All Forum Posts by: Rafael Ro

Yes, my banks require a 1.2 DSCR debt service coverage ratio, meaning they want to see rent 20% higher than the mortgage payment. If you finance conventionally you don't have that limitation, but you can set your own goal. You can buy a 250k property with 25% down and pay about $1600 in PITI, or 350k / $2100. That's my typical price range for Milwaukee suburbs and both will break even at 20% down, slightly positive at 25% and I usually end up with 30% down to get to the 1.2 DSCR. But that's without paying a PM.

 There is no such thing as a "safe and stable" investment in real estate if you are going to be active or passive. you can buy the best property in the best area and have a tenant destroy the place or have it mismanaged that can cost you.

Check out the syndication group on how many people were promised "safe" or guaranteed returns and lost little money to everything. From turnkey rentals to syndication - real estate has significant risk and the more leverage you use the more amplified that risk

@Rafael Ro Option 2 (turnkey out-of-state properties) suits your situation, balancing time constraints, risk tolerance, and scalability. A vetted turnkey provider offers a hands-off approach, with properties likely to break even or generate modest cash flow, spreading risk across multiple doors. Start with one property to gain confidence before scaling. If willing to invest more effort for higher ROI, consider Option 3 (building your own team), though it requires time to establish reliable management. Retain a cash reserve to cover vacancies or downturns, and align with your long-term goals by consulting a financial advisor. This approach mitigates risk while leveraging your resources effectively.

Looks like your household could qualify as REPS and really offset your taxes if your portfolio is optimized.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

 I am joking with this comment, but I was going to ask if you were new to Biggerpockets with your cash flow comment.  It is pushed over and over and over, especially on social channels and from service providers, and often interchanged with other terms and defined differently constantly, but mentioned again and again.  To the point where a new investor can be forgiven for not knowing there is any other reason to invest in real estate.  It's super frustrating when you work with investors every day, and the common refrain is I want to buy a passive turnkey property, but it must cash flow. No discussion about why.  There is no consideration for risks, areas, quality of the house, renovation, or management.  Just make sure it cashflows on paper according to how I read in some thread to run my numbers!  

End of rant - continue!

Hello @Rafael Ro,

Thanks for sharing your situation—it's really helpful to understand where you're coming from. I can definitely see why you're cautious, especially with the real estate landscape in California and concerns about the economy.

When it comes to Memphis, I think it’s a great option for your out-of-state investment. The city offers affordable property prices, which can provide solid cash flow potential compared to the high prices in California. Homes in the low $100k range are pretty common, and that’s an attractive price point for real estate investors, especially when you’re looking for properties that can break even or provide positive cash flow. With your $50k to invest (and access to more), you could quickly scale your portfolio without stretching yourself too thin financially.

Memphis also has a steady rental market, which is driven by factors like population growth, job opportunities, and a strong economy. The demand for rentals remains strong, and with tenant-occupied properties, the risk of vacancies is relatively low. You’re looking at a market where cash flow is more predictable, and that's something you can count on in the long run.

Another reason Memphis is popular with out-of-state investors is the city's history of solid returns. Many people choose Memphis because the market offers a good balance of cash flow and long-term appreciation. It’s a market with low risk and high potential, which makes it an attractive option for those looking to diversify outside of expensive markets like California.

Regarding turnkey properties, it sounds like you’ve already found a good provider. The advantage of buying through a turnkey company is that they’ve done most of the work for you—finding the property, getting tenants in place, and handling property management. This can be a great option if you don’t have the time or desire to deal with the day-to-day operations of managing a property. Sure, the premium they add (20-30%) is something to consider, but you’re paying for the convenience of having everything handled. Plus, if you want to scale quickly, turnkey providers make it easier to buy multiple properties without worrying about finding each one individually.

If you’re feeling comfortable with taking on a little more responsibility, you could also buy directly through an agent and work with a property manager to handle everything. That route might save you some money, but it would require a bit more of your time to find the right team and manage the process. Luckily, Memphis has a strong network of real estate professionals who are used to working with out-of-state investors, so you'd have plenty of support.

In terms of risk, I think buying in Memphis is a good way to manage that. The more affordable price points, combined with a steady rental market, provide some peace of mind. If you buy multiple properties, you can spread out your risk and avoid putting too much pressure on a single investment. Even with potential vacancies or slow periods, the demand for rentals should keep things stable enough to cover expenses.

Ultimately, I think Memphis is a great place for your real estate investments. You can grow your portfolio, maintain manageable risks, and still see some solid returns. Whether you go with a turnkey provider or build your own team, I’m confident it’s a solid market that will work well for your goals.

Please reach out to me if you'd like to learn more about our city. 

Hi, Rafael. 

I've worked with many investors who began their journeys with turnkey providers. As a first time out-of-state investor, I completely understand how the upside looks on paper when it comes to working with these companies. It's easy- often the properties are already rented and managed, and you can be arms reach away from the property while someone else takes care of it. 

However, it's not uncommon for these providers to charge a 20-30% property premium, considering the services they provide. You may be willing to pay that extra percentage off of the top, but at the end of the day, you do not have to go through a turnkey provider to find a rent-ready ( and oftentimes, already tenant-occupied ) property, and a good property management team to manage the property for you. 

My advice to you would be to find and develop a relationship with a knowledgable realtor in the market(s) you're taking a look into. They'll be able to find you turnkey deals in the open market, and help you stay in those A and B class neighborhoods it seems that you're looking for. And, if you're working with an investment-focused Realtor, they'll most likely be looking to keep you as a long-time client and not just sell you an "ok" house to make a quick commission off of you. 

If you're seriously considering Memphis as a market you'd be interested in, I'd be happy to connect with you and discuss the turnkey options I see in this market, and see if those could be a good fit for you. I also have connections with a couple of great property management teams that would alleviate that out-of-state management anxiety. 

Investing in out-of-state properties can be a great strategy if approached thoughtfully. The key to success lies in ensuring you're entering the market at the right value. Whether you’re buying or building, focus on doing so below market value to secure immediate equity or strong cash flow potential.

It's also important to thoroughly research the local market—pay attention to trends like rent potential, job growth, and population increases. Partnering with local experts who understand zoning, permitting, and market nuances can help you avoid costly mistakes and maximize returns.

If you're in a high-cost area, out-of-state investing can provide access to markets with better entry points and higher ROI potential. Cities like Memphis and Columbus often have more affordable properties and good cash flow opportunities, making them popular choices for investors. Ultimately, it's about aligning your goals with the right strategy.

The Midwest is probably your best bet for a number of reasons. Home prices are one, cost of living and relatively disaster-free weather keeps insurance costs down.

You can look up the median home price for every city or metro area. Class A and B neighborhoods are above median price and C and D are below. It's tough to cash flow in a B neighborhood when you are only putting 25% down and paying a PM. 

My strategy as an investor has changed over the years, today I look at real estate more like a collection of properties and less through the cash flow lens. My main question is will I be happy in 10 years that I bought this property? I also never had to worry about vacancies: if you own a desirable property, you will always have people lined up to rent from you. The same is true if you would want to sell it at some point. This can not be said about many 100k properties.

Turnkey providers made sense IMO back in 2010-2015 when it was easy to find deals, but hard to get funding, so you'd sell the ones you could not get funding for. Today you can get funding for a good deal without an issue, so the business model is kind of obsolete.

I used to buy BRRRR deals, but over the last years, we switched to buying homes that are in move-in ready condition. We still end up doing a few things like upgrading appliances or installing recessed LED lighting and dimmer switches and other life-style upgrades to attract top-notch tenants. Milwaukee inventory has just been so low, that even very distressed properties sell to first-time home buyers without a significant discount, so in the end it's cheaper for me to buy properties that already have a new roof, windows, kitchen, HVAC etc