What do I know about long distance real estate investing?
As a military member:
- I’ve moved every 1 to 3 years while investing in real estate
- I currently have 20 paid-off single family homes
- I’ve self-managed and used management companies
- I bought 16 properties while living overseas
I read a blog post this morning that said investing long distance requires a slightly different approach than normal real estate investing.
It’s a different ball game altogether.
The secret to mastering long distance real estate investing is getting these 5 things right:
- The Importance of Boots on the Ground
- The Best Real Estate Agent for Long Distance Investing
- Choosing a Property Manager from Long Distance
- Choosing the Right Property from Long Distance
- Managing Contractors from Long Distance
The Importance of Boots on the Ground
This is where I feel a lot of new investors make their first mistake.
They are neglecting the importance of having boots on the ground.
There have been good books written about long distance real estate investing and how easy it can be done using video, pictures, docusign, and aligning yourself with a great “team.”
This all sounds great, and might work for an experienced investor.
I can tell you from a practical standpoint, however, that nothing replaces the importance of having boots on the ground that you can trust in the location you are investing.
Whether it is a contractor trying to rip you off, tenant trashing a house, or just a need to respond quickly to an emergent situation at your property, there is nothing like having someone you trust that can tell you what is actually going on with your property.
There is a level of risk in real estate investing. That is increased with long distance real estate investing.
The level to which your risk is increased will depend on the quality of boots on the ground you have at the location you choose to invest.
The higher you are on the following list, the lower your risk is.
Try to be as high on the following boots on the ground list as you can as you choose a place to invest:
Ideal Places to Invest
- Place you live now or within driving distance
- Place you lived before (for military: previous assignments)
- Place where relatives, close friends, or trusted confidantes live
- Place where you plan to retire
- No boots on the ground – Build a team
It is possible to invest in a location with no boots on the ground. You will need to rely on the team you build a lot more. You may also need to fly out there more often than you would if you had boots on the ground.
The workaround to not having boots on the ground is to make a member of your team a trusted confidante. I used my management company for that. Some use their real estate agent. It’s doable, but they have less loyalty to you than a friend or family member would.
One big mistake I see new investors make is trusting a turnkey company to pick their location, tenant, and management company for them in a city they’ve never been to. This rarely works out well for the landlord. The turnkey company, on the other hand, makes lots of money from desperate newbie investors eager to get some type of real estate investment going.
A turnkey real estate company is a company that sells you a real estate investment, usually a house, that is already renovated, has tenants, and has property management. They sell it at a markup, but claim there is still a good return on investment (ROI) for you. This is seldom the case.
Read my post on Should I Buy a Turnkey Property
Spoiler alert: I don’t think you should.
The Best Real Estate Agent for Long Distance Investing
So you figured out based on where you had boots on the ground where you could invest.
But how will you look at houses and make multiple offers?
With a real estate agent that understands how to work with investors.
This is easier said than done.
Most real estate agents know little about real estate investing. They have no idea what makes a good rental property and they probably don’t care.
They want you to buy a house as quickly as possible so they can make a commission. The more houses they have to show you before you buy, the less money-per-hour they make.
This is why the typical real estate will not do a good job working with an investor.
The incentive is not there.
You need to find a real estate that is willing to do the following things:
- Go to multiple properties and take additional pictures/video for you
- Make low-ball offers on lots and lots of properties for you
- Understand that you will look at many many houses before you buy one
- Be willing and able to put you in touch with contractors, management companies, lenders, and inspectors.
- Do a great job being very responsive by email and texting
You find these agents in your cities by:
- talking to property management companies
- Finding your Real Estate Investor Association facebook page (REIA) and getting referrals
- Biggerpockets forum referrals
- Online review sources such as Zillow, facebook, look for social proof
Call them and interview
Check for responsiveness. If they aren’t providing the level of service you need, don’t be shy to move on to someone who can. Don’t commit in writing to working solely with one person. They may stop performing for you, and you may need to find someone else. This has happened to me a lot.
It’s ok to get the word out to several real estate agents that you are looking for a certain type of investment property. Whoever brings you the deal is who gets the commission.
Lots of agents may sense that you a newbie, have no experience, and that you will be a waste of their time. There are ways to overcome this.
Know your criteria
Real estate agents will be a lot more comfortable with you if you know exactly what you’re looking for. If you know your budget, the neighborhood, the type of house you want, the condition it is in, and the returns you want to make, they will assume you know what you’re doing.
If you don’t know the answer to these questions, they will take you less seriously, and it will be hard for them to help you.
Have a pre-approval letter and proof of funds
There are a lot of “investors” out there who don’t actually have enough money to buy anything. They are hoping for owner financing deals or situations where something can be bought with no money down. These situations are few and far between, and usually a waste of time from a real estate agents perspective.
If you can show that you have the ability to finance the property with a pre-approval letter from a bank or lender, that will go a long way. Having a bank statement showing you have a down payment stashed away in a savings account also helps.
Talk about other investments you have
If you have any other investment property, even if it’s just your primary home that you turned into a rental, this is good to explain to the agent. It will boost your credibility.
Choosing the Best Property Manager from Long Distance
For me, choosing the best property manager was key to my success in real estate. One of the main reason for this was, I didn’t have boots on the ground once I moved away from Alabama.
I had local knowledge of the area because I lived there for 10 months, which is key. I did not, however, have someone I trusted on the ground.
So I did the best I could with my property manager.
The biggest key to finding a trustworthy property management company is referrals. Find the real estate investment association group in your area. They probably have a facebook page. Join it.
Biggerpockets forums may have a forum just for your city. Ask around inside that forum.
Do online searches and vet all the property management companies.
Call the property management companies and ask for references from other investors. Talk to more than one. If they won’t give you references or don’t work with investors, this is a problem.
Check your property management company’s website. It should be professional and user-friendly for a potential tenant.
Test how they handle calls from potential tenants. Call in pretending to be someone looking for house to rent and see how long it takes them to get back to you. Send an email and see how long it takes them to answer. See if it’s hard to get a human being on the phone. These things matter for them filling your vacancies.
Check the better business bureau to see their rating and how they handle complaints.
Ask how many properties they manage.
I have a lot more information on how to do this right. See my post on:
Choosing the Right Property from Long Distance
I told you before the importance of boots on the ground and gave you a hierarchy.
I believe the key to success in a market is not how fast that market is growing, but how well you know your neighborhoods and whether or not you buy in the right part of town. Additionally, whether or not you buy the right house is key.
This is just Rich on Money speaking here, but I believe money can be made in real estate during almost any point in a real estate cycle in almost any city that has not yet become overpriced.
The key is not making a mistake and buying in the wrong neighborhood. Do the research and get that local knowledge.
While some people make money in bad neighborhoods, section 8 (government assistance), or what people term as “D” property areas or “war zones”, I tend to stay away from these.
These are areas where you can clearly get high return on investment (ROI), but you also deal with high tenant turnover, crime, vandalism, and a host of other problems you just don’t want to deal with.
Essentially, you deal with more RISK.
At the same time, if you try to invest in the part of town that has gated communities, new homes, and the best schools, the price vs. rent ratios will be way out of your favor (low) and it is unlikely you will make any decent money on rentals in these markets.
It is necessary to find the right balance in-between these two extremes that makes sense for the city you are investing in. The answer is different in each community.
You want to make sure you at least beat the 1% rule for properties that you are planning to buy and rent out.
1% Rule – A house should rent for 1% of its total value once rent ready.
This means you take into account rehab costs.
If it costs $90k to buy a house and $10k to fix it up. That’s total $100k. That house needs to rent for at least $1000 a month (1% of $100k) to meet or beat the 1% rule.
This is just a starting point for your search. You need to do a much more detailed analysis once you are actually close to purchasing a house.
See my article on:
Tips for Picking the Right Neighborhood
My biggest hack for picking the best areas was using the expertise of my property management company to help me pick the best neighborhoods to invest in. They were heavily invested throughout the city, and I asked them to help me pick the best neighborhoods and avoid trouble areas.
They were a huge help, especially since I was doing this while serving in the military overseas from Germany and Korea.
A real estate agent could be good for this task, but not as good as a property manager.
Remember, a real estate agent just wants to sell you a house. A property manager ideally wants a property that will be easy to manage.
Once I had a house that I was seriously considering buying, and I had already had my real estate agent look at it and send me additional pictures, I would ask my property management company to go look at it.
They were looking at it with different eyes than my realtor.
They know which streets in neighborhood were starting to get bad. They also knew what types of floor plans and house features were important for tenants.
A house that my realtor told me was amazing would sometimes be vetoed by my property management company, and I believed that saved me money in the long run!
Now it’s time to do some detective work.
In addition to using your hired property manager like I did, here are additional things you can do:
Call every property management company and ask them to describe where are the areas that would not be considered high crime and dangerous, but would still be considered good investments be. See what kind of consensus you are getting among property management companies.
Ask the same questions on real estate investing Facebook groups and in the Biggerpockets forums as well.
You may find other relevant Facebook communities as well that could be helpful.
If you have knowledge of this area, or if a friend or family member does, lean on that local knowledge as well and get that person involved in learning more. Attending the local real estate investing meetings can pay huge dividends.
Managing Contractors from Long Distance
Managing contractors from a distance can be the most difficult part of doing long distance real estate.
It’s probably the situation where having someone you trust on the ground is potentially the most crucial.
These are situations where the possibility of you getting overcharged is high, and having someone actively working on your behalf is important. This is why having a friend or family member in the area can be so key.
It is difficult to make money in real estate if the properties you buy are move-in ready at purchase.
You need to buy value-add properties, and then get them fixed up yourself. Buying a fully rehabbed property is usually going to be at a market price, and those will not satisfy the 1% rule.
For this reason, you must find a way to manage rehab projects from long distance.
Here’s my big hack. It may or may not work for you.
I convinced my management company to manage my large rehabs for me. I bought properties that were in bad shape. They found the contractors, bid the work, supervised the work, and then got the property move-in ready for me. They charged me a fee for this, but it was worth it.
Real estate agents that have the background can also be used for this. Family members, friends, and trusted confidants can also do this, or at least be involved if necessary.
There you have it. The 5 methods for successful long distance real estate investing.
What was useful for you in this article?
What did I forget that has worked for you?
In the military? Check this out:
Rich on Money