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PRYME Homes
March 30, 2018

Out Of State Investing

Investing out of state has become more common now than ever before.

There are a lot more resources available to us to this effectively and profitably and because real estate is by far one of the best assets to invest in more and more people are jumping in.

Benefits

Live where you love, invest where it makes sense. You can take advantage of booming markets without having to move there. This is great for people that love where they live but can't invest there.

Choosing a market based on affordability. We have a lot of investors that have decided to invest in San Antonio instead of California because their money goes a lot further here.

Getting cash-flow and appreciation. You have some markets that are great for cash-flow but not appreciation and others that are great for appreciation but not for cash-flow. This way you can study which markets will give you a healthy balance of both.

Follow the jobs. The world is moving and evolving so quickly that now places that were once quiet little towns have become booming metroplexes because of the jobs it has created. Now, you can follow the jobs and invest where the jobs are.

Forced outsourcing management. I say forced because I know too many investors that because they live close to the property they decide to manage it themselves. This creates a problem when it's time to look at the numbers and make the right decisions. Many people will feel bad raising the rents or evicting someone or even turning some people away. A good property management company can do all of this for you and keep you profitable. Plus, unless your goal is to be a property manager, focus your attention on what's going to get you more properties and not how you can penny pinch the ones you currently own.

 Downside

Relying on other people. 

Agents: Many people think that as long as you have a licensed real estate agent that you're good to go. This is so far from true. If you're buying retail then you want a retail agent that knows the area you're buying in (yes, most agents do have a preferred area). With rentals, you want an agent that OWNS rentals. Just because the house has a "discount" does not mean it's a smart investment. A good investor/agent will bring you properties that make sense as investments by taking into consideration area, rents, work needed, financing costs and much more.

The Solution- asked them how many houses they own and why. Also, ask for referrals from other investors this agent has provided rentals too.

Investors: some people think that if an investor brings them a deal then it has to be a deal with plenty of meat on the bone. The issue here is that most people that bringing you these "deals" are NOT investors, they are called WHOLESALERS. A wholesaler is someone who negotiates with a homeowner for a low price and sells to an investor for a higher price but still under market value. The issue is most wholesalers in a hot market don't know what a good deal looks like and going back to the agent example just because you're getting a house at a discount does not mean it's a deal.

The Solution- Look them up! Thanks to Google you can know anything and everything you're ever going to need to know about someone. You can check their social media accounts and maybe even ask around on real estate forums like BiggerPockets

Contractors: if you want a house the cash flows and has equity the majority of the time means you will need to build the equity into it by doing some updating. What we have seen is that since that last market crash everyone that did one trade all of the sudden is a General Contractor. Which in reality they are glorified handyman(nothing against handymen but they're not contractors). So, when you live far and need to do work on a project there's no way to supervise them to make sure they're doing a good job.

The Solution- if you want to build equity try to find someone local that you can partner with that has the time and experience to help you. Or, buy turnkey properties.

Not understanding the market. In a city like San Antonio, it really does depend on where you invest whether you will make a lot of money or a little. If you're not tied into the local market with reliable people that understand which areas of town are good for what strategy then you can really get hurt. You should never buy a house until you fully understand why that city, area of town, zip code, subdivision, and street make sense to invest in. We have a blog about the San Antonio Market.

The Solution- we have found talking to property management companies to be very helpful. After all, they are the ones that will be placing the tenants in there. Ask them: What rent ranges do you recommend and why? Where are the jobs? Is there job diversification? (You don't want there to be one big company that provides the jobs because if they move you lose everything)

Deferred maintenance. We buy so many houses from absentee landlords that have deferred maintenance of their homes for years! Some of these landlords did it intentionally they simply didn't want to pay for the repairs or decided to do patchwork instead of repairing it correctly. The bigger group falls into the category of not knowing the house had deteriorated that bad because they thought their property management company was taking care of the house. Let's get something clear, property manager are really tenant managers because they are responsible for the house being rented and if the tenant complains about something THEN they'll address it. The issue with this is that they are not telling you what you could be doing to make sure you capture future appreciation both in values and rents. This slowly eats away at your equity. I've spoken to landlords that this has happened too and usually after I present my offer the conversation goes like this:

Seller: But... I have $40,000 in equity

Me: Correct. But you also have $37,000 in deferred maintenance.

While I do feel bad for them, unfortunately, it doesn't stop this from being true and someone has to pay for that deferred maintenance.

The Solution- Don't cut corners if a repair is needed. Also, get a good property management company. Most PM companies go twice a year to inspect the house, ask them for pictures so you can see what it looks like yourself and then ask them to provide you with rental comps of the houses that are renting for perhaps more that are similar. This will help you determine what types of updates you need to make moving forward.

Takeaway

While there are a lot of things that can go wrong there are also ways of preventing as much as possible those things from going wrong.

As we like to say, In real estate investing slow is fast!

Don't be afraid that if you don't jump in now real estate will go away. It's not going anywhere, well maybe expanding to Mars because of Elon Musk, but other than that people will always need a roof over their heads and if you buy right it'll always be profitable.

Good luck in your journey with investing in real estate and make sure you keep checking back for more blogs!

Thanks for reading!

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