Newbie from California looking for REIs out of state

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Newbie from California looking for REIs out of state

Andrew Wong
Investor · Milpitas, CA · Member since 2015 · 278 posts · 155 votes

Hi BiggerPockets!

I'm a programmer working in the Bay Area. Since the real estate in the San Francisco area is ridiculous, and ultimately unaffordable for me, I'm looking to do business outside of the area.

I have a pretty big focus on using various investments as a vehicle to reach financial independence early on, and REI is another way for me to diversify.

I'm looking starting out with a partner who is also in the tech business and pooling some money together 50/50. We are looking for single family homes with a focus on cash-flow. Since we'll be out of state, we'll be working with property management companies. We currently looking at Memphis, seems like a hot spot for cash flow homes, and an area that is within our budget.

Our current questions are about forming a Partnership, or a LLC, and what tax implications there will be.

This is all a new venture for me, so I'm soaking up a lot of information, and would love to know more!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y

@Andrew Wong  good luck on your ventures.... the Turn Key industry has really risen up in the past 10 years... Buy the best you can afford do not get sucked into the highest returns those are generally the most risky and the returns are only on paper you never actually realize them.. buy a nice home at the top of the range not the bottom and you will be much better off... property management will make or break the investment so make sure you good with that.

Podcast Guest on Show #222
JLH Capital Partners51 Review
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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    Let me know if I can assist you and your partner with any questions about our market or our company.  We have excellent property management in place and offer a solid product.  

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Andrew Wong  good luck on your ventures.... the Turn Key industry has really risen up in the past 10 years... Buy the best you can afford do not get sucked into the highest returns those are generally the most risky and the returns are only on paper you never actually realize them.. buy a nice home at the top of the range not the bottom and you will be much better off... property management will make or break the investment so make sure you good with that.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Jesus Chavez
    Real Estate Professional · Norwalk, CA · Member since 2015 · 15 posts · 3 votes
    10y
    If you'd like to analyze some off market properties in Memphis or other parts of Tennessee let me know. I know of a wholesaler who has various properties under contract.
    0Reply
  • Joe D.
    Real Estate Investor · Bourbonnais , IL · Member since 2012 · 257 posts · 16 votes
    10y

    Welcome to Biggerpockets @Andrew Wong!

    0Reply
  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
    10y

    Welcome to Bigger Pockets!!

    0Reply
  • Douglas SkipworthBusiness Member
    Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Andrew Wong,

    Welcome to BP.  Your plan sounds great!

    Check out the blogs and podcasts as well as the forums. You can learn a ton from the real estate experts on the site.

    Also, be sure to ask questions in  your posts so people can answer specifically.  I don't think anyone knows exactly how to answer your original post above.   But, we're all very willing to help.

    Best of luck to you!

    Investor's Guide to Memphis Real Estate
    View Page
    0Reply
  • Nada Mohamed
    Real Estate Broker and Attorney · Durham, NC · Member since 2015 · 74 posts · 73 votes
    10y

    Hi Andrew!  Welcome to Bigger Pockets and to the investing world. There is really so much to say about investing in the single family home arena. But I do agree, as a native of the Bay Area who now lives in Ohio, if cash-flow is your goal - California is not the place to invest.  Have you ever considered investing in Ohio? Great rental properties with great cash flow. I have helped investors in California and other states invest in the greater Cleveland area for a few years now and managed their properties as well.  I have also set up LLCs and partnerships (I focused on real estate, tax, and corporations in law school), so can offer a word or two up that alley. If you would like to talk about it, message me!

    Nada

    0Reply
  • Stephen Akindona
    Investor · Memphis, TN · Member since 2013 · 741 posts · 845 votes
    10y

    Welcome to the site! Tons of resources are available through BP and I highly recommend you use them all! 

    Happy investing!

    0Reply
  • Willem Young
    Real Estate Professional · Jacksonville , FL · Member since 2015 · 112 posts · 13 votes
    10y

    @Andrew Wong

    Welcome to BP Andrew!  Turnkey investing is the term people use for a complete real estate investing option and in my opinion it's a good option for out of state investing.  You can learn a lot about it.   Just make sure you do your due diligence and work with an operator that has been around a while with a good track record and has a strong management team and good construction work.   Good Luck!

    0Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    10y

    @Andrew WongHi and welcome to BiggerPockets! It’s a great place to learn more about investing and meet the people you want to meet. If you haven't yet, be sure to check out the The Ultimate Beginner's Guide to Real Estate Investing and don't forget to set up your Keyword Alerts!

    0Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    10y
    Originally posted by @Andrew Wong:

    Hi BiggerPockets!

    Our current questions are about forming a Partnership, or a LLC, and what tax implications there will be.

    This is all a new venture for me, so I'm soaking up a lot of information, and would love to know more!

    Welcome to BP Andrew! You have found a fantastic resource to help as you get started. A quick word of caution. You can spend a lot of time and A LOT of money researching and paying for partnerships, agreements, LLC's, paperwork, filings, etc...

    These are important questions.  Seek out investors near you and listen intently to their answers.  For the price of a cup of coffee, you can get some fantastic advice on how to get stared safely...but more importantly, how to avoid letting your questions keep you from getting started!

    Best of luck to you -  

    Podcast Guest on Show #224
    REI Nation4.577 Reviews
    WebsiteView Page
    1Reply
  • Robert FeolPro Member
    Specialist · Memphis, TN · Member since 2008 · 41 posts · 34 votes
    10y

    Hi Andrew!

    Partnerships can be a powerful way to accelerate growth in any business venture, real estate not withstanding.  With that being said and your post requesting a focus on partnerships, here are a few things to consider as you move forward.

    1) Do you need a partner - or are you simply looking for accessible forms of investment capital that will allow you to acquire properties with minimal hassles, given the underwriting requirements of most institutional/Fannie Mae lenders.  Private money sources abound and are often easily negotiable to a win - win position for both borrower and lender.  Private money allowed me to acquire far more properties than the Fannie Mae restrictions would ever have, and taught me to think 'outside the bank' to get deals done.  This is a good skillset to acquire if you have not done so already.

    2) If you need a partner, what is the goal of the partnership and time frame for the partnership?  If you need a partner for capital and support as you get started, presumably, 10 years from now your goals will have changed and you may not want(or need) a partner as you do currently.  As such, it is good to ascertain tangible goals and time frames, investment objectives, and so on for the partnership BEFORE it's formation and incorporation.

    3) If you form a partnership - CRITICAL - insure that you have a dissolution agreement in place BEFORE you incorporate, as part of the incorporation documents.  A well written dissolution document, established by both partners in agreement during times of peace(i.e., before any investments are made) which outlines what will happen if the partnership is to dissolve for ANY reason, will allow you both to equitable split assets which may not be liquid at the time of a split.  Real estate is relatively illiquid, and if one partner decides he or she needs to leave the partnership and access equity from assets(though the other partner may not want this or view it favorably), the dissolution document will allow for governance of what is or is not possible, and help avoid adversarial emotion when such an incident occurs.

    3.5) 51/49 split - make sure your partnership allows for you to make a majority vote when you may need to.  A deadlock of disagreeing partners can be a terrible(and costly) thing.  Be the majority(and decision making partner).

    4) Vet your 'partners' - real estate is filled with many people who will lie brazenly for money.  I have seen many of these types, even locally in the Memphis area where I live. Active, well known real estate salespeople from popular organizations who simply cannot, or are unable to, tell the truth if lying means they can get a check.  DON'T make these types a partner for yourself, lest you subject yourself and your finances to great and terrible risk.

    5) Tax implications - understand the formation of the LLC in Tennessee(you said you are looking at Memphis), how business 'flow through' income works for partnerships in corporations, and also learn which types of income are subject to social security tax vs. which are not. For example, anyone who receives a 1099 from you corporation would be subject to social security tax. However, you and your partner would (hopefully) not take distributions this way, you would simply take them as business income which is NOT subject to social security tax. Find a good CPA well versed in Tennessee real estate tax law to help you.

    Real estate is easy to get into and somewhat more difficult to get out of if you need to in case of emergency.  Learn the perils and pitfalls of what can happen to you, and try to avoid those.  You are starting off by asking the right questions.  Get the information you need and always make sure you are insuring that YOU are the decision maker and YOU have majority control in a partnership.

    Knowledge is powerful.  Make sure you have what you need before you sign on with a partner.

    2Reply
  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    10y

    Welcome to biggerpockets.

    Are your Golden State Warrior fan? ( sports or dislike sports )

    My suggestion would be to invest local or midwest communities for buy hold investments.

    ( research, take your time, and take action )

    0Reply
  • Andrew Wong
    OP
    Investor · Milpitas, CA · Member since 2015 · 278 posts · 155 votes
    10y

    @Nada Mohamed, I'd love to talk more about possibilities in Ohio. Will send you a message.

    @Robert Feol, thanks for the detailed response. I appreciate it!

    1. No, I don't think we need a partner. We both want a partner, at least for this first venture (and plan to more). Our reasoning is that it'll minimize our risk and also allow us to research into more areas, plus our finances combined together will open up more opportunities. 

    2. We have a current goal, cash flow. But you're right, that goal can change in the next X years. Perhaps we should set a goal to revisit our goals in five years to make sure we're still aligned.

    5. Yeah, the main concern (other than finding a property) is understanding the tax implications. I assume we'll be paying state income tax in Tennessee, and also some form of income tax for California based off of this? I'll definitely need to talk to a CPA. From discussions with a RE lawyer, a LLC is a bit costly at this point in our venture, though it may cost more in the future to do. If there are any San Jose, CA CPAs or lawyers reading this to help us out that'd be great!

    0Reply
  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    10y

    Welcome to BP. Happy to network.

    [email protected]
    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    I just wrote an article on this, about how me and my partner structured our rental property buys. Not sure if it helps or not, but here it is!

    https://www.biggerpockets.com/renewsblog/2015/12/0...

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    10y

    Why would someone want to partner with you? Just asking from the other POV. If you have money then make it explicit. 

    The amount of PITA (Pain in the you know what) and legal fees to create an agreement will probably outweigh half a years profits from a turn key.

    If you are buying Turn Keys I don't know why you would want to have a partnership. Just do it on you own. If you are just looking for a 3rd party to hold your hand just as for a consultant.

    0Reply
  • Andrew Wong
    OP
    Investor · Milpitas, CA · Member since 2015 · 278 posts · 155 votes
    10y

    @Ali Boone Thanks for the article.

    @Lane Kawaoka Nobody random would probably want to partner with me unless they need money. I'm just partnering with a long time business partner into another investment branch. Perhaps we're just the blind leading the blind, but it feels emotionally safer having someone along the ride. Maybe this is a bad reason, but if after our first property, we learn enough to venture off on our own and realize that a partnership did not prove that beneficial, then we may part ways in REI.

    0Reply
  • Spencer Shadrach
    Rental Property Investor · Memphis, TN · Member since 2013 · 57 posts · 13 votes
    10y

    @Andrew Wong Welcome to the site! Plug into the podcasts and learn as much as you can. If you're looking for properties to buy cheap, fix and rent then I can help. @Douglas Skipworth provides top notch property management! 

    If you're looking for a good turnkey investment check out these 2 providers: 

    @Chris Clothier 

    @Curt Davis

    0Reply
  • Douglas SkipworthBusiness Member
    Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    Thanks for the shout out, @Spencer Shadrach!

    Investor's Guide to Memphis Real Estate
    View Page
    0Reply
  • Jason Paine
    Investor · Redding, CA · Member since 2015 · 6 posts · 2 votes
    10y

    Welcome Andrew,

      You came to the right place at BP, I wish it existed 10 years ago when I started.  I think you might like the following thread, its quite long over 200 posts but I read through all of them and I think there are many golden nuggets when venturing into RE from afar.  Ignore the banter, although sometimes it is amusing :)

    Turnkey Properties - questions and concerns

    Best of luck

    0Reply
  • Sterling WhitePro Member
    Rental Property Investor · Indianapolis, IN · Member since 2014 · 554 posts · 153 votes
    10y

    Welcome to the site @Andrew Wong glad you are taking action for your financial future. Memphis is a good market as you have found in your research.

    Money can be made in just about any market. It simply comes down to which market is more aligned with your investing strategy. 

    Wish you the best of luck

    Podcast Guest on Show #308
    0Reply
  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    10y
    Originally posted by @Andrew Wong:

    Hi BiggerPockets!

    I'm a programmer working in the Bay Area. Since the real estate in the San Francisco area is ridiculous, and ultimately unaffordable for me, I'm looking to do business outside of the area.

    I have a pretty big focus on using various investments as a vehicle to reach financial independence early on, and REI is another way for me to diversify.

    I'm looking starting out with a partner who is also in the tech business and pooling some money together 50/50. We are looking for single family homes with a focus on cash-flow. Since we'll be out of state, we'll be working with property management companies. We currently looking at Memphis, seems like a hot spot for cash flow homes, and an area that is within our budget.

    Our current questions are about forming a Partnership, or a LLC, and what tax implications there will be.

    This is all a new venture for me, so I'm soaking up a lot of information, and would love to know more!

     Hi Andrew!

    I was just in the Bay Area, what an awesome city. REI is certainly a tried and true path to building wealth. It is a necessary part of any balanced investment portfolio.

    Being from out of state I think you have to consider more than just the management company. What is your strategic plan to manage acquisition and renovation. Being a fair distance form the assets you seek to acquire this can be a challenge with many hidden surprises. It is important to do your research and vet your partners thoroughly. I amy be a bit biased, but after working with investors form all over the globe, the one thing I have learned is that the venture is largely hinged on the front end of the transaction that  utilizing a reliable higher local provider with sophisticated operations and systems not just plans of how they will help you acquire, repair and pas you along to a magnet company. You lose all accountablity, having a turnkey provider with a platform and foundation for you to be able to scale off of and take advantage of the economies of scale is critical in the success of your road map.

    I encourage you to consider Turnkey -- look into it --- anymore question just PM 

    0Reply
  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    10y
    Originally posted by @Jay Hinrichs:

    @Andrew Wong  good luck on your ventures.... the Turn Key industry has really risen up in the past 10 years... Buy the best you can afford do not get sucked into the highest returns those are generally the most risky and the returns are only on paper you never actually realize them.. buy a nice home at the top of the range not the bottom and you will be much better off... property management will make or break the investment so make sure you good with that.

     Their is much truth in these words  - property management is key, but a Turnkey provider with the roper experience and sophisticated system will have a management team in house that you cannot compete with. Lots of good advice here!

    0Reply
  • Kathleen Bassett
    Real Estate Broker · Cleveland, OH · Member since 2015 · 451 posts · 313 votes
    10y

    Welcome to BP @Andrew Wong! It's a great place to learn more and connect with the right people. I have worked with a lot of out of state investors who have realized the potential of the North East Ohio market. Feel free to connect with me to talk more about investment opportunities that might be interesting for you and your business partner. Best of luck to you, Kathleen 

    1Reply
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