How I Got A 1.5% Deal In A-ish Neighborhood Out Of State!

[Angelo Wong]

EDIT: The original video link was wrong, it's now been fixed.

So I was at a local networking event and more than one person was interested in investing out of state. My hope is that this is a detailed enough post I can just point IRL people to it in the future so I don't have to put in effort in answering the same questions a million times in networking events lol (half-joking).

**Disclaimer** There are probably some parts that I'm missing, and don't really have a suggestion for on how to do perfectly. So don't take this as a definitive guide to investing in real estate.

**There are details I DON'T know how to optimize and I'll try to make that very clear in this post**, but if you have questions I didn't cover I'll do my best to update this post.

But hopefully you'll take something out of this.

The Numbers

• $118900, 20% down, $11K rehab.
• All-in about $40K.
• Bought in August 2016.
• Filled vacancy in October 2016 (needed light rehab) at $1610/mo.**
• **But I'm evicting them now since they are a few hundos delinquent since March.

High Level

So the high level of finding a deal is pretty much what @Brandon Turner recommends in his webinar. It's just a lead funnel. You sort of need a process when finding deals, because without a process, you're just "hoping." And I've never heard of anyone do well in "hope investing."

Since this is out of state, I don't really drive for dollars or really do any other lead generation other than use realtors. Realtors are a "hub" and have a pulse on the MLS, so they were my weapon of choice as far as just getting houses to analyze.

A hub in graph theory/network theory just means that realtors are connected to a lot of houses, and therefore they have the best chance of having a house in their belt that's a good deal.

Beware - realtors don't know anything about investing in properties. So if they tell you a deal is "good" or "bad," just ignore them (they'll usually tell you it's good). It's up to you do to the analysis.

I made a pretty picture of my lead funnel:

So let me explain at a high level in text, and then in video form what this funnel is:

Basically, I get a bunch of realtors sending me leads.

Then, I pump all the leads through the BP calculator.

Then, if the deals suck, I tell the realtors why the deal sucks.

If the deal is good, I make a reasonable offer.

Then you close, and collect $$$.

2 CORRECTIONS:

1. I should have put in finding a property manager while you're closing, and

2. Making the image horizontal would have been easier to consume.

Here is a video of me explaining the flow chart: https://www.useloom.com/share/67dd1371ae014f05a249...

Implementing the Funnel

First, find our lead sources (realtors). That's their only job, to give you what they think are good leads.

I need to stress again, assume they DON'T KNOW anything about real estate investing. NEVER take a realtor's advice on real estate investing. Ever. They're a realtor. Their job is to sell houses. It's UP TO YOU to analyze the deal.

If you listen to realtors about how good a deal is, there is almost a 100% chance you will get burned and lose a ton of money. You're better off not investing in real estate if you're going to listen to realtors.

How to find realtors:

1. Go on Yelp, and search for "realtors" for the area you're interested in.

2. Call all of them and ask them if they work with investors.

On the call with realtors, you want to vet them. Ask them if they work with investors, and exactly how many investors they've worked with. The liars (of which there are a lot), will be eliminated quickly. I've had a realtor tell me they "work with investors" but I had to be exclusive with them, and I needed to fly out there, and they are not willing to find me 70% market deals--translation "I work with investors, but I don't actually work with investors and I am a liar and a nightmare to work with and I'll waste a ton of your time while forcing you to sign an exclusivity contract."

Here's the tricky part: if they are spending all this time and effort to buy you cheap houses, why would they work with you and not a regular primary home buyer?

For me, I just told them I have money, and I'm from California (lol people in the Midwest think we have money--we don't) and that I'm looking for a realtor I can develop a long-term relationship with where I'll buy a bunch of SFHs with in the long term.

So realtors get less PER DEAL, but they have a returning, paying buyer so they get more volume.

I used to just bluff them and say I'm looking to get 10 SFH in the next 5 years or whatever. This will light a fire under them to actually look for deals for you.

OK so the top layer of the funnel is done. You're getting a lot of spam deals coming in your inbox now, what's next?

Pump all the deals through the BP calculator. Again, the BiggerPockets webinars walk you through in extreme detail on how to use the calculator. So just use it as Brandon teaches.

The only thing that you might need help with is the vacancy numbers. In order to get vacancy numbers, just call the property management companies near the area (use Yelp again, or Google).

Again, you can bluff them and say you're looking to find a Property Manager who can manage 10 SFHs for you in the next 5 years and you'd love to develop a long term blah blah blah. This will incentivize them to actually tell you about vacancies and really any other information for that area. It'll also allow you to pre-vet PMs before you even buy a property. PMs that don't know vacancy rates probably are not a good property manager.

So great, you're all set with actually analyzing the deals. For my deals, I'd take the PMs quote for vacancy and double it. Then I'd also ratchet up the maintenance costs and capex costs (also from PM) and double THOSE. Insurance I'd keep at a reasonable amount since those are more fixed.

PRO TIP: GET A PRO BIGGERPOCKETS MEMBERSHIP

I rarely post here, as you can see in my post history. And I've had this account for almost 3 years. I literally bought this account for the calculator. At like $200-300/year, say one deal you analyze = saves you one hour of time. If you analyze 100 deals (which you would), that'll already save you 100 hours worth of time. That means in order for you not to buy the BP membership, you'll need to actually be paid less than $2-3/hr (assuming you analyze 100 deals in one year). And if you get paid less than that, you probably should not invest in real estate.

Calculating the deals out yourself, and "doing it yourself" is a great way to waste time and be broke the rest of your life.

Plus, your deals are likely going to be in the 6-figures in the long term. Paying 200-300 bucks for a membership is only a blip in your long term profits. So get a pro membership already.

If the deal is not good, as they usually are, you'd export the PDF and give it back to the realtor who sent it to you. This will help them refine deals and send you "the good stuff," and helps them know:

1) You're a serious investor

2) What you're actually looking for

3) You know what you're looking for

Tell them why it doesn't meet your criteria. This will generate a feedback loop that will improve deal quality over time (hopefully).

If the deal is good, you should already be pre-qualified and ready to go. Make a **REASONABLE** offer immediately and close that deal as quick as humanly possible. This is crucially important because you cannot steal in slow motion.

You want to make a reasonable offer because:

1. You don't want to come off as "cheap" to the realtor. If a deal meets your criteria, you're not getting much more "juice" out of the deal by offering a little bit lower. Offering a lower bid will just cause it to be rejected and even if you got the deal, the few dollars would not be worth ruining the relationship with a realtor that actually brought a good deal on your table.

2. You don't want to antagonize yourself to the sellers, and more importantly your main lead source (realtor). Think about it, if you're only throwing around cheap bids, you're going to ruin your realtors' reputation and their career. It's not good for anyone. Stop being cheap.

So let's say you've followed my advice up until this point and you're somehow closing on a deal. In parallel, vet Property Managers. I think BP has a list of questions to grill them with.

I used that in conjunction with another list to make a 45 minute questionnaire that I would grill them over the phone with. I did about 8 interviews before I found 1 or 2 that I was OK about.

Another mistake I made was allow the realtor to be my PM. Big mistake. They can only be good at one thing. Being a realtor, or a PM. If they found you a good deal, they are not a good PM.

Hire a PM company whose sole purpose in life is to manage property. The realtor while found me a great deal in only a matter of a few weeks, at most, was terrible at property management. I thought I'd do him a solid of letting him have recurring revenue by being a PM so I didn't vet him like I did with the other PMs.

TL;DR hire a professional PM company, not a realtor, to be your PM.

OK, so now you got the deal, closed on it, and got a PM. Only thing left to do is sit back, relax, and your PM fill the vacancy and start collecting money.

For me in particular, there was $11K in rehab which took a few weeks. **I DON'T KNOW** of a great way to vet contractors out of state, maybe other than read reviews. But these contractors came with the property management company, so not vetting them was definitely a mistake. Luckily, it's just like new paint and hardwood floors and stuff, so it wasn't a crazy rehab or anything.

I got multiple contractor bids before I chose them though, so at least I knew I wasn't getting severely ripped off.

FAQs:

Q: Do I need a PM?

A: For me, yes. The whole point was to be passive. I'm not missing the 10% if I had to bring my tenants to court myself, or call a handyman to fix stuff myself. I just want money deposited in my account every month. End of story.

Q: Did you go out to look at the property?

A: No. 2 reasons. First, you get a few perspectives on your property. You'll ask your realtor to take pics, the inspector to take pics, and the PM to take pics. They'll all make sure your property exists and nothing is wrong with it.

Second, I'm an investor. I buy stuff that makes me money. What good does it do me to "fly out an take a look at it"?

Like seriously, what would I even be looking at?

I wouldn't even know what I'm looking at!

Hiring a professional inspector is infinitely better than looking at it myself.

I know a few people that have flown out, taken a look at a "meh" deal, fell in love with the house ("I'd love to live here!"), bought it, and then come back and complained to me about how bad the deal is.

Like...NO. You're an INVESTOR. Get that through your head. These are assets you're purchasing with one goal and one goal only...to make you money. You don't need to "look at the house," you need a good deal with good numbers satisfying your criteria and supporting it. Unless you're investing in a C class neighborhood where you have to make sure it's not a place where people go to get shot, you don't need to look at it (my deal is suburby).

And **I DON'T KNOW** what a great solution is for purchasing out of state Cs.

Q: How many deals did you have to analyze?

A: Not sure. But it's worth analyzing the deals. I personally like staring at numbers because my mind works like that, but if you don't it's like a minute per deal with the BP calculator. And asking this question is coming from a bad place anyway. As if it "isn't worth your time" if you have to analyze over 100 deals. You'll need to analyze as many deals as you need to analyze until you buy something.

Q: How did you pick Memphis?

A: The first property I got was from a turnkey company. For those who don't know, a Turnkey company does everything for you (rehab, etc) and sells it to you when everything is done. I went to a Meetup and they pitched a few cities.

I looked at city-data.com and compared market trends against each other. For my risk profile, I picked Memphis since it seemed at the time, it has:

1. The highest cashflow of the markets I was looking at.

2. Workers are fairly generalized and not overindexed in any particular industry.

Q: What class should I invest in?

A: It's up to you. I was going for low maintenance. This strategy was for a home in a great school district, low crime, roughly A class neighborhood (this is next to a country club), and really going for that long-term family play. But I don't see why having a funnel and analyzing deals would be different for any other class.

Q: This was in 2016, would this work in 2018?!?!?

A: **I DON'T KNOW** but there's really only one way to find out.

You don't have to spend any money on anything (except maybe a couple hundos on BP pro membership) until you actually buy a house. So when you actually have to spend the money to buy a good deal, then the answer to this question becomes a "yes", so you're gonna be well-off either way.

In Conclusion

Just do it. Start today. Start small. Find one realtor to call.

Please let me know of suggestions and how I could improve upon this post, and I'll do my best to update it with more detailed info.