Investing in low price homes (30k-60k) Out of state ?

[Chris Lynch]

I have been on the forums for awhile now and after some thought I have been thinking about this strategy. I would love feedback.

In my state (RI)  homes are about 180k on avg. Of course prices vary based on area. But even with that said I have found landlord laws to be not so good in terms of eviction and I found property taxes to be kinda high.

I am a young guy so I can afford to spend time traveling if I need too. In some cases I would even prefer it. But I am wondering if anyone here invest out of state ( Long distance) and if so how do you manage that? Do you hire a good property manager and manage the manager from a distance? If so how has it worked out...

After some thought It seems like buying low priced property that cash flow more might be a good idea. Once financially free on cash flow, work toward buying bigger and better property that appreciate.

If you have any real life experiences, advice on buying long distance rentals, or even good areas to buy these type property's I would love to hear from you. 

Best Regards,

C.L

[Chris Clothier]

Originally posted by :

 from Memphis Invest who @Joel Owens mentioned has a good reputation but not sure his homes are in that price range (I tagged him though so he can answer for himself). 

Good luck and while I am not an expert by any stretch of the imagine I have tried to learn as much as I can so let me know if I can be helpful in any way. 

@Charles Worth & Joel thanks for the shout out to the conversation.  I have written several articles on this and I speak from experience, as Turnkey investments, low priced properties are the worst mistake an investor can make.  If you are going to be active in the day to day operation then you can absolutely make it work and many do, but as a passive investor, these are the properties and price points you want to avoid.

@Chris Lynch, the economics do not set up for you to be successful passively in this price point.  It takes revenue for a company to remain in business.  Business owners operate to make a profit.  Homes have to be purchased and renovated and - when sold to a passive investor - need to be renovated to an absolute top standard to avoid as much deferred maintenance as possible.  Regardless of the age or size or location of a property, there is only one way to do renovation work....the RIGHT way.  That cost money.  When everything is added together, in my opinion, one of two things happens to an investor buying passively or Turnkey in these price points.  

1.  The property is priced high, yet the value is not there.  The high price allows for guarantees on maintenance and management, which are often used as sales gimmicks and they mask the real issue.  The price is high so enough revenue can be generated to operate the company and some is put aside in case a guarantee needs to be used.  Unfortunately, the renovation itself has to be done sparingly to avoid spending all of the revenue on the property and putting the company in peril should a guarantee be called.  It becomes a crap shoot for the company, but they are gambling with the investors money.

2.  The property is priced super low and pencils out on paper to be an astronomically high return.  Problem is, the company selling it is using that return as a selling feature rather than quality of work.  Again, no underlying value.  The property is under-renovated and the company selling it is understaffed, but the gin is operated as a merry go round always looking for the next buyer after that super high return.

Neither scenario does anything to improve the socio-economic plight of many of the renters in these price points.  Rents ranging from $450 to $700 in many cases.  Using the 1/3 ratio for rent to income, you can expect your tenants to be earning between $18,000 and $27,000 a year.  These rent ranges will have - on average - more and quicker turnover, longer vacancy and constant repair work due to age of the property, lack of quality products and work during renovation and in general, more wear and tear.

Remember, that I am talking about being a passive investor and others brought in the Turnkey aspect as well.  In my experience as both an investor in these price points and a company owner who manages just under 3,000 turnkey properties for other investors, these price points are not the price points for long-term success passively.  Just my experience and I do not go near them right now.  

I have reached out a couple of times to a local Memphis company whom I have never met personally to try and sit down and learn what they are doing.  They say they are having a ton of success for other investors in these price points and I have no idea if they are or not. But, I want to meet them to learn and so I am investigating myself to see how they are operating.

Bottom line on this long thread!  Quality renovations and great property management are the key elements for success when buying out of area and from Turnkey companies.  Both require revenue and there simply is not enough revenue generated on these low price points.  In my experience the last 12 years and seeing many, many different companies, the properties, the renovations and the management are simply too shoddy.