All Forum Posts by: Eric Fernwood

Hello @Travis Horstman,

What you should do depends on future rent and price growth in the city where your homes are located.

For most people, the goal of real estate investing is financial freedom. However, financial freedom goes beyond simply replacing your current income; it requires maintaining your current lifestyle for life. To attain lifelong financial freedom, you need a passive income that meets two requirements:

• Rents must keep pace with inflation: Inflation consistently erodes the purchasing power of a fixed amount of money. For instance, if the inflation rate is 5%, what you can buy today for $100 will cost $155 in 10 years. If rents fail to pace with the cost of living, your financial independence will be short-lived.
• Persistent: Your rental income must last a long time, ensuring that you do not outlive your income.

What are the requirements that a city must meet in order to likely achieve financial freedom?

• A metro population >1M. Smaller cities tend to be dependent on a single company or market sector.
• Significant and sustained population growth causes increasing demand for housing. When there are significantly more buyers than sellers, rents and prices tend to rise, enabling them to outpace inflation.
• Low crime rate - Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Low risk of a natural disaster - Disasters like tornadoes can completely decimate communities. Those affected will relocate to a place where they can live and work today. Once settled, there is no incentive to return to the rebuilt community. This means that even if your insurance company rebuilds your property, there may not be anyone available to rent it. However, you will still be responsible for paying your mortgage, taxes, insurance, and utilities. A good way to gauge the risk of natural disasters in a particular community is by considering the cost of homeowners insurance. It is advisable to avoid purchasing property in cities with high insurance rates. Insurance - ValuePenguin
• No rent control of any kind: Google search
• Pro-business legislative environment: Google search

What if your city does not meet these criteria? In this case, you may have a unique option available. If you have owned and used your home as your primary residence for at least two out of the past five years, you may qualify to exclude up to $250,000 of the gain from your income, or up to $500,000 if filing a joint return with your spouse. This presents a special opportunity to use the net proceeds to purchase a property in a city that meets the requirements for financial freedom.

So, it comes down to the following:

• If your city meets the requirements for financial freedom, converting the properties to rentals is an excellent idea.
• If your city does not meet the requirements for financial freedom, you may have the option to sell your properties without having to pay capital gains tax. With the proceeds from the sale, you can purchase a rental property in a city that meets the requirements for financial freedom.

Travis, I hope this helps,

…Eric

Hello @Luis Fontenoy,

You did not state the purpose for the data so I will assume you are looking for a good investment city. So we are on the same page, my definition of a good investment city is one where:

• Rents outpace inflation
• Persistent income - You will not outlive the rental income

Before I proceed, Some background information about me. I am an engineer working for an investor services company in Las Vegas. My role involves data science, property analysis, and software development. I developed software tools and processes that enable us to identify and evaluate properties based on individual client's specific needs and goals. To date, we have delivered over 480 properties to more than 180 clients worldwide, with a repeat business rate exceeding 90%. I believe my experience makes me qualified to offer opinions on the use of analytics.

Raw Data

You asked about city-level data sources. What data you find will likely vary in terms of quality, consistency, and completeness. Even if you find high-quality data, interpreting the data is always a challenge. There is a better way than using raw data, and that is using indicators. An example will illustrate the point.

Suppose you are tasked with determining which country, Country A or Country B, is more desirable for people from both countries to live in.

• Data-based approach - Assuming you have all the data you need, you can analyze it to determine which country is more desirable. However, your conclusion is unlikely to be correct because you must make assumptions about what matters to the citizens of both countries. Such information is not likely to be found in raw data.
• Indicator-based approach - What if you sat on the border and observed how many people moved between Country A and B? If by headcount, you determine significantly more people move from Country B to A, you can assume that, to the citizens of the two countries, Country A is the more favorable. This approach used the indicator, the actual movement of people, instead of raw data.

The use of indicators provides highly accurate results. This is how our data mining software works; it evaluates properties based on historical tenant behaviors.

Indicators for a Good Investment City

Repeating my earlier opinion of what is a good investment city:

• Rents outpace inflation
• Income persistence - You will not outlive the rental income

What is driving these two criteria?

Rents Outpace Inflation

In real estate, prices and rents are determined by the imbalance between the number of buyers and sellers. When there are more buyers than sellers, prices rise until the number of buyers and sellers is balanced. On the other hand, when there are more sellers, prices drop until the balance is restored. Rental rates follow prices. When prices are high, demand for rental properties increases and rents rise; when prices are low, demand for rental properties decreases and rents fall.

What causes the imbalance between buyers and sellers? Population change. And, if the population increases fast enough, rents will rise faster than inflation. So, we have the first city selection indicator.

✅ Significant and sustained population growth. Use Wikipedia

Income Persistence

Income persistence depends on your tenants remaining employed at similar wages for a long time. However, all private sector jobs are short-lived. The average lifespan of a company is about 10 years. Even S&P 500 companies only have an average lifespan of about 18 years. So, whether your income persists is not only about the present jobs, it is also about future replacement jobs.

What conditions are necessary for existing companies to invest in expansions, and for new companies to relocate to a city? In my opinion:

✅ Economic stability. This requires a metro population >1M. Smaller cities tend to be dependent on a single company or market sector. Wikipedia

✅ Low operating costs: The three most apparent costs for investors are income taxes, property taxes, and insurance. Tax Foundation, Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage

✅ Low crime rate: Companies depend on attracting talented workers. Talented workers will not move to a high-crime city. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.

✅ Low risk of a natural disaster

✅ Pro-business environment

✅ No rent control of any kind. Rent control is a strong indicator of an intrusive government

There is data for each of these indicators, which I will show shortly. For now, the question is how to use these indicators.

Do Not Select, Eliminate

Start with the easiest criteria and then eliminate cities based on additional criteria, as illustrated below.

The criteria and sources:

• Cities with a metro population greater than 1M. Wikipedia
• Significant and sustained population growth. Wikipedia
• Low crime rate. Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Low risk of a natural disaster - Homeowners insurance rates are a good indicator of the potential for a natural disaster to occur. The higher the rate, the higher the probability of a natural disaster. Insurance - ValuePenguin
• Low operating costs - The three most apparent costs for investors are income taxes, property taxes, and insurance. Tax Foundation, Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage
• Pro-business environment - Google search
• No rent control of any kind - Google search

You Need an Investment Team

One additional criterion I recommend is an experienced local investment team. Podcasts, books, seminars, and websites only provide general information. You will buy a specific property, in a specific city, subject to specific local conditions. The only source for the skills, processes, and experience needed to identify, validate, renovate, and manage properties is a local investment team. By working with a team, you also gain real-world investment training.

Also, working with an investment team usually does not cost more. For instance, we have delivered over 480 properties and only charged our clients a fee on only four or five of them, and these were exceptional circumstances. In all other cases, our fees were paid by the listing agent of the seller, not by our client.

Hello @Josh Scroggins,

Working with an experienced investment team is critical. Everything that you learn from podcasts, books, seminars, and websites is general knowledge. However, you will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is a local investment team.

There is only one crucial team member: an investment realtor. An investment realtor is always part of a team because only a team of experts can provide the necessary end-to-end processes, skills, and knowledge to identify, validate, inspect, renovate, and manage a property. Therefore, when you find an investment realtor, you have a complete investment team.

Residential Realtor vs. Investment Realtor

There are usually thousands of residential (or “investor friendly”) realtors in a metro area, but probably only one or at most two investment realtors. What is the difference?

Residential realtors - Residential realtors enable people to buy or sell homes. The process is simple. Homebuyers select properties, and the residential realtor provides access. Once a property is selected, the residential realtor facilitates the offer and closing process. Although some residential realtors occasionally sell real estate that will become rental properties, they provide limited value beyond MLS data sheets. To an investor, MLS data sheets are worthless. Below is a table comparing what an MLS data sheet contains and what an investment team provides.

Below is a diagram of the process we follow and who is responsible for each step. All investment teams will follow a similar process.

How Do You Find an Investment Realtor?

Start by compiling a list of candidates. Get names from

• Real estate investing websites (such as Biggerpockets.com)
• Property managers
• Local investors
• Talk to real estate brokers
• Google searches
• Local meetups

Once you have a list of candidates, evaluate each using the following interview questions. The purpose of the interview questions is to determine the individual's experience, character, and resources.

Interview Questions

Will you find a candidate with the “right” answer to every question? Probably not, but they must provide reasonable answers. If they can’t, move to the next candidate.

• Tell me about your investment team. - You're looking for a response like, “I've worked with X property manager for years. We've completed X properties. "I work with several renovation companies..."
• Do you or have you owned investment properties? - If they have not personally owned investment properties, I would reject the candidate.
• How many investment properties did you close in the last 12 months? - Some realtors only sell two or three investment properties per year, which is insufficient for developing the necessary processes, experience, and resources. In my opinion, a minimum of 12 investment properties sold per year is required to achieve proficiency.
• Did you or your client select the properties? This is an important question. Residential and "investment-friendly" realtors do not select investment properties. They send MLS data sheets for the properties that the client selected. The client is then responsible for evaluating the property. The realtor adds almost no value if you do all the work. Reject the candidate if the client selected the property(s).
• What were your primary selection criteria? - It could be the initial return, appreciation, tenant pool, or something else. You're looking for a plausible answer based on analytics, not opinion or “feelings.”
• Tell me about the tenant pool you target. - Understanding the existence of tenant pools and their characteristics is not common knowledge. It requires a person with a lot of investment experience. If they do not have a plausible answer or do not understand the question, go to the next candidate.
• What is the average tenant's stay? - If the realtor is working with investors, they know how long the tenants of a specific tenant pool segment typically stay in the property. If the realtor has no good answer, move on to the next candidate.
• How did you estimate rent and time to rent? - They should be able to describe a process like, "I look at recently rented comparable rentals…" Another good answer is that they work with a property manager who supplies this information. If they answer Zillow, Redfin, Rentometer, etc., they do not know how to evaluate investment properties. Next candidate.
• Tell me about your renovation process. - You are looking for an answer similar to, “I work with the property manager to determine a list of renovation items. Next, I work with XXX company to get a quote. Once escrow closes, the renovation company does the work, and the property manager does final acceptance.”

Cost of an Investment Team

Working with an investment team usually does not cost more. For instance, we have delivered over 480 properties and charged our clients a fee on only four or five of them, and only in exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

Josh, I hope this helps.

Hello @Kale Johnson,

There are hundreds of locations outside California where you could invest. The important question is, “Where should you invest to achieve financial freedom? “

Financial Freedom

Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. To have lifelong financial freedom, you need a passive income that meets two requirements:

• Rents must keep pace with or exceed inflation: Inflation consistently erodes the purchasing power of a fixed amount of money.
• Persistent: Your rental income must last a long time, ensuring that you do not outlive your income.

What are the consequences of buying in a city where rental rates do not outpace inflation? An example will illustrate the consequence.

Suppose you purchase a property with an initial cash flow of $1,000 per month. The rent growth rate is 2%, and the inflation rate is 5%. In five and ten years, what will be the buying power adjusted for inflation? I will use the following formula to calculate the future rent at 5 and 10 years.

• Five years: $1,000 x (1 + 2%)^5 / (1 + 5%)^5 ≈ $865
• Ten years: $1,000 x (1 + 2%)^10 / (1 + 5%)^10 ≈ $748

In five years, $1,000 will be worth the same as $865 today. In ten years, it will be worth the same as $748 today.

The takeaway is that no matter how many properties you own in a city where rents do not outpace inflation, sooner or later you will be forced to get a job to supplement your declining rental income buying power.

What causes prices and rents to rise or fall?

Supply and Demand

In real estate, prices and rents are determined by the imbalance between the number of buyers and sellers. When there are more buyers than sellers, prices rise until the number of buyers and sellers is balanced. On the other hand, when there are more sellers, prices drop until the balance is restored. Rental rates follow prices. When prices are high, demand for rental properties increases and rents rise; when prices are low, demand for rental properties decreases and rents fall.

What causes the imbalance between buyers and sellers?

Population change.

Population Change

If the population decreases, fewer buyers enter the market, resulting in lower prices. Conversely, if the population increases, more buyers enter the market, driving up prices. Thus, only in cities with significant and sustained population growth will prices rise faster than inflation. This is the first city selection requirement:

✅ Significant and sustained population growth.

Jobs

People move to cities for jobs. What are the requirements for a city to attract new employers?

✅ Low operating costs

✅ Low crime rate

✅ Low risk of a natural disaster

✅ Pro-business legislative environment

✅ Sufficient population to have economic stability, major highways, and a major airport. This usually requires a metro population >1M. Smaller cities tend to be dependent on a single company or market sector.

✅ No rent control of any kind. Rent control is a strong indicator of an intrusive government.

City Selection Process

There are too many cities in the US to evaluate practically. However, there is a better method. And that is an elimination process.

Start by selecting cities with a metro population of more than one million. Then, apply elimination criteria in order from the easiest to most time-consuming. This saves time and boosts efficiency.

1. Cities with metro populations of over one million are usually less dependent on a single market sector or major employer compared to those with smaller populations. This leads to greater economic stability. Use Wikipedia
2. Significant and sustained population growth. Wikipedia
3. Low crime rate - Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
4. Low risk of a natural disaster - Homeowners insurance rates are a good indicator of the potential for a natural disaster to occur. The higher the rate, the higher the probability of a natural disaster. Never invest in cities with high-cost homeowners insurance. Insurance - ValuePenguin
5. Low operating costs - The two most significant operating costs are typically property taxes and insurance.
   • Property tax rates: State Property Tax Rates - Rocket Mortgage
   • Insurance rates: Insurance - ValuePenguin
6. No rent control of any kind: Google search
7. Pro-business legislative environment: Google search

The result will be a short list of potential candidate cities.

Investment Team

The presence of an experienced investment team is another factor to consider when selecting a city. Why? If you needed surgery, you wouldn't start medical school--you'd find a specialist. The same applies to real estate investing.

The problem is that everything you learn from podcasts, books, seminars, and websites is general knowledge. But you will buy a specific property, in a specific city, subject to local rules and regulations. The only source for the local knowledge you need is an investment team. And, you can't replicate the expertise, processes, years of experience, and connections that come with an experienced local investment team.

Working with an investment team typically does not cost more than working with any other realtor. For example, we have delivered over 480 properties and charged our clients a fee for only four or five of them, as these were exceptional circumstances. In all other cases, the commission paid to the buyer's agent by the listing agent covered our fees, not our clients.

Also, by working with an investment team, you get a master class on real estate investing at no cost to you.

Summary

By following the process outlined in this post, you will quickly be able to identify cities that are highly likely to offer rapid rent growth and long-term income, which are crucial for achieving financial independence.

Hello @Hans Olo,

There are some excellent comments on this thread. I do have two additional considerations for you.

Rents and Prices

Prices and rents are driven by supply and demand. If there are more sellers than buyers, prices will decline, or at best, remain static. If there are more buyers than sellers, prices will rise until there is an approximate balance between the number of buyers and sellers.

Population growth is the driving factor behind demand. If the city where your property is located has experienced sustained and significant population growth, property prices will continue to rise over time. In this case, I would keep the property. On the other hand, if the population is static or declining, it may be better to sell the property.

What to Renovate

Renovation is the process of transforming a property to increase rent, decrease the time it takes to rent, and reduce maintenance costs. Renovating a property to your personal taste can be a waste of money.

For example, a few years ago, I saw a rental property in a familiar location. All the other properties in the area rented within a week or two, but this particular property remained on the market for almost three months. I visited the property. The owners had installed beautiful marble floors, Bosch kitchen appliances, and many other enhancements. I am certain that they thought the property looked great and would rent for well above market. It didn’t. The property remained on the market for months until the asking price was lowered to about $25 or $30 higher than similar properties that were only upgraded to what I call "market ready" and properly priced.

We determine what to renovate based on:

• Condition of similar properties for rent.
• Payback period.

Regarding the payback period for your renovation costs, my understanding is that if you spend between $10K to $15K, you can increase your rent from $1,600/month to $2,200/month. That is a $600/Mo increase. What is the payback period for updating the property:

$15,000 / ($600 x 12) = 2 years.

2 years is an excellent payback period. If you decide to keep the property, I would do the upgrade. However, only do what is necessary to maximize rental income, minimize the time to rent, and minimize future maintenance costs. What you like or do not like does not matter.

In Summary

Paying off your HELOC loan might seem like a good idea in the short term. However, if you have a property that is doing well and will continue to do so for the foreseeable future, it can provide passive income for the rest of your life.

Ugh. I still saw one image that did not come through. Here is the table showing the average overhead costs and rates for Florida, Nevada, Texas, and Alabama. 

Hello Crystal,

I reposted my response below. Hopefully, the images come through. Let me know if you still can not view them.

Hello Greg,

There are many low-cost locations where people can invest (Mobile is a beautiful city.) Where people should invest depends on their goals. If their only goal is immediate cash flow, then there are many options. If their goal is financial security, location choices are limited.

Financial security means that the income must continue for as long as you and your spouse live, which could be 30 to 50 years. Additionally, the generated income must keep pace with inflation because we live on buying power, not a fixed number of dollars. An example will illustrate this point.

Suppose that every time you go to the grocery store, you buy the same basket of goods and today they cost $100. The table below shows the decline in buying power over time, based on the difference in rent growth versus inflation. For example, if inflation is 6% and rent growth is 1%, the rate of buying power loss is 5 %/year.

Assuming a 4% difference between the rate of rent growth and inflation, $100 will only purchase 66% of today's groceries in ten years and 44% in twenty years. This demonstrates that buying properties based solely on their initial return is unlikely to provide the long-term financial security people seek, as rents will not keep pace with inflation. Therefore, I recommend taking a long-term view rather than focusing solely on initial cash flow.

Below are some considerations when choosing an investment location.

• Increasing state and metro population - Property prices and rents are likely to remain the same or decrease if the population is static or declining. It is population growth that causes prices and rents to increase. Therefore, never invest in any city if either the state or city population is static or declining.

• Minimum population size - My cutoff is 1 million people. Smaller cities tend to be too dependent on a single industry or market segment.

• Low crime - The economic growth of a city is dependent on the creation of new jobs. Companies seeking to establish operations avoid high-crime locations. Do not invest in any city that appears on Neighborhood Scout's list of the 100 most dangerous US cities.

• Operating cost - Every dollar lost to overhead reduces the amount available for living expenses. The table below shows the average overhead costs and rates for Florida, Nevada, Texas, and Alabama.

Next, I compared the operating costs for a $400,000 investment property with a $15,000 annual taxable cash flow in the four states.

As you can see, operating costs make a huge difference in net cash flow.

Operating costs have a significant impact on the amount of money available for living expenses. In order to achieve the same net cash flow, a property in Texas would need to generate $6,192 ($9,736 - $3,544) more in cash flow compared to the same property in Nevada.

If your goal is financial freedom, choosing the right city to invest in is the most important investment decision you will make.

Hello @Katie Tran,

I agree completely with your sentiment regarding the importance of investing safely. However, California may not be the most favorable state for investment due to various reasons such as rent control, anti-landlord legislation, high costs, and high taxes.

In this post, I will provide a straightforward process for selecting a city where:

• Rents outpace inflation: Inflation consistently erodes the purchasing power of a fixed amount of money. For instance, if the inflation rate is 5%, what you can buy today for $100 will cost $155 in 10 years. If rents fail to pace with the cost of living, your financial independence will be short-lived.
• Persistent: Your rental income will last a long time, you will not outlive your income.

What are the consequences of buying in a city where rental rates do not outpace inflation?

An example will illustrate the problem. Suppose you purchase a property with an initial cash flow of $1,000 per month. The rent growth rate is assumed to be 2%, which is a common growth rate, and the inflation rate is 5%. The table below lists inflation-adjusted purchasing power for the first ten years.

After ten years, $1,000 will only be able to buy 61% (100% - 39%) of what it can buy today. So, if you buy in any city where rents do not outpace inflation, no matter how many properties you own, you will soon be forced back to work.

What causes prices and rents to rise or fall?

Supply and Demand

In real estate, prices and rents are determined by the imbalance between the number of buyers and sellers.

• When there are more sellers than buyers, prices decline until there is a rough balance between the number of buyers and sellers.
• When the number of buyers exceeds the number of sellers, prices increase until there is a rough balance between the number of buyers and sellers.

Rents follow prices.

• Higher prices reduce the number of people who can purchase, increasing demand for rental properties and increasing rents.
• Lower prices enable more people to purchase, decreasing demand for rental properties and decreasing rents.

What determines demand?

Population Change

Prices and rents only rise significantly if there is sustained and significant population growth. This is our first city selection requirement:

✅ Significant and sustained population growth.

Jobs

The number one reason people move to a city is jobs. However, all private sector jobs are temporary. The average lifespan of a company is about 10 years, an S&P 500 company is only 18 years. Unless new companies move in and create replacement jobs, only low-paying service sector jobs will remain. As higher-paying jobs disappear, incomes in the area decline. Cities are funded by property taxes and sales taxes. When the area income falls, property taxes and sales taxes fall. Cities are then forced to cut back on services. As services are reduced, this leads to increased crime rates and lower-quality schools, which in turn causes more people to leave.

What are the requirements for a city to attract new employers?

✅ Low operating costs

✅ Low crime rate

✅ Low risk of a natural disaster

✅ Sufficient population to have economic stability, major highways, and a major airport. This usually requires a population >1M. Smaller cities tend to be dependent on a single company or market sector.

✅ No rent control of any kind. Rent control is a strong indicator of an intrusive government.

City Selection Process

Begin by evaluating cities with a metro population of more than one million. This is the easiest criterion to apply and will reduce the number of cities to be evaluated. After this, apply additional elimination criteria in the order from the easiest to the most time-intensive. This will save time and increase efficiency.

• Cities with a metro population >1M. Wikipedia
• Significant and sustained population growth. Wikipedia
• Low crime rate - Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
• Low risk of a natural disaster - Homeowners insurance rates are a good indicator of the potential for a natural disaster to occur. The higher the rate, the higher the probability of a natural disaster. Insurance - ValuePenguin
• Low operating costs - The two most significant operating costs for an investor are property taxes and insurance.
  • Property tax rates: State Property Tax Rates - Rocket Mortgage
  • Insurance rates: Insurance - ValuePenguin
• No rent control of any kind: Google search

The result is a short list of potential candidate cities. The next selection/elimination criteria is an experienced local investment team.

Experienced Local Investment Team

Why do you need a local investment team? Everything you learn from podcasts, books, seminars, and websites is general knowledge. But you will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Also, an experienced local investment team already has the skills, processes, expertise, and resources you need to identify, validate, renovate, and manage properties, saving you time, money, and risk.

Working with an investment team usually does not cost more. For instance, we have delivered over 480 properties and charged our clients a fee on only four or five of them, and only in exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

By working with an investment team, you also receive a master class on real-world investment training at no cost to you.

Hello @Nikki Nguyen,

I believe what you need is an experienced local investment team, not just an investment realtor.

Everything you learn from podcasts, books, seminars, and websites is general knowledge. However, you will purchase a specific property in a specific city, subject to local rules and regulations. The only source for the local information you need is a local investment team.

Before I explain how to find an investment realtor, it is important to understand the difference between a residential (or "investor friendly") realtor and an investment realtor.

Residential or “Investor Friendly” Realtors

Residential realtors enable people to buy or sell homes. The process is simple. Homebuyers select properties, and the residential realtor provides access. Once a home is selected, the residential realtor facilitates the offer and closing process.

Some residential realtors occasionally sell real estate that will become rental properties. However, residential realtors provide limited value beyond supplying MLS data sheets. To an investor, MLS data sheets hold little value. The following compares the contents of an MLS data sheet with the information you, as an investor, need to make informed decisions.

Investment Realtor

Where residential realtors sell homes, investment realtors sell passive income. Almost all experienced investment teams will provide the following services and more:

• Develop a financial profile of properties that will meet your specific situation and goals.
• Working with their team, select and validate conforming properties.
• Present only fully-vetted properties with the necessary information to make an informed decision, including estimated renovation costs - not MLS data sheets.
• Handle the offer and closing process.
• Provide overwatch and keep you informed during the renovation process.
• Provide on-site renovation oversight and keep you informed throughout the renovation process.
• Arrange for professional photos.
• Work with the property manager to transition the property to them and get a performing tenant in place.

Below is a diagram of the process we follow. All investment teams will follow a similar process.

Also, working with an investment team usually does not cost more. For example, we have delivered over 480 properties and only charged our clients a fee for four or five of them, which were exceptional circumstances. In all other cases, our fees were paid by the listing agent, not by our client.

How Do You Find an Investment Realtor?

There are typically thousands of residential realtors in a metro area, but only one or two will be investment realtors. To begin the search, create a list of potential candidates. You can gather names from the following sources and others:

• Real estate investing websites (such as Biggerpockets.com)
• Property managers
• Local investors
• Talk to real estate brokers
• Google searches
• Local meetups

Once you have a list of candidates, review their websites to determine their business focus.

Once you narrow the list, the next step is interviews. The purpose of the interviews is to:

• Determine the individual's character.
• Determining their capabilities in identifying, validating, and bringing properties to market.
• Evaluate their team.

Sample Interview Questions

Ask each candidate the same questions and record their responses. Below are some sample questions. It is unlikely to find a candidate with the "perfect" response to every question, but they should provide reasonable answers.

• Tell me about your investment team. - You're looking for a response like, "I've worked with X property manager for years. We've completed X properties." "I work with several renovation companies...”
• Do you or have you owned investment properties? - If the candidate has not personally owned investment properties, I would reject them.
• How many investment properties did you close in the last 12 months? - Some realtors only sell two or three properties per year. However, this level of sales does not provide enough repetition to develop the necessary processes, experience, and resources. In my opinion, being proficient in this field requires selling a minimum of 12 investment properties per year.
• Did you or your client select the properties? This is an important question. Residential and investment-friendly realtors do not choose properties. Instead, they send MLS data sheets for the properties requested by the client. The client evaluates the properties and selects one or more to make an offer. If you do all the work, the realtor adds very little value. Reject any candidate if the client chooses the property.
• What were your primary selection criteria? - It could be the initial return, appreciation, tenant pool, or something else. You're looking for a plausible answer based on analytics, not opinion or “feelings.”
• How did you estimate rent and time to rent? - They should be able to describe a process like, "I look at recently rented comparable rentals." Another good answer is that they work with a property manager who supplies this information. If they answer Zillow, Redfin, Rentometer, etc., they do not know how to evaluate investment properties. Next candidate.
• Tell me about your renovation process. - You are looking for an answer similar to, “I work with the property manager to determine a list of renovation items. Next, I work with XXX renovation company.”

Nikki, if you would like more information on investment teams or finding an investment realtor, please reach out.

Hello @Roman Randall,

I am assuming that you are managing the properties yourself. If this is the case, you might have the tenant do a Facetime (or Zoom) video. With a live video, you can direct them to areas that look suspicious.

Another option is to have a third party take photos, once a year. This is what the property managers we work with do.

On the 10th month of the one-year lease, the service goes to the property and takes 70 to 100 photos of the interior. They do not test anything, they just capture the condition. They also provide notes, like the house smelled of cigarette smoke. If the lease forbids smoking in the house, then that would require action on the part of the property manager. Also, if there is no pet on the lease and there are food bowls on the floor, you know they do have a pet.

The reason it is done on the 10th month is that, in many states, you have the option of renewing or terminating the lease. I owned a property where the tenant was doing great until their partner moved in. The next time the photos were taken, the interior was obviously getting trashed. We decided not to renew the lease and got another tenant.

This happened with another property. In this case, the owner decided to significantly increase the rent based on the poor interior situation. The logic was that if they stayed, the damage would only increase. With a significantly higher rent, they can afford to do the repairs. If they chose not to pay the higher rent, they would move out.

So, there are other options than seeing the properties yourself.