How to even start with Investment Properties....Prefer Out of State

[Casey Serafino-Lee]

Hi

I am a newbie investor. I am interested in investing out of state as I live in California and our tenants rights are awful here. It is so difficult to get rid of bad tenants....plus the ROI here is not great.

I am open to any state outside of CA and more interested in the mid-west. I am thinking about purchasing a turn-key investment or maybe just a property off MLS and hiring a property manager. I have a full-time job, plus I do real estate on the side so my plate is full and cannot do a fix and flip.

If you were me, what steps would you do to start?  Contact a lender first to see what I can afford?  Find a rental market first?   How do I even find a good rental market.  (I plan on purchasing and holding.)

In addition, I want to put my property in an LLC, so I am not sure how to factor that in.

Anyone that has DONE any of these steps, any advice you have is appreciated.  

Thanks!

Casey

[Nathan Gesner]

Quote from @Casey Serafino-Lee:

There's more to it than a single post, but the short answer is:

1. Search for a state that is not hostile towards Landlords;

2. Look for cities you believe in and that have good Property Managers. It doesn't do any good to invest in a strong market if you can't find a quality property manager. I'd rather have a mediocre asset and a good Property Manager than to invest in a strong market with a bad property manager.

3. Once you have a property manager selected, start focusing in on specific neighborhoods. Your PM should be able to help with this. Start looking for a REALTOR with lots of experience, and preferably some experience in real estate investing. If your REALTOR says Property A is a good investment, bounce it off your PM as a cross-check. 

4. Buy and hold on.

Below are some generic guides on how to get started learning about investing, followed by a guide that can help you find a good property manager. You can literally spend years reading and learning, but it's not necessary. Spend 3-6 months educating yourself, saving up, looking at markets, practicing deal analysis, lining up a PM and REALTOR. Then buy. You'll figure the rest out as you go.

GETTING STARTED

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.

5. Study the market. You can learn to do this on your own or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR that works with investors and knows how to best help you.

6. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.

FINDING A PROPERTY MANAGER

Start by going to www.narpm.org to search their directory of managers. These are professionals with additional training and a stricter code of ethics. It's no guarantee but it's a good place to start. You can also search Google and read reviews. Regardless of how you find them, try to interview at least three managers.

1. Ask how many units they manage and how much experience they have. If it's a larger organization, feel free to inquire about their staff qualifications.

2. Review their management agreement. Make sure it explicitly explains the process for termination if you are unhappy with their services, but especially if they violate the terms of your agreement.

3. Understand the fees involved and calculate the total cost for an entire year of management so you can compare the different managers. It may sound nice to pay a 6% management fee but the extra fees can add up to be more than the other company that charges 10% with no additional fees. Fees should be clearly stated in writing, easy to understand, and justifiable. Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more. If you ask the manager to justify a fee and he starts hemming and hawing, move on or require them to remove the fee. Don't be afraid to negotiate, particularly if you have a lot of rentals.

4. Review their lease agreement and addenda. Think of all the things that could go wrong and see if the lease addresses them: unauthorized pets or tenants, early termination, security deposit, lease violations, late rent, eviction, lawn maintenance, parking, etc.

5. Don't just read the lease! Ask the manager to explain their process for dealing with maintenance, late rent, evictions, turnover, etc. If they are professional, they can explain this quickly and easily. If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.

6. Ask to speak with some of their current owners and current/former tenants. You can also check their reviews online at Google, Facebook, or Yelp. Just remember: most negative reviews are written by problematic tenants. The fact that a tenant is complaining online might be an indication the property manager dealt with them properly so be sure to ask the manager for their side of the story.

7. Look at their marketing strategy. Are they doing everything they can to expose properties to the widest possible market? Are their listings detailed with good quality photos? Can they prove how long it takes to rent a vacant property?

This isn't inclusive but should give you a good start. If you have specific questions about property management, I'll be happy to help!