All Forum Posts by: Marcus Auerbach

We are also in camp "20 min radius" and a lot of them are so close together that it's easy to pull a contractor from a job on one house and fix a door handle on another on the way home.

Quote from @Clare Pitcher:

Quote from @Marcus Auerbach:

This brings back memories! 

My first live-in flip was a distressed 3,600 sqft home, shockingly not old just built in the 90s, but totally shot. I thought my 140k rehab funds were plenty, but I found out the hard way that it would really take $50-$60 per square foot for the interior. 

You do the math.

Plus all the the exterior projects: new siding, new roof, building out eave returns and soffit overhangs to fix the poor curb appeal, un-converting the attached garage, driveway, retaining walls, the detached garage, 144 truckloads of fill to create a front yard, landscaping... 

So outside of licensed electrician, plumber etc I ended up doing as much as possible myself, 5 hours every workday night and sun up to sun down on weekends.

Looking back this was a huge adventure for me personally, it took me 2 years, I learned a lot and it made me a better investor. I did it, because I had no choice, but I would not recommend it.

The pictures below are all (young me) me, including the guy inside the septic system.

 Wow!!! This looks amazing, what a journey!

 That was my first big project, I was figuring things out as I went along bc I did not know what I was doing. But I am still proud of the picture of me inside the septic tank fixing a baffle! Not many people can claim that. Yikes ;-)

Austin I get your point, of course NY&CA are just an example. Maybe a more sensible title would have been: "why OOS investing is harder than you think." It comes with a 10-20% built-in expense/handicap/inefficency and people often seem to forget about that. Yet, in some cases it is still worth it because the difference makes up for it (if you do it the right way).

What does not make sense is for someone who lives in Kansas, Atlanta or even Chicago to invest in Milwaukee - the markets are too similar, the grass only looks greener. It is better to keep the home-field advantage.  People are always surprised when I tell them that, because they feel I am turning business away. Sometimes, I get my favorite "oh, I don't think we are a good fit for each other" and they call another agent, who is happy to sell them a property.

Yes, I heard David Green talk about it, it was a title scam based on a website glitch if I remember correctly. Was it like 50 properties? I believe he got them back eventually. I looked into it and it varies State to State, fortunately Wisconsin is one of the harder ones to steal a title. That's just another example of one of the many things you won't know, especially if you invest in multiple states for "diversification". That's another mistake I forgot to mention: you never build any synergies for example, with PM's - if you buy all over the map. I am talking about SF and small MF. Different story if you are buying 100+ unit buildings..

Of course OOS investing is possible and in some cases it makes sense - if done right.

My team does work with OOS investors, but we have learned how to coach clients to have sustained success and not just one deal. Step one is always to come to Milwaukee and see some neighborhoods and some listings together, so we can get on the same page. It is crazy how many people want to do this fully remote. I trust my own judgement on Milwaukee, but as an OOS investor you have to see for yourself to really understand the tenant pool and the property conditions in a 60 or 100 year old neighborhood. Skipping this step is a deadly sin IMO, capex can quickly exceed cash flow and 3 years in you find out you have a money pit on your hand, which on top of that is not even easy to sell!

The other issue is that risk and price have an inverse relationship: new investors are often constrained with capital (like most of us were when we started) and then there is the notion that it is somehow less risky to buy a cheaper property. I have made that very mistake when I bought my first duplex in 2008. And my agent was very nice, but zero help. It's stock market thinking applied to real estate: limit you invested $ amount to curb risk. 

Once you understand cap rates, you understand why investors pay a lot more for a quality low-risk asset with a lower, but safer return. And high risk distressed assets in the hood offer really good returns (high cap rates), but are probably not where you want to start as a new investor AND remote. Thats a bad combo.

The problem is that the notion of "finding a better deal" is driving noobs literally to those high risk investments. Combine that with the lack of knowledge that comes with OOS investing and you have a reciepie for disaster.. 

 Interesting startegy and it should work on paper, at least I can't tell you why it would not work. But I've been doing this long enough that my instinct is telling me that there is a catch, otherwise someone else would already be doing this. If I would be you I'd post a question to connect with investors who have done this and can tell you how it works 

@Ryan Fox - I am glad to hear it and congratulations! But you are kind of the exception I am talking about in the headline: you live on the west coast and you invest in the midwest, so you have a sufficient economic delta. You understand the value of quality neighborhoods and you have found an agent who is connected to quality contractors. 

You have also reduced some of the negative effects of not being local by sticking to one area, so you have built up local knowledge. And you are fortunate to have an agent, who is willing and able to function as boots on the ground. (I don't want to call it "lucky", because finding a good agent with contractor connections and investing background usually requires deliberate effort - most agents don't know much about construction). 

You did not say this, but I assume you did initially spend some time learning that market, getting a feel for which neighborhoods meet your quality requirements and which ones don't. Once you understand a neighborhood and a market, it's rinse and repeat, you don't have to visit every property in person.

You've been sold a pipe dream. I get it. Finding deals has become a lot harder in recent years, which leaves a lot of people frustrated and looking for alternatives. And because the grass always looks greener on the other side, you are looking to invest OOS. Because the grass always looks greener on the other side.

Investors are supposed to be good at math, but nobody is talking about how the math is impacted by not being local. 

Anything you do remote is harder and costs more. There is a cost burden that comes with OOS investing. I would say that is at least 10%-20% on everything. In some cases, it's hard cost, in some cases soft cost or just inefficiencies. You will on average pay more for the same deal, you have to hire a GC instead of just subs, your contractors may charge you a little more, order too much material or make mistakes you would have caught, if you would have been on the job at least 3 times a week (like I do). Every service call is more expensive and it will take longer to rent it out. The quality of the tenants is lower, simply because nobody watches your money like you do.

The book you have probably read about OOS investing tells you to get three quotes from three contractors. Sounds easy enough. Until you find out how hard it actually is to find just one contractor who has time and is willing to spend half a day walking your property and giving you a "free" estimate. We have a contractor shortage. The good ones don't even answer their phone if they don't know the number. It's these little things that sound so easy and reasonable in that book, until you try to do it.

So when does it make sense to invest OOS? 

In my opinion, you have to find an economic delta that is large enough to make it worth while the OOS premium.  If you live in Chicago, investing in Milwaukee does not make economic sense. Milwaukee is a slightly better market and you are less than 2 hours away, but it's still remote and the small market advantage in the end not worth paying the OOS premium. Keep your home field advantage. If you work in tech in CA or in finance in NY, it might be worth it to go OOS. Your income is higher and local real estate is absurdly expensive. The economic delta is big enough to offset the additional cost. 

Elon Musk calls that first principle thinking, you could just call it common sense.

The absolute worst case scenario are OOS investors hunting for bargain deals in the hood. Because they don't understand. They buy a 100-year-old house at half the median price that has a ton of overdue capex. They hire a cheap PM and ask them to keep the rehab budget under 10k. And then they can't find a tenant. Or just a really bad tenant who trashes the place. They get in trouble with the city, because their house is so bad the city issues work orders or fines them for garbage in the front yard (like a mattress or tires - often dumped by someone else not even living there). 

Now the OOS investor finds out that reality does not match the spreadsheet. Perhaps the worst part is when they make the local news and give all investors a bad name, because the press forgets to mention that the absentee owner has not seen the property in years - and it's just bad press for landlords in general - and soon enough local politicians start calling for more regulations..

Based on my own investing experience for over 15 years in Milwaukee I feel in general that it is always best to buy the best quality real estate investment you can afford at the time. Ask me how I know! That is true if you are local, but even more important if you invest remote and every little step is harder and or more expensive.

BRRRR at home. You are thinking about OOS investing, because it has become hard to do it local. Wherever you go, you are competing with local investors who feel the same way, except you have an additional cost burden and management inefficiencies because you are NOT local.

I suspect you have unrealistic expectations. It's 2025 and not 2010. Real estate is expensive, no matter where you look. You can trade more time or more risk for a slightly better price, but I would not recommend that, especially for a beginner. Actually the opposite, buy the best quality with the lowest risk you can afford.

Instead of finding better deals (unicorns) focus your energy on generating cash. The times we live in offer so many opportunities. That's the up side of 2025. And then buy real estate.

@Erik Epperson you are feeling stuck, because you are mixing two issues: REI and your job. Separate them and then ask which one is more important to you. I can see how passionate you are about your job and sailboats, so It seems like changing your job comes first. And move to the water, so you can figure out a job with sailboats.

Going the real estate route will mean at least 10 years of things you hate. REI is supposed to make your life better. You can make your life instantly better, follow your passion. You will be in a much better place to work on REI once you have a job and a location you love.

Sorry for the reality check: Quitting your job and living of REI in a few years is pretty unrealistic in 2025. Nobody thinks they can invest in the stock market with little money and retire, investing in real estate with little money and retire is equally unrealistic.

It is also called real estate in-vesting, because money flows into real estate not out. Real estate's super power is equity over time, if you want cash flow start or buy a business. Boring businesses usually do best, for example .. you can clean or service boats.