All Forum Posts by: Alex Case

 Out of state rentals is a very popular topic on this website. I like to shoot out the punch list below to new out of state investors. Following this list below is going to go a long way to help you reduce your risks when buying out of state deals.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Google Clayton Morris and/or Morris Invest for a cautionary tale of what not to do when buying turnkey real estate
• Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.

Since 2001, we have had 3 rental properties in Charleston. I'll start with the good news: On average our tenants stay for 7 - 10 years. Since the maintenance and repairs necessary when a tenant leaves and the lost rental income when property is vacant this is a real plus. 

48% of the residents in Charleston are rentals, so there is a fairly large population of possible tenants.

And the city is great to work with when there are issues.

The bad news: If you're expecting to buy properties, rake in the income while a management firm does the work, don't. We've had three different management firms. All have had their good points and their bad. But, none of them kept sufficient oversite to keep us out of trouble. In one instance, a friend drove by one of the houses and found it empty. The tenants had moved out, without notice, 2 months earlier. A good management firm would check within a week when the rent wasn't paid. 

In another instance, it cost us around $18,000 in repairs to the house. it took 2 dumpsters to remove trash and garbage, four trips from pest control to kill all the bugs, replacing a refrigerator (that was  only just over a year old), and more. If the management firm had visited every two months, as we requested, things would not have gotten that bad. Due to serious health issues, we know the family was struggling. So we offered to pay for a monthly cleaning service to help out. It would have been cheaper for us if they had taken us up on the offer.

These are just two of the worst situations we encountered. There are more.

To be fair, I understand that several management firms were closed due to retirement, and the remaining firms were left to pick up hundreds of rental units. It can be overwhelming.

So, if you choose to invest in Charleston, be prepared to be proactive. Don't assume things are being done in your behalf. Nag the managers to do what you want and request photos of the before and after. My husband was in the construction trade (HVAC) and knew what it took to keep the mechanical systems of a house healthy. He kept track of when routine maintenance needed to be done and scheduled HVAC maintenance directly with a firm he chose.

Hope this is helpful.

@Alex Case

Well, contractors tend to "come and go" and also get busy, so having some variety/backups would be good.  Also, are you going to hire one "GC?"  Or, are you going to manage the project yourself and hire the specific trades?

Of course, you'd ask for proof of liability insurance and worksmans comp insurance...  Make sure they can handle, or want to handle, the scale of your work.  For me, a big one is being to "get along" (on a professional level) with the guy.  Expectations need to be understood.  All the trades are busy now, but you'd want/like some priority on your work since you'd like to get the flip done quickly usually --- time is money.  What does he have for his "own" crew vs he subcontracts.

I hope that helps a bit.  Good luck.

Hi all,

Husband and I are avid BP readers and learners of all things REI, but haven't started yet. We just bought our own first home this spring.

While we save up money for the DP of a rental, we're exploring different strategies. Husband is more comfortable getting a $150k-$250k SFR or a multiplex that doesn't need much touch up in a A or B class area, whereas I'm very intrigued to buy a run down place for less than $15k-ish (use all cash so no mortgage), rehab it, rent, you know the drill.

I’m aware most of those are in class C or lower areas, but my risk tolerance is ok with class C. I have talked with a few investors (online) who use this strategy and it really works for them. The key, according to them, is find that class A/B tenant out of all those other rough applicants.

Any advice that would help us choosing the strategy?

FYI - we’re in SoCal and we’re absolutely not interested in buying here, mainly because of the high prices and renter-friendly laws. We’re looking to buy in the Midwest.

Thank you!

Super interesting to me the opposing suggestions of people here. If you take anything away from this, it should be that anything in REI can work if you find the right deal, in the right place, and have the right people behind it. With that being said, you need to hit those criteria. If you're looking for a B or above the numbers are tighter and the competition is stiffer, but there is a bigger backend to it, so you may have different exit strategies. I also agree you shouldn't look for a gutjob, but I also think that unless you find a fantastic turnkey provider (which I'd say that doesn't exist), I'd also stay away from turnkey. Find something that is vacant and needs light rehab to add some value. It'll be hard to find, but much easier to handle than the alternatives. Most importantly as an OOS investor, you need a team in place. Find a great agent who is well connected in the market you're looking for and they will pay in their connections alone. Contractors, PMCs, the whole roster. And lastly, if you're looking in a C area, you'll need to have an agent who REALLY knows the city, because one bad choice can lead the whole deal to flipping upside down. However, C deals might be cheap enough where you can get burned and learn a lesson pretty inexpensively. Food for thought. Best of luck to you!

@Alex Case

Well, contractors tend to "come and go" and also get busy, so having some variety/backups would be good.  Also, are you going to hire one "GC?"  Or, are you going to manage the project yourself and hire the specific trades?

Of course, you'd ask for proof of liability insurance and worksmans comp insurance...  Make sure they can handle, or want to handle, the scale of your work.  For me, a big one is being to "get along" (on a professional level) with the guy.  Expectations need to be understood.  All the trades are busy now, but you'd want/like some priority on your work since you'd like to get the flip done quickly usually --- time is money.  What does he have for his "own" crew vs he subcontracts.

I hope that helps a bit.  Good luck.

Since 2001, we have had 3 rental properties in Charleston. I'll start with the good news: On average our tenants stay for 7 - 10 years. Since the maintenance and repairs necessary when a tenant leaves and the lost rental income when property is vacant this is a real plus. 

48% of the residents in Charleston are rentals, so there is a fairly large population of possible tenants.

And the city is great to work with when there are issues.

The bad news: If you're expecting to buy properties, rake in the income while a management firm does the work, don't. We've had three different management firms. All have had their good points and their bad. But, none of them kept sufficient oversite to keep us out of trouble. In one instance, a friend drove by one of the houses and found it empty. The tenants had moved out, without notice, 2 months earlier. A good management firm would check within a week when the rent wasn't paid. 

In another instance, it cost us around $18,000 in repairs to the house. it took 2 dumpsters to remove trash and garbage, four trips from pest control to kill all the bugs, replacing a refrigerator (that was  only just over a year old), and more. If the management firm had visited every two months, as we requested, things would not have gotten that bad. Due to serious health issues, we know the family was struggling. So we offered to pay for a monthly cleaning service to help out. It would have been cheaper for us if they had taken us up on the offer.

These are just two of the worst situations we encountered. There are more.

To be fair, I understand that several management firms were closed due to retirement, and the remaining firms were left to pick up hundreds of rental units. It can be overwhelming.

So, if you choose to invest in Charleston, be prepared to be proactive. Don't assume things are being done in your behalf. Nag the managers to do what you want and request photos of the before and after. My husband was in the construction trade (HVAC) and knew what it took to keep the mechanical systems of a house healthy. He kept track of when routine maintenance needed to be done and scheduled HVAC maintenance directly with a firm he chose.

Hope this is helpful.