New to the BRRR method. Want to get started out of state. Tips and advice?

Question

Hey everyone,

I am a house flipper here in the Bay, so I am not new to real estate, but I am new to investing out of state. I have been looking to get my hands wet in the BRRR method space. The primary market I am looking at is the KCMO area. I am seeing strong growth in this market, but I also have family that live out there as well.

I think I can get some of my family to help me source deals, or at least help somewhat and will have eyes on the properties when I am not there.

It seems to be a low barrier of entry for me coming from the Bay.

Here are some of my questions:

How do you guys normally source these deals and what should I be looking for percentage-wise on the ARV vs purchase price?

What remodel costs am I looking at for the KCMO area in comparison to the Bay Area?

I was going to use a HML lender to source these deals, and then refinance obviously at the 6-month mark. Is this smart or should I be getting these properties with a conventional loan? Just looking at putting less down if I can and using a HML to finance the rehab.

What would be the best way to find a reliable contractor out there?

Any other tips or suggestions you have?

Doug Spence · Answer

@Kevin G. Great questions! I live in San Diego and I've been investing out of state since I moved here in 2018, with an investing focus primarily in Oklahoma, Wisconsin, and Florida. I've done two out of state BRRRR's and two out of state flips, and I also purchased three turnkey properties. I've invested in numerous syndications as an LP.

I've sourced deals both on market and off-market, and I think the best way (especially now) is finding that investor-friendly agent that is willing to submit lowball offers on homes that have been on the market for a while. Your agent should also have access to off-market deals, and that should be one question (of many) you ask when vetting your agent.

For a BRRRR, I take the ARV*.75 then subtract estimated rehab costs. These are tough to find but they are out there! The tough part now is finding something that rents for enough to cover the mortgage with these higher interest rates. That's why it's challenging to BRRRR these days.

If you want to BRRRR successfully, you ideally want to find properties that don't qualify for conventional financing because they need SO much work. That leads you to need a HML or private money (private money is my preference) so you can pay cash.

As for contractors, I like to leverage the property manager's network of contractors. They are already vetted and have a relationship with the PM so you're less likely to get screwed. Plus the PM can verify the work before payment is sent.

Good luck! Keep us updated on your progress.

James Wise · Answer

If you are trying to pull off a BRRRR in today's market, you're probably gonna need to come in cash. Not really enough meat on bone to support the HML fees on acquisition.

Kevin G. · Answer

Thanks so much for sharing your experience and insights! It's always valuable to hear from someone who has successfully navigated the out-of-state investing landscape, especially in diverse markets like Oklahoma, Wisconsin, and Florida. Your approach to BRRRR and flipping, along with your experience with turnkey properties and syndication's, provides a well-rounded perspective.

I have been able to find a few successful ones on the market in the KCMO area, but bear in mind this is just based on my own calculations and not viewing the properties. So I am guessing on rehab costs by just looking at the pictures. It would be easier if I could get someone to view these properties, but I don't know how competitive distressed properties are in this area. In the market I am in right now, flips are very hard to get, and you'll easily see 10+ offers on some of these homes. I am hoping to face less competition in a Midwest market like KCMO.

In regards to lending, yeah, I am definitely going to use a HML as that's my best option. I have one that can do 10% down.

Thanks for all the great information!

Andrew Postell · Answer

@Kevin G. I lived in NY for several years.   When I lived there I couldn't afford even the "off market" deals that were in front of me.  So, I chose to invest in Jacksonville, Florida.  Now, there are studies that show Jacksonville is good for this and for that...but that's not why I invested there.  I invested there because I had a network of trusted people that I knew would look out for my properties.  When you invest out of state...you may never even see your own property!  That's an enormous amount of trust (and money) to leave in the hands of strangers.  This is a common discussion - City X has 2% better numbers than City Y....but the reality of it is that one bad vendor, one bad relationship, can wipe out ANY benefit that is potentially there.  If you have someone that you already know in a certain city - choose that city!  If you are targeting a city...then interview people right away.  If you can't find people that you feel comfortable with...then keep interviewing...or try another city.  Trust your instincts.  Networking with other local investors is also a good idea for that market...so use those facebook groups to your advantage.

Hope all of that makes sense.

Nate Meeker · Answer

@Kevin G. I have clients sending direct mail to small multi family owners in KC and they are buying them up for around 80-90% of FMV. Let me see if I he wouldn't mind sharing the contractor and list of people to stay away from.

New to the BRRR method. Want to get started out of state. Tips and advice?

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