Finding good deals out of state with good CoC

[Varun Sharma]

Hi,

I'm an investor, residing in New York. In the past, I've done some out of state purchases [Memphis/Little Rock] through turnkey companies. Overall, I had a decent experience throughout the process as it generated good passive income and my involvement was minimal.

However, now that I have more time at my hand, I am interested in making the process and my investments more optimal in terms of cash flow. I'm not optimizing for appreciation at the moment (though it is a nice to have). Specifically, I'm thinking about getting properties which ideally satisfy the 2% rule or at least are significantly above the 1% rule (ratio of monthly rent to purchase price + renovation cost).

Given these goals and the fact that my constraints, I have the following questions:

a) Which markets are best to look at ?

b) How do i get started (like find properties that fit my criteria/constraints and then vet them, given I will likely be out of state) ?

c) If I do find a property that is in need of repairs, how do I go about the renovation process (given that I won't be onsite or close) ?

Thanks
Varun

[Jake Forehand]

Quote from @Varun Sharma:

Hi,

I'm an investor, residing in New York. In the past, I've done some out of state purchases [Memphis/Little Rock] through turnkey companies. Overall, I had a decent experience throughout the process as it generated good passive income and my involvement was minimal.

However, now that I have more time at my hand, I am interested in making the process and my investments more optimal in terms of cash flow. I'm not optimizing for appreciation at the moment (though it is a nice to have). Specifically, I'm thinking about getting properties which ideally satisfy the 2% rule or at least are significantly above the 1% rule (ratio of monthly rent to purchase price + renovation cost).

Given these goals and the fact that my constraints, I have the following questions:

a) Which markets are best to look at ?

b) How do i get started (like find properties that fit my criteria/constraints and then vet them, given I will likely be out of state) ?

c) If I do find a property that is in need of repairs, how do I go about the renovation process (given that I won't be onsite or close) ?

Thanks
Varun

I'm unfamiliar with the Memphis/Little Rock markets, but why don't you want to continue investing in those areas? Since you bought a few turnkey properties, maybe you have a decent network of contractors, handymen, or PMs already in place. Figure out ways to source off-market deals that are closer to meeting the criteria you are looking for (The higher your standards, the more difficult it will be, but that's the point of good deals). It could be through wholesalers, agents, networking with sellers yourself, etc. Each time you move to a new location you are going to be starting from scratch, and it's going to be incredibly difficult to rehab a property in a brand new location out of state with no team in place. You'll need leverage and you may already have it.

[Varun Sharma]

The turnkey company takes care of everything from selling the home to property management. I've been fairly handsoff in the entire process. So effectively I don't have a team.

I've done all cash buys with a return of 7% cash on cash [no associated mortgage].
I don't really have a network - the turnkey company is my PoC and they manage everything end to end. I felt that with an all cash offer, I should be able to get better returns in these markets. The monthly rent to purchase price is typically 0.8 percent.

As a first step, I was only looking to be able to find better deals which have a nicer rent to price ratio [once the deal is done, a PM company can pick up from there].

[Michael Smythe]

@Varun Sharma What Class of property/tenant are you expecting that will meet the "1-2% Rule"?

We find many investors chase cashflow by buying Class C & D properties/tenants, but then expect Class A results!

a) Depends on above, but Detroit fits all the criteria

b) Work with agents at a PMC that know investment real estate (we can handle)

c) Work with a PMC that does renovations (we do)

To succeed at the above, you probably want to work with a PMC that is fully transparent and supplies videos for property walk-thrus and renovation progress. Otherwise, it's way too easy to get ripped off and charged for shoddy work or work never even done.

PM us if we can help with any other questions.

[Samuel Diouf]

Here in Ohio.. my team always finds the best deals when we market directly to sellers. We renovate based on comps in the area and by giving our contractors a specific scope of work. 

[Travis Biziorek]

Hey Varun, satisfying the 2% rule will be insanely difficult in today's market.

I operate largely in the Detroit market and most of our deals are all in around $85,000 for a SFH that's renting between $1,200 - $1,300/mo. Still, if you do your numbers correctly, your net cash flow is about $150-$200/door.

The challenge here, and I imagine in any market right now, is that you can't get returns like that unless you're doing some work.

That $85k deal? We're generally buying for $60k and putting $25k into a cosmetic rehab. Most out-of-state investors will have an enormously difficult time navigating that process from afar, especially in a market like Detroit.

We help folks with it but our projects generally require investors to be cash buyers.

[Ben Nelson]

Hey Travis, I know the entry price in the Detroit Market are attractive. Have you thought about looking at Macomb county. I operate with cash investors in that area and would be happy to answer and questions. Property prices range slightly higher but with a lot better quality.  

[Travis Biziorek]

Quote from @Ben Nelson:

Hey Travis, I know the entry price in the Detroit Market are attractive. Have you thought about looking at Macomb county. I operate with cash investors in that area and would be happy to answer and questions. Property prices range slightly higher but with a lot better quality.  

I lived in Troy from 2017 - 2022. I had the ability to invest anywhere in the Metro Detroit area I desired.

I intentionally chose Detroit because I was certain it would outstrip the suburbs in terms of appreciation, and it blows aways the suburbs when it comes to cash flow.

I've been dead right on that for the last 5 years, and I don't see the trend changing any time soon. In fact, the latest Census data shows the suburbs are losing population to Detroit proper. 

The smart folks have known that for years, but it's great to see "official" data validating it now.

In short, no... I have zero interest putting money to work in the suburbs.