All Forum Posts by: Michael Zane

Alex, you should be very happy to be in such a strong position.

For any type of investing, it's really important to develop a framework to guide your decision making process. First, you need to understand the nature of markets (I mean this from a psychological perspective, in addition to the "know your market" adage). Second, you need to internalize the margin of safety concept - buying an asset for way less than you think it's worth. All successful investors understand these two things, whether they realize it or not. 

The interesting thing about real estate is that it's sometimes what you do after purchasing a property that determines whether you have a good investment on your hands.  For example, maybe you're a great flipper who knows how manage your way through a flip to hit your rehab cost estimates.  Or maybe you're a really good landlord who can generate top-of-market rents with lower than average tenant turnover.

My point is that as a new investor, it's less important to focus on a particular market for the time being.  It's much more important in the long-run to learn the basic investing principles and decide what type of RE investments you want to specialize in.  There's no right answer to the latter question - it depends on your strengths and interests.

Hi Payten,  it's great to see a college student turning over the stones to look for deals.  I really applaud what you're doing here.  A few thoughts on the deal that you're considering:

1. Deal strategy. As you mentioned, you don't have the financial firepower to take this on, so the next step is to figure out how to work this deal.  I would start by trying to find a partner who has experience doing deals like this one.  You'll have to think about what value you can bring to them in lieu of cash.  Wholesaling is an option as other have noted, but it's generally more difficult than advertised.

2. Repair costs.  I question every investor I work with on repair/rehab costs because it's a difficult thing to pinpoint, and it's the nature of rehabs that one unexpected or unnoticed item can torpedo a rehab budget.  I would just urge you to do everything you can to get to a number or tight range that you are confident in.  If you are friendly with a contractor, having them take a look is usually the best option.  If you are able to find an experienced partner, even better.

3. Know your market. Having confidence in an ARV takes a lot of work - you have to be an expert in the market you're investing in. An investor-friendly real estate agent will be able to help you here. You will also need to know what buyers or renters in your market value as far as features, finishes, etc.

Hey Josh, as a process-oriented person, I can appreciate what you're trying to do here.  I think you've captured most of the important points.  A few thoughts:

- Your first step should be to identify the exact market(s) you want to invest in.  You need to become an expert in these markets.  It's best to visit lots of properties to understand what your money buys you in different neighborhoods.  You will also need to be able to estimate rehab costs with a good level of accuracy.  An investor-friendly real estate agent can be a huge help here.  If you're friendly with a contractor, even better.

- Finding an address (your step 1) is really more about creating a funnel that generates lots of property leads.  You can do this in numerous ways for off-market properties.  For example, I've had success running a direct mailing campaign.  Other investors purchase lists (properties with absentee owners, etc.), use DealMachine, or use other marketing options like social media or billboards.

- You should make every effort to have financing lined up well in advance of speaking with the property owner and making an offer.  The best investors have multiple financing pathways available to them (bank, hard money, private lender, etc.).

- You need to have a contractor ready to go before you close on the deal.  You also need to have a game plan for paying for the work - are you borrowing to do the rehab or paying out of pocket?  As a new investor, you're going to be competing for the best contractors with other market participants.  Contractors aren't going to do you any favors until you bring a higher volume of work.

@Eric Braxton, J Scott's book lays out a nice framework for estimating rehab costs, but I wouldn't place heavy reliance on the numbers listed in the book.  When thinking about rehab costs, I like to take a few different approaches (see below).  BUT, Before you even start thinking about costs, it's critical to get on the ground with an investor-friendly real estate agent to see the property.  It's simply impossible to know what the property needs in the way of rehab without seeing it in person (or at least Facetime, etc. if it's far away).

1. Direct experience is the best way. If you've ever done work on your own house, then you likely have some data points already.  If not, ask friends and family who have done work on their properties.  To the extent that people are willing to disclose costs, it can be a huge help as you estimate rehab costs for the first time.  It can also help corroborate estimates from contractors as they come in.

2. Work with an investor-friendly real estate agent in the market you're interested in.  These types of agents typically have experience with rehabs (many are also investors).  Even if they don't have direct experience, they almost certainly work with other investors regularly.  Investors like to discuss rehab costs with their agent as part of the offer and negotiating process.

3. Befriend a contractor.  This can be a great way to pick a contractor's brain.  This becomes an especially viable strategy if you give the contractor work on your primary residence as a means of kickstarting a relationship. Once you've established a relationship and built credibility, I find that contractors are usually willing to help you think through costs.

@Yanbin Zhou, a few thoughts:

First, it sounds like the contractor might have quoted you only for the labor, which is quite concerning.  You need to find a contractor who is able to procure materials and is familiar with the permitting process in JC.  Given that this is your first renovation, you will want to be sure the contractor can pull the permits, work with inspectors, and make sure the permits are closed when the work is complete.

Second, a word of caution. It's a difficult time to do projects like this. Certain building materials are still difficult to find (appliance packages for example). I know accomplished house flippers and BRRRR specialists who have put their operations on pause until supply chain issues improve. Additionally, many reputable contractors are booking 3+ months in advance right now, so you should be at least a little skeptical of any contractor who can start right away. I also know contractors who are very hesitant to work in certain areas of JC because they find parking and logistics to be too challenging.

Third, make sure you take the time to understand your HOA's rules on renovation projects. They might require you to take additional steps before you can get started.

@Pam Wils, the trick with out of state investing is two-fold.

First you have to learn the market. This is hard enough when it's your hometown, and even more difficult when you can't readily visit properties to see what your money buys you in different neighborhoods. The best way to tackle this is to connect with an investor-friendly agent in the market you are interested in. Talk to them, explain your goals, criteria, etc., and ask them to send a few listings. When you see one that looks viable, ask them to do a virtual walkthrough. Investor-friendly agents are used to working this way. They'll also be able to get you data on properties that have sold in the area recently so you can comp out any properties that interest you. They'll be able to help you understand rents in different neighborhoods and where to look for the property types you're targeting. Eventually you might even take a trip to meet your agent and tour several properties over the course of a few days.

Second, you'll need to build out the rest of your team, preferably before you even make an offer. David Greene (of BP fame) wrote a book on long-distance investing which speaks to this in detail. Basically, he recommends putting in the legwork upfront to build relationships with the supporting players you will need in order to be successful - local attorney, lender, contractor, property manager, etc.

Long-distance investing isn't easy, but if you're committed to it, the best thing to do is to start talking to people in the market you are targeting.

Hi @Lucas Bernard, I wouldn't worry too much about working up a list of questions beyond the basics, and I wouldn't spend tons of time on the websites you mentioned.  The trick with out of state investing is two-fold.  

First you have to learn the market.  This is hard enough when it's your hometown, and even more difficult when you can't readily visit properties to see what your money buys you in different neighborhoods.  The best way to tackle this is to connect with an investor-friendly agent in the market you are interested in.  Talk to them, explain your goals, criteria, etc., and ask them to send a few listings. When you see one that looks viable, ask them to do a virtual walkthrough.  Investor-friendly agents are used to working this way.  They'll also be able to get you data on properties that have sold in the area recently so you can comp out any properties that interest you.  They'll be able to help you understand rents in different neighborhoods and where to look for the property types you're targeting.  Eventually you might even take a trip to meet your agent and tour several properties over the course of a few days.

Second, you'll need to build out the rest of your team, preferably before you even make an offer.  David Greene wrote a book on long-distance investing which speaks to this in detail.  Basically, he recommends putting in the legwork upfront to build relationships with the supporting players you will need in order to be successful - local attorney, lender, contractor, property manager, etc.

Long-distance investing isn't easy, but if you're committed to it, the best thing to do is to start talking to people in the market you are targeting.

@AJ Satcher congratulations on purchasing your first property! 

Before purchasing additional properties, it's really important to make sure (to the extent possible) that the one you just bought won't require major capital expenditures in the near future. Unfortunately, I know new investors who have tried to build empires quickly without considering the condition the of first property(ies) they purchased. It's critical to avoid a situation where you purchase a second property, put significant money down, and then have to pay for a new furnace, roof, etc. at the first property. As an investor, you assume a lot of risk by purchasing additional properties before the initial one is in a condition where major capital expenditures are unlikely in the near/medium term.

I know you'll get where you want to go, but be mindful of risk.

 @Krystle Tavernier it sounds like you might be in a house hacking situation currently. House hacking is when you live in one unit of a multifamily (or even one bedroom in a single family) and rent the other units to tenants. It's a terrific way for a new investor to get started, build equity, and generate cash flow to cover all or some of the financing cost. It also opens up the possibility of using FHA financing where the down payment requirements are much lower than a conventional mortgage.

@Krystle Tavernier, congrats on purchasing the duplex. Before purchasing additional properties, it's really important to make sure (to the extent possible) that the duplex won't require major capital expenditures in the near future.  Unfortunately, I know new investors who have tried to build empires quickly without considering the condition the of first property(ies) they purchased.  It's critical to avoid a situation where you have just purchased a second property, put significant money down, and now have to pay for a new furnace ($10k in my area) at the first property.  As an investor you assume a lot of risk by purchasing additional properties before the initial one is in a condition where major capital expenditures are unlikely in the near/medium term.