How Do You Buy Outside of Local Market?

Question

Many investors talk about investing across the country in real estate without personally visiting the properties.

How do you determine the condition of properties, if they'll need improvement, how much improvements will cost, etc on properties that are not in your locality?

Also, how do you find out the market value of such properties, how much they would sell for, or how much rent you can charge?

Account Closed · Answer

There is an awful lot that goes into the value of a property.  Some of it, you aren't going to learn by driving around the block and looking at the neighborhood.

My area always has a huge number of out-of-state investors. They say "Wow, isn't it cheap!" and pay way too much for properties that the locals wouldn't touch.

We have "local prices" and "California prices" on the local real estate. Literally, if someone gets a huge price we say he got a "California price".

Robert Mack · Answer

In my opinion, to invest out of your area of expertise, you need to first go visit that area, spend some good time on the ground and form your team there personally.  I am from NJ but invested in a couple flips in SW FL this past year.  I moved down there for 8 months and made friends with the people who I knew would be able to help me invest in FL.  I found a great Realtor who's also an active investor and joined the local REIA where I found a great title agent, contractors, handymen etc...

I would of never invested there without spending time on the ground getting to personally know the area and the people who will have an effect on my bottom line.

Justin S. · Answer

Jackie said it best.  You do clean up some warts on the house, but you never actually do any physical improvement.  But you are wiping out HOA liens, 2nd mortgages, etc.  As long as you can create a spread, you can make money on these deals.  It can be a A LOT of work and you may never get paid if the deal falls through.

Rich Weese · Answer

Rob hit the nail on the head! I remember our first meeting at Cracker Barrel here in Ft Myers with some other BP members. I could see his motivation and he was willing to actually move here. Rob didn't boast, but I have an e-mail from him saying he made 23% on his money----in much less than a year. 
      Not bad for;
1. brand new area
2. no real experience
3. did it in FL, which everyone is ragging on as horrible market.
    He was willing to get immersed, and it paid off for him handsomely. Rich

Jackie Patterson · Answer

What Justin means is that we buy and sell the home on the same day and don't do anything to the bricks & mortar.  We do improve it, though.  We take a distressed property, pay the mortgages, back taxes, assessments, negotiate with the lender, etc. and turn it into a retail sale (at a great price for the end buyer) that can close without all of the hassles of buying a short sale property!
 
You can start working with an experienced investor a "bird dog" finding properties or Realtors to work with.  It can be kind of like an apprenticeship....learn as you go with an experienced team and then when you are comfortable, step out on your own!

Malhar B. · Answer

I agree with most of the above posts.  It is important to take a trip out there and have face time with potential team members.  Also, I don't rely on any one person to give me the ins and outs about a property.  There's just too much information to gather and it's my private investors' or my own money... and I'm not willing to risk it.

I put checks and balances in place.  The realtor goes out and does some task, then the inspector goes out and does what he needs to do, but checks up on the realtor's task, then several contractors go out and check up on what the inspector advised, then the property manager or listing agent will go out and do an analysis of the work the contractor did, etc... I always get documented details for everything--pictures, reports, contracts, whatever the situation warrants.

To figure out values, you have to look at comparables.  An fairly decent realtor can help you with these.  I usually ask for EVERYTHING that has sold within a half to one mile radius of the subject property and try to get all of the details I can about those solds.  Then, I evaluate the comps by comparing it to the subject property.

For improvements, the inspector has to be knowledgable--I screen them thoroughly, get references, find out their licensing, how many inspections they've done, take a look at their sample reports, etc.  Then, after their done, I'll talk to them over the phone before I get the report and then after I get the report.  We talk and develop a scope of work, which then is written up and sent to several contractors.  The contractors go out to the property and bid it all out and I get to compare apples to apples.  (Of course, all of these contractors are thoroughly screened as well).  During the course of the rehab, my inspector(s) go out and analyze the progress to make sure everything is being done properly to code and on time and in budget.  Finally, upon completion, my property manager or listing agent goes out and evaluates the property.

We hold everyone accountable.  If you break it down, it isn't all that difficult or different from a local rehab.  Yes, there is more involved, but it can be done successfully with checks & balances in place.

Justin S. · Answer

These investors are probably flipping paper versus houses.  Its a good way to invest if you are new because there a lot of contingencies and you have your end buyer in place before you buy.

If you ever plan to add value to a house, then Robert Macks advice above is best.

Bill Patterson · Answer

I might add to Jackie's post that we rely heavily on local Realtors to act as our eyes and provide values, repairs needed, estimated time on the market, etc.  Without them, we would stay in our back yard!  
Bill

Rich Weese · Answer

I've always looked at loans to friends or relatives as "potential gifts." If the loan goes bad, and you suggest it be paid, you'll become the bad guy in the scenario.
    Back on topic- I'd suggest to "select your team", you need to go there also. You may still get suckered into a deal, but you have a better chance by being there eye to eye. I wouldn't suggest picking properties or "team" in far away places without being there yourself. It has worked for me 100% of the time. Rich

Rich Weese · Answer

The last 4 areas I've invested in, I've actually MOVED to! That was an excellent way to gain all the knowledge I needed to be confident and comfortable.
1. St George, Utah
2. Casa Grande, AZ.
3. TX- mostly Rio Grande Valley
4. Now, the SWFL area
     The jury is still out on the FL market, but the other 3 were wonderful to be in. I don't think there is any substitute for being in an area and taking care of your money.
 I once heard, "no one will ever take as good care of your money , as you will."
    Rich

How Do You Buy Outside of Local Market?

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