Brian is a 30 year old real estate investor living in expensive San Francisco with rental properties he has never seen, thousands of miles away. He helps people get started as out of state investors and writes about his experience at Rental Mindset.
“Grandma, want to see a movie today?”
“Sure, let me go get the newspaper from the driveway to see what is playing.”
“I am already checking on my phone.”
“Oh dear, I always forget about that! But the paper will have the showtimes for the Plaza Cinema down the street.”
“Ummm Grandma, the internet has that information too…”
The world is evolving fast. You better keep evaluating what you think is possible, otherwise you’ll be left behind just like your grandma.
What is Possible in Real Estate Investing Today
Technology and new business models have made it possible to be a real instate investor from thousands of miles away.
And I’m not talking about crowdsharing, REITS, or syndicated deals – those give too much of the upside to someone else, not to mention losing out on tax benefits and leverage.
You can fairly easily be the sole owner of a single family home in a suburb on the other side of the country. You can earn 10% cash on cash return and 29% per year overall, like I have done over the last 5 years.
The best part of living thousands of miles away? You won’t be tempted to manage the property yourself, field tenant phone calls when something breaks, or swing by on a Saturday to fix something. After the initial purchase, it can be pretty passive.
Paying Professionals to Do the Work
Real estate investors who live near their properties often look at their return on money invested without thinking about how much time they invest as well.
They are a landlord, handyman, general contractor, showing agent, the list goes on. They dismiss it as only averaging an hour or two a week per property, no big deal.
You are busy, you have a full time job – I don’t see you signing up for any other 1 or 2 hour a week jobs, so why do it with your real estate investments?
A more passive approach will allow you to scale and stay in the game for the long term. You can add more properties without the work load becoming too much. You won’t get sick of it after a couple years and sell everything.
If you don’t do the work yourself, you have to pay someone else to do it for you. You become the manager – first building out a team you trust, then verifying every step of the way.
Luckily this is easier than ever.
“My cousin lives in Kansas City and knows a guy who has flipped a few homes and made a ton of money. I’m going to purchase his next flip way below market price and turn it into a rental.” Are you sure that is a good idea?
If you purchase a property that is “rent ready”, meaning the rehab is done and it can be immediately rented out to a tenant, no one is just going to sell you the property for significantly less than they could get elsewhere. More likely, you are going to get shoddy rehab work or learn the neighborhood isn’t desirable for renters.
My goal is to reduce the risk involved in investing from thousands of miles away. This starts with the team.
I currently purchase through a turnkey provider – a company that buys distressed properties, fixes them up, and sells them specifically to investors. They know what investors want and what makes them successful.
It is a great business model – they turn a nice profit flipping homes and I get the long term benefit. But just because the business model works, it doesn’t mean every company using that business model is equal. Far from it.
There are a ton of horrible turnkey providers who give the industry a bad rap. Any amateur house flipper can call their process turnkey – I want to work with companies with a track record. A big business with a reputation to maintain. A company that goes for repeat business from their customers, not trying to screw them out of an extra thousand dollars because they can.
Think of it as interviewing a team member. Expect to pay for the service – yes you might be able to save money going with someone else, but you are paying to reduce the risk by hiring the top professionals.
Technology has made it easier than ever to verify everything without stepping foot in the state.
You can use Google street view to drive the neighborhood. School ratings. Property taxes. Flood zones. Crime rates. Sex offenders. All just a click away.
You can research similar homes in the area currently posted for rent. You can get on the phone with property managers to learn more about the neighborhoods vacancy rates.
Pictures and videos are excellent for verifying the quality of the rehab. The inspection report will include these, but you want to catch as much as possible before the inspection.
You can get a second opinion – on my Memphis property I had someone go take a look at the roof. Rather than gambling that it had a couple years of life left, I decided to split the cost of a new roof with the turnkey provider and rolled it into the purchase price.
Work on Your Rental Mindset
It takes the right mindset to succeed. Your deal won’t be as great as someone else’s. You will make mistakes. That’s ok, limit your risk and learn from it.
You should be in this for the long haul – have a 10 or 20 year outlook. Expect prices won’t go up that whole time.
Experienced real estate investors are ok with a market dip, they say “I would love the chance to pick up more properties at a discount.”
Newbs sell their one property at a loss and swear they will never invest in real estate again.
Which one are you?
Would you ever purchase a property you haven’t seen in person?