Investing outside of hometown

[Tom Suvansri]

I'm just starting out and exploring small multi-families in my hometown and adjacent towns as I'd like to stay close for my first property.  Unfortunately, I'm having difficulty finding anything that would actually cash flow.  There are some towns 30+ minutes away that look more promising but, I'm concerned I might be biting off more than I can chew to start.  I work a full-time job in NYC but would like to gain some experience landlording initially.

Thoughts?

[Ross Denman]

@Tom Suvansri I work for a Property Management company in Indianapolis. We deal with a lot of out of state and even out of country investors. I think that the most important thing to consider is having professional boots-on-the-ground people to help you make decisions. With that being said, don't just hand over your money without asking questions and understanding your options. I will give 2 Scenarios.

• We started representing a new owner, an attorney from Hawaii, about 3 months ago. He bought the property from another wholesaler/rehabber/properly management company. We started managing the home with a Tenant already in place. I did the initial inspection & documentation process. The tenants had only lived there for 4 months and the home was in quite a bit of disrepair. As soon as we started managing the home, the downstairs bedroom ceiling had caved in, there were several safety/code violations, and even problems with the home that could cause problems in the future (like missing gutter downspouts). Unfortunately, these tenants were already behind in rent and we had to evict. When I did my vacancy inspection created the project, we quoted the owner $6,500 to get the home back to rent ready condition. (The entire home needed repainted, tubs glazed, install new garage door, rebuild basement stairs, etc) He had a fit. He sent us over an invoice showing that he had spent $29k on rehab 12 months earlier. He paid $40 for the home and it was only valued at $62k. We reviewed that invoice and were stunned. While we didn't know the extent of the original condition of the home... our best figures were about $16-20k for the complete rehab. The home itself is not in a very desirable neighborhood and doesn't even have central air (out of several hundred homes we manage, we only have 4 w/out C/A and we are pressing to get these installed.) Basically, he used a single investor for acquisition, rehab, & property management. He would have done much better to use a realtor in the beginning to help him buy a home in the right area with the right amenities. He also should have got another bid himself on the rehab. As far as tenant screening goes, it varies from Property Manager to Property Manager, and it's difficult to be sure that they are doing a proper job. Find a company that offers an Eviction Protection Plan... we do because we stand by our Tenant Screening and have a very low eviction rate from our placement.
• Early this year, we had a newbie investor from Illinois who was referred to us by one of our other clients. He hooked him up with a local wholesaler and our office helped him with the due diligence process (comps, neighborhood assessments, etc) Before he closed on the property, we were allowed to walk through it and give him an idea of the level of rehab and what his options were. He closed on the property and we gave him an official estimate. Before he sent funds, he got 2 more estimates... one was considerably higher and the other one was considerably lower. We let him know that our crews work quickly and know exactly how we like our homes so they can rent quickly. He let us rehab the home and we had a signed lease about 5 days after hitting the market. These tenants have been there for 9 months and the only hiccup that they had was accidentally paying rent twice (the check in the mail was going to be late, so they paid online and had to void the original check.)

The point of the matter is this... use professionals who value your investment. Do as much due diligence as you can (Crime maps, school research, tour the streets w/ Google Earth, etc.) Don't be afraid to validate everything with licensed professionals (RE Brokers, Inspectors, Appraisers, GC's, etc.) As an established Property Manager, our office has the pulse of the local market. I can comp most rents in the city with just an address, bed/bath, sq ft, and year of the home and be no more than 5% off of the mark. I can also generally tell you how long it will sit vacant and what kind of tenants will be interested in the home. We get homes from other PM Companies all of the time. Many of them we turn down because the home is not one that is worth the hassle of managing (nobody likes having tenants break their lease because the house keeps getting broken in to.) Not every Property Manager is going to be as efficient as we try to be, but they are out there.

Hope this helps