Tag Archives: real estate investing

Buying an Investment Property Sight Unseen

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A little over a year ago, I purchased an investment property in Kansas City, Missouri. I have never been to Kansas City, Missouri. I bought the property sight unseen. I live in New York City and can’t afford rental property in this area so I decided to invest out-of-state where the numbers make more sense. I am a risk averse person and buying something sight unseen sounded crazy. I just didn’t have to time to fly out there to see the property personally. However, ultimately, I determined that me physically going to the location wouldn’t have made that much of a difference. Was it really necessary to drive around the neighborhoods, look at houses, and speak to the staff of company I was looking to purchase my investment from? With the power of the internet, I can research the neighborhoods, look at pictures and videos of the houses, and speak to the staff of the real estate investment company over the phone. I know very little about housing construction and the extent of my home improvement skills is changing a light bulb and hammering a nail into the wall. Yes, it is pretty pathetic. I am much better off in leaving this to the experts.

Here is what I did instead:

First, when choosing someone to work with, I went to the forums of Biggerpockets. There are many people asking for references and a few names consistently came up as being trustworthy. I contacted the people who gave the good reviews and asked them more specific questions about how their investment was going. I googled those companies and checked if there were complaints on BBB. The most important thing when investing (and especially when investing out-of-state) is to trust the person you are working with. And even if you do trust the person, you must always make sure to the best of your ability that what they are saying is true. Trust, but verify!

After narrowing down the companies that had great reviews, I contacted them and asked them more specific questions regarding the investment. If the person I spoke to take forever to reply to e-mails or phone calls or if they sound shady or overly optimistic about their investment, sounding like they were making a sales pitch, I’d be less inclined to work with them. Sure, an in-person meeting may be slightly better way to determine whether one can be trusted, but I don’t think it was absolutely necessary.

Researching the neighborhood and property:

Zillow: This is one of the best tools giving you a good amount of information about the property and neighborhood. It will provide you with a “Zestimate” which is their estimate as to the approximate value of the property. They seem to do a pretty good job estimating how much the property is worth. You can also look at the comparable sales in the neighborhood. There are also ratings for the schools in the neighborhood. Another great tool that Zillow has is their rent zestimate which estimates the amount of rent you can probably get from that property. It is a pretty good estimation but also check out Rentometer, which also gives a rent estimate. Another thing you can do is to call up local property managers and ask them how much rent they think you can charge for that property.

Trulia: It provides similar information to Zillow, but I like using Zillow better. I do like Trulia’s Crime Map which shows the amount of reported crimes in that neighborhood. It also has information about demographics as well as average commute time and businesses in the neighborhood. For more information about crime, SpotCrime is also a good resource. Another great resource with a wealth of information about various neighborhoods is neighborhood scout. (You will have to pay for more advanced data)

The Biggerpockets forum is not just a great place to get recommendations on companies to work with, but it is also a great place to find which neighborhoods you should invest in. There are plenty of helpful people who will tell you what areas to avoid and which areas are a good investment. Also, check out the City Data forum where there are many locals who will provide information about the neighborhood you are looking into. The Biggerpockets forum is geared towards investors whereas the City Data forum seems to be people talking about their neighborhoods generally and helping those who plan on moving there with information. Another way to look at the neighborhood and house without traveling there is to use Google Street View. Of course, these pictures may not be up-to-date but it still gives you a feel for the neighborhood.

Seeing the property- the turnkey company, realtor or whoever it is you are working with will send you pictures and/or videos of the property. If you want to make sure these pictures are accurate, you can hire an independent third-party to take pictures of the property and send it to you. For $69, WeGoLook will send an agent to the property to take some pictures and verify the condition of the property.

Finally, after all this research, I think that an inspection and appraisal of the property adds an extra layer of security. If you are taking a mortgage on the property, the bank won’t want to take the risk of giving you mortgage with a property that is in horrible condition and about to fall apart. The home inspector has no incentive to lie about the condition of the property. Consider using a different home inspector than the one recommended by the turnkey company or realtor you’re working with to ensure there is no conflict of interest.

I’m not saying you should purchase real estate out-of-state without seeing it. If you are able to fly out to see the properties offered, check out the neighborhoods, and talk to the people you will be investing with, it’s a great idea. I’m just saying that it is doable even if you cannot personally go there. Just make sure you do your due diligence. Investing in real estate has risks and investing in a property out-of-state has increased risks, but they can be reduced.

Would you consider buying a property without seeing it? If you’ve done this before, are there any other resources you would recommend using?

I Bought an Out-of-State Investment Property

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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?

Are You Afraid to Take the Leap?

Impala AdeFrias

“Don’t fear failure so much that you refuse to try new things. The saddest summary of life contains three descriptions: could have, might have, and should have.” – Louise E. Boone

Impalas are majestic creatures that can leap as high as 10 feet in the air, and in one leap can travel 30 feet. That’s amazing! However, in captivity, when the impala is kept behind a fence that is only 3 feet high, it will not escape. Why? The reason is that their inability to see where they’ll land prevents them from making that leap.

I really enjoy watching Shark Tank, and I love the entrepreneurial spirit and passion of those who come on the show. Many of them left their jobs to devote their life to something they believe in. I truly admire those who were willing to take that leap in their career by leaving their jobs to do something they are more passionate about. J. Money from Budgets are Sexy and Holly and Greg from Club Thrifty took the leap and have successful blog(s) as well as other online businesses. Likewise, Shannon from Financially Blonde, left her job in Wealth Management to start her own company. She also wrote a blog post recently saying that she urges her mentees to be brave and to not fear the gap. Leaving a steady paycheck and working for yourself no doubt takes a big leap of faith. I haven’t yet found something that I’m passionate about which would also earn me an income, and my blog probably made less money in its almost 2 years in existence than I probably make in one day in my regular job. Though I know that working another 20 years at my current job is not something I see myself doing. But even if I find my passion, I question whether I’d have the courage to leave a steady paycheck and benefits.

I also admire those who were able to save up enough money to call it quits and leave the workforce at the prime of their earning years because they’ve decided there are better things to do with life than working until you’re 65. Justin from Root of Good quit his job at 33 and spends much of his time relaxing, learning new things, and spending time with his family. Jeremy and Winnie from Go Curry Cracker left their jobs in their 30s to travel the world. Who doesn’t want to have more time to do the things they want to do, to spend more time with their family, to learn new things, and to travel more. While I am no where near taking the leap into early retirement or early financial independence, I know that even if was, I’d be worried whether the money would last and what others would say about such an audacious plan.

Never let your fears get in the way of your dreams

In high school, my sister bought me a t-shirt that said “Never Let your fears get in the way of your dreams.” Those words inspired me and they appear next to my picture in my high school yearbook. I was young and the world was my oyster. Anything was possible! I could accomplish anything if I put my mind to it. Sometimes I miss the enthusiasm and confidence of youth. Although, I was always optimistic about the future at that age, I was also always risk averse and still am.

I am sure many of those who have taken that leap into the unknown have moments of panic and experiences of failure. Ultimately, no one has a crystal ball to see into the future. You do your research and your due diligence. You take calculated risks, but you take that leap. YOU TAKE THAT LEAP. Too often, many of us, myself included, will succumb to analysis paralysis where we overthink things and never do anything. Planning and being prepared is a good thing. But never taking action is not. So stop doubting yourself and do what it is that you know deep inside you were meant to do. Don’t worry if you fail. There are no failures in life, only life lessons. Doubt kills more dreams than failure ever will. “In the end, we only regret the chances we didn’t take, relationships we were afraid to have and the decisions we waited too long to make.”

What’s holding you back from taking that leap?