Living in New York City, I always thought it would be hard to buy a house because they are so expensive, so instead we purchased a co-op which is much more affordable. I was always interested in real estate investing, but I used to immediately think that it would be IMPOSSIBLE! I couldn’t even afford to buy a house to live in, how was I going to buy one as an investment property? I considered buying a co-op to rent out, but there are often very strict rules about renting so I scratched that idea off. I started reading the Biggerpockets forum which is a great resource for those interested in investing in real estate. When the topic of how to invest in real estate when you live in an expensive area came up, a member of that forum suggested that you look a little farther away from where you live. I work outside of NYC so I looked into that area. While the properties were more affordable, the property taxes were very high and ultimately, the numbers just didn’t make sense. Then I read an option that just might work: invest in an out-of-state turnkey property.
First, what is a turnkey property?
Basically, a turnkey property is a house that has been fully renovated and is ready to be rented out. The company that sells this turnkey property usually also manages the property for the investor. The goal is for the management company to handle the day-to-day operations of the property, it takes a fee, and you, the investor gets to sit back and have the remainder of the rent sent to you.
But aren’t you scared to buy a property out-of-state?
This is the most asked question when I tell them that I bought an out-of-state rental property. As a matter of fact, I bought it sight unseen. You often hear about real estate investment scams and buying a property out-of-state would make most people feel uneasy. Even after learning about such opportunities, I took a lot of time to learn more about it and do my due diligence before jumping in. I read reviews about various turnkey companies and read the BiggerPockets forums to find people who had invested with those companies. I contacted those investors and asked them how their experience was. When I heard positive reviews from other investors, it put me at ease. I used Google maps, Neighborhood Scout and Zillow/Trulia to look at pictures of the property as well as other information. More specifically, I looked at the crime in that area, the school ratings and what Zillow/Trulia estimates the property to be worth. (This is just a starting point. Don’t just rely on information on these sites) I also figure that since there will be an appraisal and an inspection done on the property, there are some safeguards from a company selling you a dump that no one in their right mind would rent.
Where did I end up buying my out-of-state property?
Initially, I wanted to buy in an area where I at least knew someone living there so that they could check on it if I felt the company which was managing the property was doing something shady. I looked into the Buffalo area because it seemed the properties would cash flow and there has been a lot investment by the state to revitalize the city. However, after contacting a few companies, I didn’t feel too comfortable with them as they were not too great with communicating with me. Also, one company offered me a property in a not so great part of town and I wasn’t interested in being a slumlord. Then, I narrowed down the cities that I thought would make sense and came up with Indianapolis, Memphis, and Kansas City, Missouri based on the economy and employment rates as well as other factors. After contacting the companies and asking other investors their honest take about them, I ended up choosing a company in Kansas City.
While the company I chose to work with sold turnkey properties, they also had a hybrid approach. With turnkey properties, the company will usually buy a distressed property at a low price, make renovations to it and sell it to the investor at retail price. Nothing really wrong with that. It is a business and they need to make money too. Just make sure it’s a fair price. The hybrid approach that the company I worked with used was a little different in that the investor would purchase the distressed property, the company would manage the renovation (for a fee), and then rent it out. I decided that since buying the property at a lower price would give me some built in equity in the property from the start, it might be a better investment.
How is it going?
I bought the property about one year ago. It was a foreclosure and my offer of $60,000 was accepted. I took out a mortgage as well as a rehab loan. The rehab cost about $12,000 so the total price of the rehabbed property was $72,000 and the appraisal of the property came to $83,000. After it was renovated, it was rented out in September 2015 for $850 a month and the tenant has paid timely each month. Some maintenance issues have popped up since I purchased the property, however, I am still confident that it will turn out to be a good investment.
I am still very much a novice when it comes to investing in real estate so I didn’t go too in-depth into the more technical aspects of real estate investing. However, I wanted to write about my experience so others who thought they would never be able to invest in real estate because their local housing prices were so high, know that there are opportunities available in other parts of the country and that it’s possible to invest out-of-state. I also understand that there is always risk whenever you invest in real estate, especially when it is out-of-state. So if you are interested in going this route, make very sure that you do your due diligence. Also, check out the resources below. I read a lot of the following blogs and forums from other more experienced real estate investors when I decided to invest.
Resources for those who are interested in investing in out-of-state rental property
I think the first blog I read which talked about investing in out-of-state rentals was Fi Fighter. He laid out a clear and reasoned explanation as to why he chose this route and why he thought it was a good investment. There are a bunch of valuable posts about this topic, but I highly recommend Why I Invest in Turnkey Properties, and How to Quickly Evaluate a Real Estate Deal: The 1% Rule
Paula Pant who blogs at Afford Anything also has a lot of posts relating to real estate investing. She doesn’t focus on turnkey investing but she does write about managing her rental properties from “around the globe.” She has a fantastic post answering the most frequently asked questions about real estate investing, she has monthly income reports, and recently launched a course about this topic.
Another excellent resource is the Biggerpockets website (I mentioned the forum earlier), however they also have a free beginner’s guide to investing, podcasts, blog, calculators and a plethora of other useful tools at your disposal.
For those interested in turnkey properties, you can check out Turnkey reviews, and you can also get a free e-book about that topic there. It’s a good starting point to find companies that seem to do a good job, but I haven’t seen any negative reviews so I try to take the reviews with a grain of salt.
Lastly, I have been following the Cash Flow Diaries blog as the blogger writes about his turnkey real estate investments and is very transparent about the price, expenses, etc, relating to his investments. An excellent post for beginners interesting in investing in turnkey properties is his post A Step by Step Guide: How to Buy a Turnkey Rental Property.
Have you invested in out-of-state rental properties and how has it gone? If not, would you consider this investment option?