for appreciation or not, quality of the property, market, etc.) and how they are managed (regardless of whether landlording yourself or PM, it has to be managed right).

As long as you know what to look for and what constitutes a good investment, wherever or however you are wanting to buy, you can mitigate risk.

So what is the post really about?  Is it about long-term success buying out of town?  Or is it breaking down where success can be found and at what price points?  Because this post bounces around with changing dynamics.

I have owned investments in Colorado, Texas, Tennessee and Florida over the long-term.  Even the ones in Tennessee are owned passively with me relying solely on others start to finish although i am more active today with anything I buy in the state of Tennessee.  I have found a few characteristics to be fairly consistent.  

1.  Low-priced properties, at this point anything purchased and renovated below 50k to have been break even at best and most over time have broken even with a few having posted as losing money.  The turn-over rates are higher and I can buy properties next door to all of them for the same prices I paid in 2002 so appreciation has been non-existent.  Funny thing is, same thing goes for properties I bought all in for 90k in south Florida.  That was the low end of that particular market.  So i think it has to do with the low end price point for that market as much as it does the actual cost of the property.

2.  Colorado houses were absolute losers in the middle of the housing downturn, but now doing much better and have appreciated although they are not worth what we figured when we bought back in 2005 and 2006.  Those properties were bought with traditional with traditional terms.

3.  Texas properties continue to do well and I will absolutely not sell them.  Good property management is very hard to come by in that market and property management makes all of the difference there.  Bad property management gets shorter leases for fewer dollars and makes good properties perform average over there.  These properties were bought with traditional financing and today are being bought with private financing and structured ina  way to pay off in 7-10 years.

4.  I bought Tennessee properties from 2002 all the way to current and still buy.  I lived in Colorado from 2002-2007 so a lot of my portfolio was bought from out of town.  It was during this time period buying out of state that I learned the most about buying.  Now that I am back in Tennessee I am aware how easy it is to make mistakes.  I see the price points in my city and there are hundreds of properties offered monthly that are dirt cheap and bought by investors both locally and out of town.  Some succeed and some don't.

Buying cheap properties for the market you are investing in whether it is close to home or far from home will carry far more risk and require you to be a much, much more tough minded owner.  You have to be willing to have a 'bad-***' property manager who is tough but fair on tenants or you have to be that yourself.  Low-priced properties bring in tenants who cannot afford to pay higher rent rates.  A tenant that can only afford a few hundred dollars in rent is probably earning 4-5 times the rent, which means they are struggling to make ends meet.  They will have to make choices on which bills to pay and the easiest to not pay is rent since they have to have lights, heat, air, food and gas.  Landlords and management companies that understand this are successful and earn the return they are looking for.

On my investments that I have had for longer than 7 years, I have sold some, lost some, made some money on some and I still have some.  Last year was a good year, but has more to do with finally getting rid of the mistake properties I had purchased.  

I have done best with properties that I put 20% down on.  Properties I bought with no money down or interest only loans have done horrible even though those strategies were supposed to make me more money.  It does not always work out that way.  Putting money down on better properties that are much closer to median price points for a market have been the best performing properties.  

Mistakes are made EVERY DAY by real estate investors no matter where they live or where they buy and usually it has a lot more to do with patience and understanding and less to do with market or length of time as an investor (although new investors tend to be be less patient).  Property management is by far the most important factor in my opinion after price point and purchase method.  Great management has helped and bad management has killed.  And bad management seemed to be the constant factor on the cheap properties.

Lastly, as an investor, I am perfectly happy with 8-9% returns as long as that return is consistent and I can see where the management of that property is going to help make that a reality.  I DO NOT invest in low-end properties ANYWHERE.  I may in the future if I see it as an opportunity so I never say never, but right now there are too many great median priced investments that can return a solid consistent return all over the middle of the country for me to go low-end again.

One last point, IN MY OPINION, you do not lose money because you bought low end or out of town.  You lose money because you cannot explain EXACTLY why you are buying the property you are buying.  If you cannot explain how this is a good investment beyond someone else is doing everything for me, you do not need to be buying.

@Micheal Waldrup , I just noticed you are in Virginia Beach.  I don't see any reason to leave your backyard.  Norfolk/Virginia Beach is one of the areas where I am comfortable buying.  You will probably spend more than you would in a bargain area, but you can find some good deals on quality properties.  And I have a brilliant PM there, let me know if you want his contact details.

I am curious. What kind of questions should one ask a pm during interview to determine if the pm is a good one?

We became landlords for the first time nearly 20 years ago when we moved away from our house for a job transfer.  We went through four property managers in the first two years, and then luckily found a fabulous PM.  That house has done fabulously over the years, completely because of our PM.   This is one of two markets where I am considering expanding, but only because my PM tells me that he continues to be in the business forever.

We own properties in another area, as well.  We lived there, and hope to return.  We don't use a PM for those properties but I do have an absolutely amazing contractor who acts as our PM for everything except money.  I have purchased one property there since I left, with my contractor handling all the "look and see" parts of the purchase.  Again, I would not buy another property there if I didn't have him.

We've done well, but I have been very conservative in my purchases.  I only buy houses in areas that I know very well and that have very little risk.  We're talking superior location, Blue Ribbon schools, high rent and high occupancy areas.  And they're expensive.  We'd own a lot more properties if we bought in a lower-cost area, but I'm not comfortable with that.

I have considered experimenting with less expensive properties, but I wouldn't want to do it from a distance.  I just don't know those markets intimately, and I think that is an important part of making good choices.

You can definitely make money on long-distance properties, but you have to have a good team, and somehow know the area very well (like having lived there previously, or being able to spend a good bit of time there.)