Using a rental agency for out of state property

[Don Shore]

Hello everyone this is my first post and I am a newbie to real estate. My question is this-I will be working in ND in the oil boom. I want to eventually move to TX and own properties there. I will not have time to deal with any of the things that can come up with rental property. Should I hire a rental agency to handle the property? The only other alternative I can see is saving money to buy properties years from now but that would mean the prices would be up and I wouldn't get what I could get now.

[David Beard]

Welcome aboard, Don Shore!

Yes, you'll need a full-service property manager. Just post the area you plan to invest in and ask TX folks on BP for referrals for PMs, agents, and contractors. You can get a conventional loan on a property in TX, even if you're in ND, no problem. I agree you should go ahead and get started.

The first question you'll face is whether to purchase a property from a "turnkey" company (they will already have rehabbed it and placed a tenant, costing you a 20% markup vs DYI), or to handle it all yourself (with BP folks helping out with referrals). It will depend on how much time you have, and your comfort level with really being into the details.

One advantage of the turnkey house is that it wont' need a thing, as the rehab is complete, so you can get a 30-yr fixed rate loan for a full 80% of the purchase price. If you buy and do your own rehab, you will need to bankroll that rehab out of your pocket, and have to wait a year to refinance it to have a shot at getting that extra rehab cash back out. I'm not advocating that approach, but think through it. With a turnkey, the best you'll likely do is to buy a $90K house that rents for $1,000, something like that, and with 20% down pmt and closing costs, the cash requirement will be around $20K. That will give you close to a 20% ROI on your invested cash (including principal paydown), not too bad.

That same house could probably be purchased and rehabbed by you for no more than $75K, but that might break down to $60K to buy and $15K to rehab, so you'd have $29K invested and your ROI on invested cash would be lower the first year, maybe 15-16%. Of course, in the 2nd year after you refinance and pull your equity out your ROI will shoot up into the mid 20's, plus you'll have the extra equity from getting into the investment cheaper.

One thing: you say you WILL be working in the oil boom. If this is a new line of work, you might have trouble with getting conventional loans, as lenders like to see a couple years of continuity of employment in the same field.