All Forum Posts by: Allan Kapoor

Quote from @Mike Paolucci:

Quote from @Allan Kapoor:

I'm looking for advice on how to feel more comfortable pulling the trigger on my first out of state rental property. On paper I'm ready - I have the money, I've done the research, I have well-defined property/neighborhood criteriaI, I have an agent, contractor, property manager, lender, etc.

 I'm originally from San Francisco and ran into similar issues that your worried about. Happy to jump on a phone call and share some of my experiences. 

Thanks, very much appreciated. I'll be in touch.

Quote from @Nicholas L.:

@Allan Kapoor

I think you're being smart, but here's what I don't get.  why not go in person to the market you're trying to buy in?! 

I don't understand how people are willing to drop $50K-100K or more on a property, but think that making a trip or 2 or 6 out to meet people and look at properties in person is too much of a hassle.  this does not compute for me.  and think about the advantage you would have over the other Allan Kapoors wanting to do everything from Internet if you're building relationships and developing expertise in person.

and no, those numbers don't seem safe / conservative enough.  here's why.  you can't use percentages for capex.  think about your first 1 to 2 to 5 to 10 years of ownership of a property, and the difference between:

-a 1-year old furnace under warranty, and a 35 year old furnace

-a house with central air, and a house without

-a house with a brand new roof, and a house with a 25 year old roof

-a house with a knob and tube wiring, and a fully rewired house

which is going to have more capex?  and how would "10%" be enough in the latter case??

happy to help further...

Your argument for going in person is convincing and along the lines of what I've been thinking myself. You're right that the expense/hassle of a trip is worth it relative to the amount of money at stake.

A question on that though - in a market where good OM deals hardly last longer than a week - is it really realistic to plan on touring specific properties that I might put an offer on? And even if so, would me walking the properties really give me more information than I would get from an experienced contractor/inspector? In my mind, the purpose of the trip would be to a) drive the neighborhoods I am considering to understand them better/identify better/worser pockets etc and b) meet people I am planning to work with (realtor, contractor, PM) in person to solidify those relationship. Would you agree?

RE capex underestimation - I should have clarified the 10% assumption was for screening. I think you're recommending a more detailed analysis involving the age/condition of all the building components/systems and prorating those costs out over time. This makes sense, but is a lot of effort to do for every property I consider, especially for OM deals where not all this information is available until I get an inspection. How do you recommend I balance efficiency vs completeness in this type of analysis?

Quote from @Nicholas L.:

@Allan Kapoor

have you been to the area in person?  are you walking these properties yourself?  a lot of folks in California pick out a property they don't see in person, trust people they don't know to manage it, and then it goes south.  so - don't do that.

https://www.biggerpockets.com/forums/48/topics/1160450-run-i...

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

your down payment is way better served in savings than getting crushed like those folks did.

if you're targeting off market - are you getting emailed off market deals?  are you marketing yourself?  are agents sending you leads?  would you go to a property in person if you made an offer?  

No I have not been in person, and what you are describing is exactly what I'm worried about.

I will say that I do have a contractor who I trust to do an honest thorough inspection (I requested several references who all gave positive feedback, and the one property I did ask him to inspect he found a major structural issue and immediately told me not to considering buying it).

It seems like when most people run into trouble its because their estimates of vacancy, maintenance, capex were all too optimistic. In my market I've been told to estimate 5% for vacancy, 5% for maintenance, and 5% for capex. This seems quite low to me so I've been assuming 5% vacancy, 10% maintenance, 10% capex. These are C+ properties built in the 1920s-1940s. Does that seem safe/conservative enough?

Re off-market properties, my realtor's office updates a master list of known OM deals. This is my current process: 1) screen for price range/target neighborhoods, 2) Calculate rent/value to identify properties at or close to 1% rule, 3) review photos/other info to ballpark estimate post-purchase capex followed by a more detailed deal analysis, 4) request contractor inspect the property to get true capex estimate, 5) make offer if the numbers work.

However, since Febrary I've only gotten to #4 once and never to #5. I can't tell if I'm being overly cautious or smart.

Quote from @Tim Ryan:

When I was in the same situation years ago I found a mentor who took me to an out of state market. It was Chattanooga, TN in the beginning stages of its growth.  I did very well there owning a lot of properties. I sold most of them (keeping one) and moved into another market.

I can give you more advice. DM me and we can talk.

Much appreciated @Tim Ryan - I sent you a DM.

@Kevin Sobilo thanks for the fresh perspective. You're right that I'm focusing too much on this first deal being perfect and losing sight of the long term picture. I'm so worried about my assumptions being correct that I've forgotten that it isn't the end of the world if they aren't.

I'm looking for advice on how to feel more comfortable pulling the trigger on my first out of state rental property. On paper I'm ready - I have the money, I've done the research, I have well-defined property/neighborhood criteriaI, I have an agent, contractor, property manager, lender, etc.

I'm targeting off market deals with light value add potential in an area with high appreciation potential. However, most deals in this area have close to break even cash flow (i.e. $100/month on a 150k property). My main fear is that I've underestimated my Opex assumptions or will miss some major issue during inspection that will turn the deal into an alligator property.

For the last 4 months I've been stuck in analysis paralysis and haven't been able to just pull the trigger on a deal. It's gotten so bad that for the last 2 months I've hardly looked at any properties and my downpayment is just sitting in a savings account. 

I'm curious who else has had this problem with their first property and how did you get over it?