Buying out-of-state real estate

[Sid23]

There has been a lot of talk on this site about buying out of state apartment complexes and other types of real estate. Volluci, Berges and SteveO have explained the merits of these types of deals.

I was putting together ideas on how one would accomplish this and it occurred to me that it could potentially be challenging from a logisitics point of view.

It seems like it would involved several flights - a few to get to know the area, make connections and form the team; another flight for due dilligence and other issues prior to closing; possibly another flight for closing; at least a few more flights to oversee the change of management and potential light rehab of the property. And after all those, how does one manage a property management company from afar?

I've brought up the subject with the developers I work for and they tell me you must have someone "on the ground" in whatever city you are working in. They didn't seem to think these types of deals were a good idea from a logistics point of view.

Now I know that many people do these types of deals, so I'm trying to look at it as "how to accomplish" rather than "why it won't work."

If anyone here has any experience with this type of deal (or running any out of state business), I think we could all learn a lot about the nitty gritty details of running a business in this manner.

:thankyousign:

 

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[andviv]

Contact RealOG. He's doing it.

Obviously, SteveO is "the" person to ask for more details, but I think, from what I read, that you got the idea and understand what it involves.

 

[zaiteku]

Hi,

I have built several houses in AZ, and I reside in Hawaii. So I have a little experience with this I guess. I made some good money doing it, but that was when the market was super hot there. I probably wouldnt do it now. My mom has also invested in Wyoming recently and has done quite well. (She actually does more real estate investing than me, and is a millionaire but I cant get her to come on these forums!).

Anyways, for us having a person on the ground is essential. I think its best either to fly to the location and do all your team building, or you most likely have to know someone, that knows someone good there, if you know what I mean. We have done deals both ways in the past. For example, on the big isle here in Hawaii (which is a very different market from Oahu), we flew out, and did a ton of legwork, built a great team, and did lots of deals that way. For AZ, we hooked up with a friend that did some deals before us, and had a broker that he trusted. The broker did many deals like this, and had a turn key team in place for us. It was probably the easiest experience Ive ever had in RE and we made some good money there.

There are a lot more risks, some of the big ones are:

Market- I think the market has to match what you are doing. We were flipping so obviously we needed it hot.
Broker- need a good one that you can trust, and that preferably works with investors and has a good team for you to cherry pick from.
Mortgage Broker, Lender etc.- also need a good one you an trust. I have had other friends get fleeced by their lenders while doing out of state deals. Either getting railroaded into loans with many fees through supposed discounts, or not reading the fine print well enough. Often when you are out of state it seems they will try and get you to close real fast, and put a sense of urgency on everything. I wouldn't buy it.
Lawyers and Insurance agents- we had 2 lawyers looking over things for us, one here and one there. A little more expensive but it came in handy. Overall we didnt use them much though. For insurance it was part of our turn key team (though we did compare rates all over). But also, in the end, we didnt need insurance very long for things.
If its your first deal and your not 100% on the turn key team as far as prices, you have to shop around and make sure you are not getting taken, but once thats done, its fairly smooth sailing.

If your broker is good and the market is right for what you are doing, he should have buyers/renters lined up before you are ready to close. In our case we were flipping so obviously we needed buyers, and he had them lined up several months in advance. We only made one mortgage payment.

If I did want to keep the homes, he also had property managers ready to go as well, but that was not out exit strat. If you are buying complexes, of course this will be SUPER important, and I would most likely want to be on the ground at least initially to build the team/pick the prop. manager etc.

Like I said I wouldnt do this type of spec home deal now in AZ, but it worked well for me at the time because of the market. Im still new to out of state investing as well, but I hope my info was of some value to you!

 

[Sid23]

Hi,

I have built several houses in AZ, and I reside in Hawaii. So I have a little experience with this I guess. I made some good money doing it, but that was when the market was super hot there. I probably wouldnt do it now. My mom has also invested in Wyoming recently and has done quite well. (She actually does more real estate investing than me, and is a millionaire but I cant get her to come on these forums!).

Anyways, for us having a person on the ground is essential. I think its best either to fly to the location and do all your team building, or you most likely have to know someone, that knows someone good there, if you know what I mean. We have done deals both ways in the past. For example, on the big isle here in Hawaii (which is a very different market from Oahu), we flew out, and did a ton of legwork, built a great team, and did lots of deals that way. For AZ, we hooked up with a friend that did some deals before us, and had a broker that he trusted. The broker did many deals like this, and had a turn key team in place for us. It was probably the easiest experience Ive ever had in RE and we made some good money there.

There are a lot more risks, some of the big ones are:

Market- I think the market has to match what you are doing. We were flipping so obviously we needed it hot.
Broker- need a good one that you can trust, and that preferably works with investors and has a good team for you to cherry pick from.
Mortgage Broker, Lender etc.- also need a good one you an trust. I have had other friends get fleeced by their lenders while doing out of state deals. Either getting railroaded into loans with many fees through supposed discounts, or not reading the fine print well enough. Often when you are out of state it seems they will try and get you to close real fast, and put a sense of urgency on everything. I wouldn't buy it.
Lawyers and Insurance agents- we had 2 lawyers looking over things for us, one here and one there. A little more expensive but it came in handy. Overall we didnt use them much though. For insurance it was part of our turn key team (though we did compare rates all over). But also, in the end, we didnt need insurance very long for things.
If its your first deal and your not 100% on the turn key team as far as prices, you have to shop around and make sure you are not getting taken, but once thats done, its fairly smooth sailing.

If your broker is good and the market is right for what you are doing, he should have buyers/renters lined up before you are ready to close. In our case we were flipping so obviously we needed buyers, and he had them lined up several months in advance. We only made one mortgage payment.

If I did want to keep the homes, he also had property managers ready to go as well, but that was not out exit strat. If you are buying complexes, of course this will be SUPER important, and I would most likely want to be on the ground at least initially to build the team/pick the prop. manager etc.

Like I said I wouldnt do this type of spec home deal now in AZ, but it worked well for me at the time because of the market. Im still new to out of state investing as well, but I hope my info was of some value to you!

Ty, thanks for your post. This is great info. rep speed +++. Do you mind if I ask you some further questions?

So how many times do you think you flew from Hawaii to AZ during the process (Day 1 to disposition of the asset)?

How did you locate the deals? Did you study and become familiar with the area and then have the broker send you deals for review?

Did you hire a builder or did your company build the homes in AZ? If you hired a builder, how did you monitor / manage them from afar?

Thanks, Sid23

 

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[SteveO]

This is where the rubber meets the road. :icon_super:

You will run into obstacles as you make your plans. This will never cease. Your job is to figure these out. The nay-sayers will tell you why it cannot be done. Others will tell you how easy it is.

It is never easy. That is the first thing to get used to!!!

You do need someone on the ground in any given area that you choose to invest. The main components that are needed for apartment investing are:

- Property Management
- Capital
- Research
- Acquisition/disposition

Two of these components require localized knowledge. You cannot make a purchase without fully understanding the local market. The demographics, vacancy rates, rent rates, expenses, are all very important to know. These are hard enough to learn in your own backyard!

Management is also critical. It is very difficult to find a good management company. In fact it is tough to find an adequate one. But, a good management team with local knowledge can be invaluable.

You will need to take many trips to the market that you want to invest in. You will also need to drive an incredible amount of miles, talk to a lot of people, visit a lot of properties, etc...

Not easy.

Your success level will hinge on all of these.

Don't forget that there are a lot of creative ways to partner with people. You can identify the parts of the process that you need expertise in and partner for those. Choosing partners is another story... :smx4:

 

[zaiteku]

sure you can ask me all the questions you want! Im not as knowledgeable as SteveO but Ive done a few deals. Sometimes its good to hear a lot of perspectives.

SteveO, great post as usual thanks for mentioning what I left out--- We DID do a ton of research, for months, on all those points. But more geared to flipping, not holding for cash flow. Though we did research that as well as a secondary exit just in case. We researched so much in fact that we were in analysis paralysis for a while before we pulled the trigger, going over the same things again and again looking for possible risk. The property management research was by far the weakest link we had, but it was also our last resort.

>>So how many times do you think you flew from Hawaii to AZ during the process (Day 1 to disposition of the asset)?
One of us flew out there once to set things up and check things out. Our friend had flipped 30+ homes out there, so we had a good idea that his system was working, and that gave us some buffer, but we stilll wanted to check it out for ourselves. I think it all depends on how long you need to get what you need done in the location.

>>How did you locate the deals? Did you study and become familiar with the area and then have the broker send you deals for review?
We had the broker send us several deals for review. These deals at the time were subdivisions worth of raw land that were popping up all around AZ. We just had to pick the one we liked best. We chose the one we did for its close proximity to freeways, good water supplies, and shopping malls etc. There were some other factors, but it all boiled down to basic due diligence. That is a tough phase in the deal though I have to say. It feels like picking your bride or something. Mostly its just a lot of due diligence.

>>Did you hire a builder or did your company build the homes in AZ? If you hired a builder, how did you monitor / manage them from afar?
We hired D.R. Horton to build the homes. We were familiar with them through their subsiduary that operates in Hawaii. We chose some plans that we liked and had them built. It was 5K down per house and no payments until completed. Im making it sound super simple, but it was a little more complex than this, dont be fooled! :smxB: We didnt have to manage them very much, and actually they finished early (which was bad since we were not making payments and the value was rocketing up each month!). I did have quite a few phone calls with them though, and they gave me status updates as to what shape the home was in (framing, roof, etc.). I also had to hire a landscaper to do some quick work on it.

One of our potential lenders though, that was another story. We were investigating Countrywide since we would get a discount of 5K if we chose them. But in the fine print there ended up being a ton of fees assed to flippers. It completely nullified the 5K discount and then some. Beware.

But in the end, having a great team experienced in what you are doing makes all the difference. It was really smooth from start to finish, and most of that was my team.
Id say that what I was doing was more like Cowboy investing than something like what SteveO does, which I would consider "real" investing. But I needed capital (still in that phase) and this was a great opp. In hindsight I could have done more flips, and even held for a year or two more for even more profit. But I was all about managing risk and still am. That being said, I think if you are investing for cash flow instead of flipping, definately take SteveO's advice, as its way more complex than what I did.

 

[Sid23]

bump up

 

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[hofster]

Review your purchase agreement. The types of purchase contingencies can vary from state to state, therefore, you need to review your purchase agreement to see on what grounds you can cancel your contract.Thanks for sharing.