Out of state investors - what order did you do things in?

Question

We're interested in a few markets to invest in that are in other states that are farther than reasonable driving distance (1000+ miles away).  I've even found a few properties that look interesting (good numbers, in decent areas of their cities, decent-looking street views from google maps, etc.).  We have little to no first hand knowledge of the states we're considering (never been to 2 of them).  We want to visit areas we're considering to make sure we're good with the areas.  But at the same time, if we determine we want to make offers on one or more properties, we'd want to be able to be there for the inspections ourselves, so that might mean more flights (read: money and time off work), so then I was thinking maybe we should consider making an offer or two before we take a trip so we can do the inspection while we're there.  So, what order did you do these things:

- Visit the locale to get your feel for it

- Make offers on potential deals, go there to do inspections (if you went there to inspect it)

I plan to talk to local RE agents and PMs to get their take on particular areas of their cities to invest in or avoid, so I'm hoping that will put us somewhat at ease, and perhaps we'd submit an offer or two before making a trip.  However, I'd also hate to submit an offer on something, get it accepted, and fly out there, only to find out the area isn't up to our standards.

So which comes first, in your opinion?  I feel like I'm kind of in a chicken-or-the-egg scenario here.  Hope this all made sense!

Tom Yung · Answer

@Kimberly T.

As a out of country investor myself.

Everytime I go into a new market

I assembly my power team members first, home inspectors, contractors, real estate agents, property manager.

I usually work with 2 RE agents for 2 different areas, make offers.

wait till offer accepted & then travel down for my due diligence. While I am there inspecting the property(usually first thing in the morning), I will meet with my team, RE agent, Inspector & general contractor at the same time.

Then use the same afternoon & see more listings with the same agent.

I repeat the same process with the second agent on the second day.

on the third day , I will visit the property manager, insurance agent & open a new bank account if necessary.

The whole secret is to book the hotel close to the property you have interest on, so you can check out the area in the early morning, after your viewing with the agents in the afternoon, drive around after dark & see the neighborhood. I usually spent 3 days in a new market & then I can close at home after.

Joel Owens · Answer

Hi Kimberly,

If you are looking at multifamily there is a certain DEAL FLOW when going to buy something.

With my out of state investors the typical process is.

Locate a property or properties they like. Then request financials while under the LOI. Absolutely verify numbers are correct with occupancy, cash flow, etc. If discrepancies negotiate the price down. I can also take a short video of the immediate area and send to the buyer.

Then you fly down for inspection. Environmental phase one, site inspection, and cost reserve stable will cost some money a few grand or more. While there you look at existing property management versus having interviews with a few others to see how they would save you money or run differently. If anything it gives you new ideas for the property even if you stick with the existing management after buying.

Go through results of inspection and ask for credits or repairs etc. Then do the appraisal. If the sellers numbers aren't right and they won't come down on price you save the money. If they negotiate then you go to the inspection. If they negotiate inspection and that is good then you do the appraisal. You want to try to not pay the big money and fly down until you have verified certain things.

Some properties you can assume the loan in place with an equity contribution to the seller and loan assumption fee. You can save appraisal, survey, phase one, etc. costs

Much more to this but hope it helps.

Kimberly T. · Answer

Thanks @Giovanni Isaksen.  I completely agree about safety during the day and night, and that good/bad areas can be amazingly scattered around.

Thank you @Tom Yung!  Making one trip out of the inspection and checking out the area is starting to sound like it's the best way to go.  Might cost a little more to buy the plane tickets closer to when we plan to travel, but probably much cheaper than 2 separate trips.  Your order of operations seems to be the same as an article just posted here on BP, which I just saw this morning:

http://www.biggerpockets.com/renewsblog/2014/04/14/buying-apartment-buildings/?utm_source=BiggerPockets+Newsletter&utm_campaign=8283e9fbdd-April_17_2014_Newsletter&utm_medium=email&utm_term=0_97489b8401-8283e9fbdd-71243889

Thanks everyone!

Giovanni Isaksen · Answer

@Kimberly T. I've also found the forums on citydata.com to be helpful and combined with street view can give a good indication of what a neighborhood is like but for me the acid test is would my mom feel safe walking around? Would I walk around there at night? In the daytime? Sometimes there's a big difference between daytime and night and absent going there or having someone there you trust, I'm not sure how that can be determined.

The other issue is the type of tenant your targeting and how well their views of neighborhoods match with citydata commenters. As I'm sure you know from Phoenix, good and bad locations can be scattered like a patchwork quilt and so between the 'common knowledge' of non-landlord folks (like the majority on citydata) and what you tenants find acceptable there be opportunities missed.

Aaron Mazzrillo · Answer

I'd suggest looking locally. And seeing that you're in OC, I don't mean looking locally in OC. Have you checked out the numbers in Palmdale/Lancaster? What about Cathedral City / Palm Springs areas? Heck of a lot closer than any other state. There's deals to be had here in California. You might have to dig a little deeper, but you'll find the gold if you do.

Kimberly T. · Answer

@Giovanni Isaksen we own 2 fourplexes in Scottsdale and are sufficiently familiar with which areas in the Phoenix metro we are comfortable investing.  However, since prices there have risen, we are looking at other states to invest in, the closest being CO.  Driving is simply not economical, for both money and time, and we don't know anyone in the areas we're considering.  I have been doing lots of research on areas/cities/neighborhoods in the metros we are considering, so I feel like I have a good idea of which general areas are good, decent, or bad (the city-data site has been very helpful, with all the posts there about parts of towns, etc.).  However, I'm just wondering if maybe the locals' idea of "decent" is not the same as mine.  Street views on google maps generally seem to indicate that the "decent" areas according to those on city-data do look decent, in my opinion.

Giovanni Isaksen · Answer

@Kimberly T.  Given that most apartment brokers represent sellers, is there someone that you trust enough to steer you to the right neighborhood (even the right side of the street)? From the OC Phoenix is a five or six hour drive* and if the money you're going to invest is valuable, it would be worth at least two trips to make sure you're buying a good location.

*Ask me how I know this :)

Kimberly T. · Answer

@Giovanni Isaksen yes, spending time in the ground is crucial to knowing the neighborhoods, I agree.  Of course, that brings me back to the original question - does that mean I should visit the areas first, then make offers later and plan to make a trip back for the inspection?  I'm starting to think maybe I'll see how various RE agents and PMs feel about the areas/neighborhoods we're considering, to see if it might make sense to start an LOI/offer prior to the trip.

@Aaron Mazzrillo Hey there, I grew up in Riverside!  We own a triplex here in OC, but with how incredibly tenant-friendly CA is, and the direction the state continues to head, we will not be buying any more rentals in CA.  Buying in the desert areas would require us to get a PM, so we wouldn't get the advantage of being local and being able to self-manage the rentals, so we figured it made more sense to buy out of state.  We already own 2 fourplexes in AZ (VERY landlord-friendly!), but prices there have gone up so much that there aren't really any more deals to be had there.

Thanks for all the replies!

Giovanni Isaksen · Answer

One thing to add to @Joel Owens excellent advice is that learning the neighborhoods is very important and unless you have someone there who you trust and who knows the neighborhoods, spending time on the ground is the only way to learn them well enough to know whether you should write an LOI on a property.

Good hunting-

Anthony Gayden · Answer

@Joel Owens that seems like good advice even if buying small multi-family (2-4 units), and reflects the process I went through buying my 4 plex in Phoenix. I went through all the financials first, before the inspection and appraisal, and I noticed that one of the units that the owner claimed was paying $525 a month rent actually was only paying $500 a month in rent, and the extra $25 was going toward paying the $500 security deposit. I had to revise all my calculations downwards because the average rent decreased.

Even though this was residential and not commercial, I believe that many of the techniques used to calculate how much a property is worth for commercial can apply to residential multi-family as well.

Out of state investors - what order did you do things in?

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