All Forum Posts by: Christian Rojmar

@Dan H. You are bringing up interesting points but almost all of them have to do with poor due diligence and being prepared and would result in failure locally and out-of-state.

You mentioned that you do not know anyone that have failed in your local market which apperas to be CA. Are they buying only for appreciation? How will they fare if the market there cools down after 10 years of extreme growth?  Why would these investors fail out-of-state but not locally? Also do you know any out-of-state investors? Why did they fail? Would you partner with these investors locally or out-of-state? Reason I am asking is that there has got to be a reason they failed and unless extreme bad luck that can happen locally as well, it must have been their research and due diligence that resulted in failure.

Self-manage. True, if you have time, knowledge, and want to self-manage, that is something you cannot easily do out-of-state but it is a simple fix out-of-state by having a knowledgeable property manager and account for it in your analysis. Frankly, if you are planning on building a fairly large portfolio, locally or out-of-state, you should account for property management fees anyways because at some point it will be impossible to manage unless you do it full time. Personally, I have no interest, time, or knowledge to self-manage so I would account for property management fees locally and out-of-state. And I don't think you should EVER get into a "borderline" investment - that is setting you up for failure anywhere. Have set criteria and follow it.Have enough safety to protect for unexpected events like eviction, lots of capex needing fixed early on etc. I would whole heartily disagree that a local investor have an easier time finding people that can fix problems with a property. I believe the process is the exact same whether locally or out-of-state. You need to do your research, compare prices, and talk to people in any market. It is about building a network. Personally, I have not noticed much difference networking locally or out-of-state, same process, and equally time consuming.

For capex discussion, like you mentioned that occur in every market - locally and out-of-state. I hope everyone has a detailed spreadsheets or some way of determining total capex (I know I certainly do), but I doubt it... How did you get to your capex numbers in your local market? Unless you are a contractor or have significant experience with material and labor, I assume you studied prices of material in stores in your local market and called around to get estimates for various capex until you found reasonable estimates? That has to be done locally or out-of-state unless, again, you have knowledge of such data in your local market due to experience or work. I did not have this experience locally or out-of-state, so had to do my own research and talk to people to come up with my spreadsheet numbers in each market.

"In lower class properties I see items not accounted for such as no payment is different than vacancy." I would argue that someone investing in California are much more likely to invest in a low class neighborhood than someone investing out-of-state simply due to prices. Someone that has limited funds and is told to invest locally in CA for example, do not have a choice but find a an area that few are interested in (less appreciation and no cash flow) or D neighborhoods. That same person can take that down-payment and go out-of-State and find an A or B neighborhood that brings cashflow and is expected to appreciate and can find much better tenants IMO. I just don't understand why people assume that out-of-state investing equals warzones or D class neighborhoods. If you do a little bit of research and networking, you can easily find places out-of-state that will provide cashflow and appreciation in a great location.

As for appreciation, I hate to rely on appreciation alone and refuse to have negative cash flow and bet on appreciation, doesn't make sense to me. Appreciation in your local market works until it doesn't. And if you bet on appreciation, what about people that live in areas that have poor appreciation?

I believe a lot of people have a misconception about out-of-state investing because they hear a horror story about someone being taken advantage of or because someone didn't do their homework and did poorly. I bet there are many such instances locally as well, just not talked about the same. Just my 2 cents.

One great point brought up by @Dan H. that you should definitively keep in mind when analyzing a deal is capex. It may be 5% for a $400,000 and 20% for a $100,000 home which can kill what looks like a great deal! Also need to determine market specific labor and material rates to get accurate picture of capex (both locally and any other market).

Dan, can you please explain what you mean when you say that a lot of out-of-state investors who think they are successful are not? Are you talking about them failing to consider certain expenses in their analysis?
Also, personally I know equally many people failing investing out-of-state as locally. If you do not do your research and due-diligence, whether out-of-state or locally, you will fail as an investor, period.

Surprising to see so many people on this forum being negative about out-of-state investing. I get the idea that you cannot drive by the property, may not know the market as well, risk of getting screwed over, etc. But that is what due diligence is for and all those risks exist locally as well.

Study the market you want to invest in, analyze the economy, school districts, crime rates. Talk to realtors, property managers, and people on this forum regarding areas you like and get input. The cool thing is that by research, you can find the best possible area to invest in based on your goals rather than adjusting your goals to fit your local market - I have had people telling me that I should invest in properties in locally in Austin and just "hope" that appreciation will get me somewhere - IMO that is way more risky than finding an area that fits my overall goals.

BUILD A TEAM. Find people that work with out-of-state investors, that have a track record, look for referrals, ask for references - This is certainly the tough part - but building a team locally is tough too. I think some people feel like they have more control investing locally but personally, I do not have time, nor do I want to deal with management of a property, so I would need a superstar property manager whether I invest locally or out-of-state so would need to spend significant time vetting such person regardless. I would also stress out about properties if I could drive by everyday so prefer having someone handle it for me unless something major happens.

Build a system to avoid people screwing you over. For example, since people mentioned risk of contractor screwing you over. Buy your own material for rehab and pay contractor as work gets done. Have your realtor or property manager walk the property during rehab to make sure everything looks good, have them send you videos of progress and do not pay until rehab meets expected standards. Is there a risk that your entire team gangs up and decides to screw you, while locally, you can go to the property yourself to inspect and investigate, I suppose anything is possible but probably pretty unlikely.

Some suggests that you can invest in cheaper areas around where you live as an alternative. I don't think that is much different from investing out-of-state other than that you may be able to drive to the place in 45 min and as such, will have an easier time reviewing a rehab and managing the property yourself if that is something you want to do (personally I do not have time or a desire to manage properties myself). Regardless, you would need to study and learn about that particular area through your own research and talking to realtors/other people so equal amount of risk/due diligence required in that aspect.

Someone mentioned that it can cost more to travel out-of-state than the money you make from it and so you should only invest if you can buy many properties. Find an area that you visit a few times a year - any place with family or friends that you visit often? Anywhere you travel through work? This will allow you to do business while on a trip you were going to make during the year anyways. 

I would recommend that you pick up the book "Long-Distance Real Estate Investing" by David Greene. I tend to agree with him that out-of-state investing is in fact less risky than investing in your own market when considering the benefits v. detriments of it as long as you build a reliable team and do your due diligence.

Agree with everyone else on COC, Capex/repairs. Also see $0 in vacancy which seems extremely aggressive.

How are you planning on investing in RE? Regardless, I think "The book on rental property investing" by Brandon Turner and "The millionaire real estate investor" by Gary Keller are great first books. "Long-Distance Real Estate investing" by David Greene is great if you want to invest out-of-state.

@Michael D. interesting, I didn’t know that! Thanks!!

@Jesse Kreun Sorry to hear. The company I work with specialize in determining damages in intellectual property litigation but we have done some forensic accounting work as well (never related to an investment property however) and there are certainly people/companies that specialize in forensic work. I would need more information from you to be able to give a more detailed picture but on a high level:

If you have statements going back in time from your property manager, as well as your own bank statements, vacancy periods, etc. a first step may be to go through that data yourself to get a big picture idea of whether something odd is going on and at what level. If you find discrepancies, you may want to call the property manager and explain the situation and ask him/her to provide statements/information surrounding the discrepancies and that you will get a lawyer if not.

If property manager refuses to provide such documentation, the next step may be to hire the attorney and go through the court system to get discovery from the property manager. Also note that there is a good chance that the property manager may have destroyed or "do not have" the relevant documentation anymore depending on how far back you believe these activities has been going on for which will complicate the process.

Hiring a lawyer will be expensive and especially if it goes through the arbitration process. And if you do not feel comfortable and confident going through all the data yourself to determine the damages due to the wrongful acts of the property manager as well as testifying in front of an arbitrator as to the appropriate damages, you will need to hire an expert whether it is a CPA, forensic accountant, or a more general damages expert. The cost of hiring an expert can add up quickly depending on the amount of discovery. If you know any CPA's, they could likely do the work for you because it is pretty simple and straightforward work - problem is that it can be very time consuming. The benefit of hiring an expert is that the credentials can be helpful in arbitration.

If the property manager works for a management company, going through BBB can be one approach as well even though BBB is so and so in my opinion.

Maybe also a small courts claim to avoid litigation expenses depending on amount that may have been stolen from you.

PM me if you have any particular questions or would like to discuss in more detail.

Just remember with a ROTH IRA, you have to make less than $137,000 per year (if single) to contribute with contributions beginning to phase out at $122,000.

Is there an easy way to add a 3rd bedroom? Could force appreciate the property a lot if so!

@Justin Martillotti Do you have a lender willing to give you a loan at 10% for an investment property and what is the rate for such loan? Typically it is between 20%-25%. I have found one lender willing to do as low as 15% but rate was quite a bit higher than at 20%-25% down.

Now to your analysis - what are your goals? Are you buying for appreciation/cashflow/other? What kind of returns are you looking to achieve?

As for expenses, I assume the $2,022 mortgage include interest and taxes? I do not see insurance costs in your expenses?

Where are all the cap ex? I typically consider between $120-$180 per month in cap ex for a single family home depending on condition of home and how long I will keep the property for. This would be higher for a duplex.

Where is the vacancy expenses? I typically consider between 5% and 8% for vacancy depending on area etc.

Will tenants pay all the common expenses - sewage, water, gas, electricity, garbage, lawn care? If not, need to add those.

Are you planning on managing property yourself? If not, need to add property management fees as well which tends to be around 10%-12%. If not, are you planning on finding tenants yourself as well? If not, there is an expenses there.

I would personally figure these additional costs out before deciding on how much to offer. In today's market, I would be surprised the owner would be willing to sell at 80 cents on the dollar but doesn't hurt to try.