Out Of State Investing 101: Establishing Trustworthy Connections?

Question

Hi BP,I am making my first moves onto picking a market to invest out of state in cash flowing properties. The down payment I will be using is 20k. I think having a trustworthy team of realtors, property management,etc is paramount. How do I even begin establishing a relationship with these people and what can I do ahead of time to pick a reliable teammate. Also what role is the most important and should find first for my team (realtor,property manager, lender, contractors etc)? If anyone could recommend any of these organizations to me it would be greatly appreciated as well.

Jay Hinrichs · Answer

I would say your undercapitalized.. to do what your trying to do with 20k in cash is going to be pretty tough.your explaining the BRRR method and that involves usually paying cash.. and or if you need to get HML to buy and get reno money there goes your buying below market as your holding cost will be significant add to your purchase price then add on your refi costs and it could easily be 10 to 12k extra just for financing.Not to mention the risk of getting royally screwed by some low hanging fruit wholesaler who talks a great game has a lot of posts on BP and gives you a dud.. LOL.. I would rethink this whole equation.. If your anti turn key thinking they charge too much then .. FIND and great broker and simply buy some mom and pops house that they lived in for 30 years in the market you want to be in .. and put it in service.. do a home inspection make them fix the honey do's and let your broker find you a deal.. then hand over to a competent PM.. take special note when you do home inspection on the major componants like heat and air roof .. plumbing electrical.. try to find listings were these are update or near new.. if you do that its not mandatory to buy a completely fresh reno.Plus most turn key companies simply don't have 4 plex's they deal in SFR's you may find some that work the really rough areas of the mid west and sell low end duplex's but those will eat your lunch over time.I think you should step back and reassess.. 20k simply is not enough cash to go out and make this work.. at least IMHO

Jay Hinrichs · Answer

you said 4 plex now your saying SFR.. you can do a SFR this way in many markets.. but your right on the cusp of buying something that is too low in value and will just drive you batty.. I am a proponent in buying the top 1/3 of a given rental market not the bottom third.. when you starting out.. more experienced and cashed up investors can take those risks.. you buy your first one and it does not perform then what.. I would never counter Brandon's advice although I have owned 350 of these homes so I do have some experience.

Account Closed · Answer

@Cody Evans I would suggest that you go through different forums. While you're at them, look for replies with people who have a lot of posts and likes. click on their profile and read it through. If you feel some good vibes, send them a connection request and ask what markets they go for. Furthermore, go search those markets and search the providers that told you about. Google the providers and go through all the reviews. Call the provider yourself and start asking questions. Have them send you their inventory and check for deals that actually make sense. You can ask the BP community if that deal is feasible. There you have it. Your first ever deal! P.S. you are looking for a financed deal so the appraiser would be more than enough to assess the house. Plus, you will have an inspector check the whole house. They both check houses for a living and they are a lot better than most of the investors. Now you have a completely checked house without having to leave your bed. Now, compare both of their' s results and remarks with what the provider said. If they match or are super close, you have a good provider. You can stick to them, but keep getting inspectors checking your prospective deals every single time. You can never be too sure. Hope I helped.

Lane Kawaoka · Answer

Cody Evans just get a lot of data point talking with lots of other fellow investors that lived on the west coast and bought in turnkey land

Matt K. · Answer

This is just from my experience in KC... and be aware there's ALWAYS exceptions to the rules but I speak to what's more common. 20k, get's you sub 100k (you still have closing costs). Now this gets you a few different things:MFH is going to be rough. Probably old, bad area, poor schools or if you're unlucky all 3. These could work if you were local, but you're not. You'll have a harder time getting someone to manage these.SFH: You'll probably be able to find something that works, but it's likely going to have something missing that makes it come in at that price point. You might be able to get it in a more working class area and find a good tenant with stable job, but again you increase your risk. You're likely going to have sacrifice quality of house, area, schools, or size to get it at this price point.Condos/Town home: This is probably where you'll have your most luck getting something worth while, but again you have to deal with HOAs. These can cause headaches and make life difficult, again not impossible, but just another hurdle.Even bumping up to like 110-150k get's you way better properties and tenants. You'll get good/better schools, you'll get places people want to live vs have to settle for. MFH is going to be tough because it's popular and plenty of people are looking at it to invest. General rule of thumb is about 1% of purchase price for list. If you're going in rough areas you might get 2% on paper but less likely to see that in real life.

Dan Turkel · Answer

@Cody Evans, I'd suggest getting to know some wholesalers before trying to do it yourself. Your best bet will probably be to find them on BP. Shoot them a message and try to begin a conversation with them. Ideally, you'd be able to meet with them in person by taking them out for a coffee or something. I also suggest going to a REIA at some point to begin developing your network/team to get your name out there. It's all about providing value. You don't want to just say that you'd like to pick their brain. Offer help in whatever way you can and try to have a friendship develop. At that point, the person would ideally want to help you out.

Todd Dexheimer · Answer

@Cody Evans check out the recent BP podcast for tips on that. The biggest key is referrals. If you're still picking a market check out my blog post: https://www.biggerpockets.com/blogs/10145/66160-how-to-identify-emerging-markets

Dan Turkel · Answer

@Cody Evans, that can certainly work in theory. In practice however, you'll undoubtedly face many challenges you (or anyone else first starting out, for that matter) could have never foreseen. I'm not sure if you've ever seen this blog post but it basically describes exactly what you're trying to do. I highly recommend reading through it if you haven't already. Since it will be critical for you to obtain properties at a discount, I think the most important person on your team will be a quality wholesaler. The problem is that quality wholesalers don't just throw their best deals out there for just anyone - they first share them with people who have proven that they're not tire kickers. They give them to people who consistently buy the properties they've gotten under contract. It takes time to develop this type of trust so be sure to keep that in mind.

Dan Turkel · Answer

Hey Cody,Referrals. They're huge in this field and they're going to be very important in establishing connections with potential team members. I recommend starting by doing a search for investors in your area on the BP website. Then, choose a few who have properties in your market of choice and shoot them a message. Ask if they have any reliable contractors, relators, etc. that they'd recommend. That should give you a solid foundation to start with.As far as priority goes amongst your team members, it depends on what type of investing you plan on doing. Anything involving repairs and I'd recommend putting a lot of effort into finding a trustworthy contractor. Doing turnkey investing? Try to ask around for a good turnkey company or wholesaler.

Cody Evans · Answer

@Jay Hinrichs @Matt K.You guys are real dream crushers and I love it! LolI now figure I will be better off saving a little while longer to get a better property. Either that or build some more income. If you have any suggestions for a good way to invest income in the meantime or a good paying side job I can do on weekends that would be well appreciated but otherwise you really helped me get a more realistic grasp on what would be my money well spent.Thank you