July 2009
Investing in Long Distance Rental Property Part 2
8 Tips Every Out-of-State Investor Should Know:
Since it’s not always possible to invest in positive cash flowing investment property in many parts of the county, real estate investors often seek out investment property in markets that do provide positive cash flow. For some investors this means they must invest in a property that is not local to their primary residence. Investing in long-distance rental property can be very rewarding if done correctly and can also be a disaster is done incorrectly. In part 1 of this series, we discusses tips 1-4. In this article we’ll discuss tips 5-8 on investing in long-distance rental property.
5). Do Not Buy Un-Rehabbed Property:
It doesn’t matter how experienced you may be at rehabbing, doing it long distance is a nightmare. It’s hard enough dealing with contractors face-to-face, doing it long-distance is even more challenging. Every market has turnkey property providers. These are investors who buy foreclosures, renovate them, and sell them wholesale to investors. There are many so called, “turnkey” investors so make sure they are the real deal. Ask to see testimonials, and check out their sold properties. Make sure they’ve got a good history and experience.
When buying an already renovated property, make sure it is indeed fully renovated. Ask for pictures and videos but always get a 3rd party inspection to verify everything is in top working order. Some investors will offer a wholesale property at a rock bottom price and claim it only needs $10,000 in work. Avoid these properties no matter how attractive the price. Many investors bite on what I call the “cheap factor” and will buy because they can’t pass up on the cheap price. Some investors will offer to do the rehab for you once you buy. I recommend avoiding these types of deals as well. Why buy a property then have 4-6 weeks or longer to get it rent ready? Why not buy an already renovated and preferably already rented property.
6). Work with the Best:
Build a team of the best property providers, insurance agents, lenders, appraisers, property managers, title companies, maintenance workers, etc. Your team will help you be as successful as possible. Always ask who is the best at what you need in that market. Ask to join their newsletters and social media sites. They will most likely provide valuable information about market trends and information that will be helpful to learn. Fortunately, if you are working with a turnkey property provider, they will gladly share with you their contacts. We refer our investors to our team because we know their commitment to excellence.
7). Choose the Right Property Manager (PM):
The best relationship is one where both investor and PM have a clear understanding of each other’s expectations. Each property manager has a different style and a different way of doing things. Find out what their policies are as far as collecting, maintenance, vacancies, evictions, etc. and make sure you agree with those policies. Be clear on what decisions he/she can make on hiss/her own and which ones you would like to be involved in making. Once you have an understanding on how the property will be managed, step back and let the PM do their job. I’ve seen investors reluctant to give the PM enough control to do their job effectively. Choose a property manager that has experience with non-local investors. Explain the type of communication you want to have. Remember, the PM is your eyes and ears since you are not physically there. Again, the right turnkey property provider will already be working with excellent property managers.
8). Don’t Sweat It!:
Don’t lose sleep over your property. Some properties perform better than others. That’s just the nature of rental property no matter what. I’ve got properties that have had the same tenant for years and who always pay on time. I have other properties that don’t do as well. Relax, that’s part of owning rental property! If a property is not performing, take action, correct the situation and move on. Successfully investing in long distance rental property requires a certain degree of patience and trust.
In conclusion, by following these 8 tips, you can confidently invest in long distance rental property. Remember, rental property should be passive income. Set it up correctly and your property will provide income will very little to no effort on your part.
Happy Investing!
Jerry Norton is co-owner of Equity Services, LLC. His company provides investors with fully renovated, positive cash flowing investment properties for under $50,000.
To learn more about how to invest in long distance rental property, visit our site and download our FREE tools “Rental Income and Expense Tracking worksheet” and “Cash Flow Analyzer.”
Investing in Long Distance Rental Property Part 1
8 Tips Every Out-of-State Investor Should Know:
Since it’s not always possible to invest in positive cash flowing investment property in many parts of the county, real estate investors often seek out investment property in markets that do provide positive cash flow. For some investors this means they must invest in a property that is not local to their primary residence. Investing in long-distance rental property can be very rewarding if done correctly and can also be a disaster is done incorrectly. I’ll share 8 tips on investing in long-distance rental property.
1). Choose the Right Market:
Whether local or long-distance, investing in rental property is a long-term strategy, especially in today’s market. The idea is to buy low, hold long-term, realize appreciation, and sell high or hold indefinitely, all the while collecting positive cash flow. Nothing is more crucial than investing in a market that has long-term potential despite the current market condition. For example, my properties are in Pontiac, MI. While MI is currently a depressed market, Pontiac is centrally located in Oakland County, one of the wealthiest counties in The U.S. The state is investing in the film industry, bio technology and other things that I believe will have a positive economic impact on the state in the years to come.
2). Invest in Cash Flow:
When considering which market is ideal, always invest in cash flow today and appreciation tomorrow. Nothing is more detrimental than a negative cash flowing property. It is possible in several markets to acquire fully renovated investment properties for under $50,000, realizing a $200/mo positive cash flow even after financing!
3). Choose the Right Neighborhood:
Once you have a market narrowed down, one of the hardest things is learning the neighborhoods. Since you are not local to the area, you do not know which parts of town may be better than others. Since my niche is lower income rental housing, I make it my business to rate the neighborhoods on a scale of 1 to 10 as follows:
-war zone (1-2), poor (3-4), fair (5-6), good(7-8), excellent (9-10)
I personally find that I do best in the “Fair 5-6″ to “Good 7-8″ areas. Definitely stay out of the war zone and poor areas and I find the “excellent 9-10″ areas don’t provide the cash flow I’m looking for. Sometimes, it’s worth giving up a little cash flow to be in a better-rated neighborhood. For example, consider the following 2 properties:
property 1: sales price $40k, rent $750, cash flow $285 (after financing), neighborhood rate 5
property 2: sales price $50k, rent $825, cash flow $185 (after financing), neighborhood rate 7
Which would you choose? Property 1 requires less capital and has greater cash flow but property 2 will have greater appreciation and probably less turn over because it may (not always) attract a higher quality tenant.
At any rate, when investing in long distance rental property, make it your business to learn the neighborhoods. The best way to do this is to get a map of the area and start asking which areas are better than others. Highlight the map and soon you will know what areas you want to have property in. Build relationships with people you trust that know the local market.
4). Choose the Right Property:
Invest in desirable property. My rule of thumb is to always ask, “would this property be easily rented?” First of all, I prefer single-family homes over all other types of investment property. I believe single-family homes will always be in high demand because people prefer a yard and they are easy to acquire and sell. I stay away from 2 bdrm homes. They rent for less, are harder to rent and have less long-term appreciation. I stay away from anything under 900 square feet, and I avoid odd floor plans like small kitchens, walk-through bedrooms, etc. Also, pay attention to the surroundings. For example, avoid busy streets, or a property next to a noisy commercial property.
To learn about tips 5-8, please read, Investing in Long-Distance Rental Property Part 2
Jerry Norton is co-owner of Equity Services, LLC. His company provides investors with fully renovated, positive cash flowing investment properties for under $50,000.
To learn more about how to invest in long distance rental property, visit our site and download our FREE tools “Rental Income and Expense Tracking worksheet” and “Cash Flow Analyzer.”
421 Lynch Pontiac, MI……………………………SOLD $49,900
July 17, 2009 by Jerry · Leave a Comment
Single Family, 1,077 SqFt Brick Ranch, 3 Bdrm, 1 Bath, Basement, Carport. JUST RENTED FOR $850/Mo!!
299 W Hopkins Pontiac, MI………………………SOLD $44,900
July 17, 2009 by Jerry · Leave a Comment
Single Family, 1,000 SqFt Brick Ranch, 3 Bdrm, 1 Ba, Basement.
Equity Services, LLC acquires distressed properties, fully renovates the properties, puts renters and property management in place and sells them for under $50,000 to investors who are looking for turn-key, positive cash flowing rental properties with equity.
Rental Property Income/Expense Tracking Tool - easily keep track of your rent income and expenses.
