What mistakes do I need to watch out for if buying long distance?

Question

I'm 24 and have about 500k in cash that I am looking to turn into a business in real estate over the next few years. This will probably be my main business and I am unsure if I will take up another form of employment. Because of this I am looking at properties that generate more cash flow rather than ones that rise in value.

Unfortunately I live in an area (NYC area) where finding these properties locally is near impossible. Im looking at places around 3-5 hours away that seem to have returns that are desirable, but because I wont be able to actively manage these properties I am very skeptical in buying them. I am really only looking for turn key stuff at the moment just because anything that is super hands on would be hard to work with.

Ive read stories of people buying properties a long distance away, but I was curious on how the logistics of these purchases go. Do you visit the property often? What are mistakes people make that often hurt them with these types of deals. I will probably be doing down payments of around 25% and looking at multifamily properties. No matter how many times I do the math and calculate returns that look good for me, I'm still weary of what things can go wrong. Any advice is really appreciated and super helpful!

Justin Stamper · Answer

Everyone has had really great tips that you should deff. take into consideration when purchasing a property. The only thing I would want to add is to go with your gut when you are doing your due diligence on the company selling the home, and the home itself. If your gut is screaming NO, listen to it!

My favorite form of vetting is to have as many drinks in one sitting with the person and see if i still like the drunk version of them. Has worked very well the last 10 years. LOL

Kristopher Hanks · Answer

Account Closed

HAHAHAHAHAHA! They always say the drunk version of you, is the real version of YOU.

Account Closed · Answer

1) Work with someone you trust

2) Work with someone who knows their stuff

3) When you wire money make SURE it's not hijacked from some faked account

4) Always get a Title report

5) If you don't know what a Title report is, ASK.

6) Set realistic expectations

7) Put your goals in writing or have someone help you do that

I taught my son at 24 how to buy houses with little down and now he takes me to dinner and actually picks up the tab.

Kristopher Hanks · Answer

@Andrew Smith

Study the market, make sure YOU understand it and do not just rely on real estate professionals from that area.

Travel to the target market area and look at the surrounding area and the specific streets you want to invest in.

Interview all agents, brokers, turn key providers you are considering partnering with and then ask for references on this site and references that live in the target market.

Go and meet the employees of the title company that you are going to use, make sure they are legit.

Get a third party inspection from an inspection company you pick out and put a buyer walk through clause in the purchase contract so you can inspect the property 1 to 2 weeks before closing.

Interview potential property management companies before you consider buying in the target area, without competent management you will lose money, therefore there would be no reason for you to invest in that market.

Choose a market that has jobs moving in, especially markets that are attracting large companies for stability.

When running the numbers set aside a certain amount for the monthly holding costs to account for business trips to the target market to inspect the properties to make sure the management company is doing their part and taking care of your tenants, who are your customers.

Pick a market that you can value add to the properties and not just pay top dollar for all the properties.

And also consider a market that can support major sports teams that have a loyal following, like a hockey team, basketball team, football team, tourist attractions like the Rock and Roll Hall of Fame. These industries need a lot of employees that support the businesses providing you with the potential of a large renters pool.

I wish you luck and great fortunes.

James Wise · Answer

Tons of folks are investing out of state. I recommend you setup a keyword alert here on Bigger Pockets for the word turnkey. It's probably one of the most widely discussed topics here on the site. As for why folks are investing out of state most do so for 1 of 2 reasons.

• They are living in a market they are priced out of and look to Midwestern cities for lower entry prices.
• They do not have the time, ability &/or desire to be an active operator in the business of rental real estate. Instead they won't an easy & safe way to park their money.

The main thing you (or anyone) considering investing out of state (especially as a novice or beginner) is that it's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. You are planning on using financing anyway so this will be required as the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do. On top of that you'll be able to quadruple your funds. Instead of buying $500k worth of real estate you'll be able to build a $2M portfolio pretty easily. As you are only 24 this would be a great head start on your retirement egg.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Biggest mistakes I see out of town folks make is buying the cheapest possible properties. Don't be that guy. Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.

Ya see tenants can be tough in general. The lower quality the asset the tougher the tenants are. So when you have an investor who travels to the cheapest market in the US to buy the cheapest property in said market it's a recipe for disaster. Especially when that investor has no real market knowledge or skill set on how to run that sucker. They just assume it will go smooth because they havn't experienced this type of stuff. Things can get pretty wild investing in the hood. I've seen it all when it comes to this business.

Below are some photos of some of the things I've seen in the business working in the lower end neighborhoods.

If you are curious for some more tenant savagery there's tons more stuff like this on some of the following threads

TENANTS FROM HELL #3 Move outs from hell. PICS INCLUDED

TENANTS FROM HELL #2 Tubs & Showers from hell. PICS INCLUDED!

TENANTS FROM HELL #1 Deplorable living conditions. PICS INCLUDED!

If after going through all of those threads you are still up for it real estate investing know that it's really an awesome business to be in. I love it & wouldn't trade this career for anything. That is all I got for ya for now. Feel free to tag me with any follow up questions you have about the topic of investing out of state &/or turnkey. I am always down to talk shop here on the forums.

Tom Ott · Answer

One of the biggest mistakes I see is lack of VETTING. Make sure you do your research on any company you are looking to work with. If it really is Turnkey, make sure they own, renovate, and manage the property all in house. You do not want to hire a real estate agent that just uses the word Turnkey to describe a property they like on the MLS. Also, THIRD PARTY INSPECTIONS. Always a great way to go.

Try looking at:

5 Things to Consider When Choosing a Turnkey Rental Property Location

and

What to Ask When Working With a Turnkey Provider

What mistakes do I need to watch out for if buying long distance?

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