Author Topic: Purchasing Real Estate You've Never Seen  (Read 33561 times)

arebelspy

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Purchasing Real Estate You've Never Seen
« on: June 19, 2014, 06:30:34 PM »
In another thread gimp asked:
arebelspy - You own property all over the map. Do you visit before you buy? Do you visit a bunch of places before buying one? Do you leave the visiting to people you trust in areas you know? How does that all factor into your costs per property?

I've gotten this question a lot before, so I decided to start a new thread to answer it, rather than having it buried on page four of that thread.

Do I visit a market before buying there?  Not typically, no.

As I explain it to people who seem flabbergasted that I own multiple rentals that I've never seen (and in fact have bought and sold property - i.e. done flips - that I've never seen) - I rely on experts.

I'm not a contractor.  When I want to buy a property, I rely on a home inspector to tell me what's wrong with it, and I rely on a contractor (or three) to give me a bid for the rehab.

Whether I fly out to the property and stand next to the inspector and then he emails me the home inspection report, or I sit at home and then he emails it to me makes literally no difference to the end result.  It's not like I'm going to go out there and say "that furnace is bad," because I have no idea what a bad furnace looks like.

I'm relying on that professional.

What difference then does it make if I fly out to the property?  None.

So much you can do on the Internet now, and they can send me photos, video walkthroughs, etc.  Why do I need to be there?  And either way I'm going to have to wait for the rehab bids to find out what my various costs will be.

When I'm going to buy a property in another market, I network with local investors, property managers, Realtors, and other experts.  I don't know the neighborhoods.  I do some due diligience online regarding the area in general, but I need the actual boots on the ground to tell me the knowledge they've gleaned from years of experience in that market.  I rely on experts.

Me flying out there for a few days and driving the neighborhoods tells me... what, exactly?  A lot less than 10 minutes on the phone with an expert who owns 50+ properties in the area and says "stay away from this neighborhood, but right across the street is this one and that's good, and avoid zip codes X, Y, and Z," etc. etc.

Same thing with the management - I'm going to be relying on a property manager, so I make sure I find a good one and talk with them and rely on their expertise to find out about the market.

I have to be able to vet the people that I'm working with.  When you talk to someone for more than five minutes, you can figure out if they know what they're talking about, or if they're just bullshitting you.  I trust much more in my ability to tell if someone is an expert than I do to go visit a place for a few days and know much about it.

To vet someone, you talk with multiple people, and you'll find out who has a consistent story that fits and who is making stuff up to sound good.  You get referrals, and find out who comes highly recommended.  You ask for references.

In other words, I think visiting a place is WAY overrated.  I wouldn't be able to tell anything about a property by looking at it for a half hour.  I need an expert to tell me what part of the market to be in, another one to tell me what needs to be fixed on a particular property, and a different one to tell me the cost of that.

My job consists of:
1) Identifying potential markets.
2) Networking with experts in the area.  Vetting them - checking references, reading reviews of their company (if applicable), etc.
3) Running the numbers based on the information I get from them.

If the numbers make sense, great, I pull the trigger.  All my team is in place.  I have a Realtor already to make the offer, a contractor to rehab the property, and a property manager to get in tenants and run the place.

(Rehab/flips are a similar process, the last step just reuses the Realtor to sell, rather than the property manager.)

Don't let that (simple) series of steps make it sound easy.  It's a lot of work finding potential markets, narrowing down where you will invest, talking to multiple Realtors, investors in the area, home inspectors, contractors, property managers, etc. etc.  Dozens of people you'll build relationships with.  And while an eventual "face to face" can be beneficial, it's not always necessary.  If and when I do fly out to markets I own properties in, it's to buy lunch for my team and hang out with them.  Seeing the properties?  Meh.

None of those steps requires me to be there.  All of it requires me to find professionals who are competent and helpful.  I can do that from anywhere.
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gimp

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Re: Purchasing Real Estate You've Never Seen
« Reply #1 on: June 19, 2014, 07:23:38 PM »
This is a ridiculously awesome answer; thank you.

I asked partly out of curiosity and partly out of self-interest. I'd love to get in on this business; not today, but maybe in a couple years, almost definitely within five. Why? Well, to put it bluntly, I'm just graduated, paid a hell of a lot more money than I need, and want to own property. Index funds are fun but I'd like maybe 20-30% in homes.

But now the problem: getting started. Of course everything you say requires a lot of work, but I have to wonder if it's possible - or even smart - to start out that way. I don't think I could pull the trigger on house #1 without seeing it for myself, you know? And probably not #2 or #3 either.

And the secondary problem: location. I live in the bay area. That means that there's no way for me to put 20-30% into even a single house in the next five years near where I live. If there was, I'd probably live in it myself, eh? I have looked and I could definitely do it, say, a 3-4 hour drive away. (I do love driving, but prefer to do it for pleasure.)

So I'd love to get your thoughts on getting started and how you got started, and more selfishly, how you might deal with the problem if you couldn't find anything you could invest in (not from a returns point of view, but from the required cash amount being too high point of view) - not today, because today you're a deep well of wisdom and know your shit - but how you would have done it when you were green to the business.

Another Reader

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Re: Purchasing Real Estate You've Never Seen
« Reply #2 on: June 19, 2014, 08:04:56 PM »
As someone that used to travel to various places to value properties for a living, I could not disagree more with Arebelspy.  I agree everything else he does is necessary, but I would not buy property where I had not been to the area and "sniffed the dirt."  The checks I am writing are just too large.  Once I know the area, the specific neighborhoods, and the values and I have a team in place, I will make offers and write earnest money checks without seeing the property.  However, I will see the property during the inspection period, because I catch things that other folks don't.  It's a lot cheaper to back out of a deal using the inspection contingency than to sell a property you really should not have bought.

Arebelspy is really, really good at this, but some day he will get burned.

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #3 on: June 19, 2014, 08:08:40 PM »
So I'd love to get your thoughts on getting started and how you got started, and more selfishly, how you might deal with the problem if you couldn't find anything you could invest in (not from a returns point of view, but from the required cash amount being too high point of view) - not today, because today you're a deep well of wisdom and know your shit - but how you would have done it when you were green to the business.

Your question requires a whole different thread to answer, as I'd rather leave this one on the topic of "investing out of your area" rather than "getting started when your area is not a good place to invest."  I will start a thread to answer that soon, or feel free to start it yourself to get other's input in the meantime.
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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #4 on: June 19, 2014, 08:13:46 PM »
As someone that used to travel to various places to value properties for a living, I could not disagree more with Arebelspy.  I agree everything else he does is necessary, but I would not buy property where I had not been to the area and "sniffed the dirt."  The checks I am writing are just too large.  Once I know the area, the specific neighborhoods, and the values and I have a team in place, I will make offers and write earnest money checks without seeing the property.  However, I will see the property during the inspection period, because I catch things that other folks don't.  It's a lot cheaper to back out of a deal using the inspection contingency than to sell a property you really should not have bought.

Arebelspy is really, really good at this, but some day he will get burned.

The only comment I have to this is:

Another Reader has decades of experience that I don't, not just in the land lording and real estate investing side, but in the professional side of real estate, including property appraisal and other related fields.

That leaves her with an advantage such that it may well be worth traveling out to locations to view properties.  Her investments will thus be a lot safer, and I don't doubt that her experience and knowledge will allow her to outperform me.

To address the final comment, while I will get burned one day, I'm not too worried about it, due to the amount of due diligence I do put in.  If something goes wrong, it's generally not unexpected and/or is rare enough that the "wins" way outnumber the losses.  Even an experienced investor sometimes has things go wrong, and I understand that will happen.  And I understand Another Reader's way will help mitigate that (but not erase it completely), but again, it's something I'm not capable of doing at this time, and not interested in spending the years it would take me to become qualified in that area.  I would - like I said - rather rely on the professionals for that, rather than become the professional.  I'm a professional investor, not a professional (appraiser/contractor/etc.).

All that being said: when Another Reader and I disagree on something related to Real Estate, I suggest you listen to Another Reader.
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Another Reader

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Re: Purchasing Real Estate You've Never Seen
« Reply #5 on: June 19, 2014, 08:35:59 PM »
Jeff Brown is the original "boots on the ground" out of state investor.  So that's two of us.

The world has changed and I'm the first to admit I'm a dinosaur.  It's possible these days to do a lot more by remote control than ever.  And I had it drilled in me for 30 years that you don't express any opinion or take any action without seeing the property.  However, I caught a floor slab that had settled and cracked when I inspected the property that both the agent and the inspector missed on a short sale in 2009.  Had I bought that property, it would have been very difficult to re-sell.  For me, that was a very important reinforcement of the idea that you must see the property before you write that check.

Nords

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Re: Purchasing Real Estate You've Never Seen
« Reply #6 on: June 19, 2014, 08:56:09 PM »
I think both of your techniques will rack up more wins than losses, although Arebelspy will have a lot fewer frequent-flyer miles.

There's a fine line between the Rickover mantra of "Expect what you inspect" and "anal-retentive control freak".  (I'd like to tell you where that line is but I'm not very sure of where to draw it myself.)  I'm pretty confident that Arebelspy's technique scales better than Another Reader, but that may not be relevant to their respective financial independence.
« Last Edit: June 19, 2014, 09:03:36 PM by Nords »

greaper007

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Re: Purchasing Real Estate You've Never Seen
« Reply #7 on: June 19, 2014, 09:10:29 PM »
Great thread and thanks for the free information.     Still, I can't imagine not looking at a property once unless I was an investor that was doing a very large volume of deals where one bad property could be offset by lots of good ones.

Couple of questions.

Who do you trust to tell you that the contractors didn't muck something up?   I worked in the construction industry during college and I can't begin to tell you the things that subs would muck up on multi-million dollar rehabs (Shaker Heights mansions from the 20s).   At one point they were blaming it on a haunting and even had a picture of the ghost to prove it.

What about just getting a feel for a house.   Pictures, video and skype are fantastic.   But I like to walk in and see if the doors shut right, what the handles feel like (cheap fixtures tell me to head for the hills, if you don't put money into that, what else are you cheaping out on) etc.    Is the Realtor doing this for you or someone else?


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Re: Purchasing Real Estate You've Never Seen
« Reply #8 on: June 19, 2014, 09:27:10 PM »
ARS, what kind of cap rates are you getting on your remote investments? Some people don't like that metric for SFH so if you prefer something else that's fine. How much better does the cap rate need to be on a sight unseen property for you to be interested?

I made an offer on a 4 plex in my area yesterday that would have been 8%. Seller countered with a price that would make it 7% and I think I'm going to walk. Stock market historic returns are 7% and for some reason I worry less about my stocks than my properties.

greaper007

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Re: Purchasing Real Estate You've Never Seen
« Reply #9 on: June 19, 2014, 09:28:56 PM »
Question 2, I hope this isn't viewed as a thread jack.

I have about $10,000 I could throw on a property.    Though we're small business owners with an s-corp (personal income around $110k but it doesn't come out that way on the tax statement) so that makes loans difficult.   What and where could I possibly buy with this amount of money or slightly more?


[MOD EDITING IN MY ANSWER TO KEEP THREAD ON TOPIC: Yes, you should start a new thread for this discussion.][/END EDIT]
« Last Edit: June 19, 2014, 11:36:26 PM by arebelspy »

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Re: Purchasing Real Estate You've Never Seen
« Reply #10 on: June 19, 2014, 09:56:59 PM »
I'm another boots on the ground type.  I want to observe the seller/agent as much as the property.

With that being said, I spent five minutes looking at my current project house before making an offer.  Having a good idea of the costs to fix up the place gave me the ability to make an offer and scoop it up before the people like arebelspy had time to complete their due diligence.

That's no to say I hadn't done my homework, however.  I'd done most of my research when the place was a short sale, and had an alert set to tell me when it was relished as a foreclosure.

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Re: Purchasing Real Estate You've Never Seen
« Reply #11 on: June 19, 2014, 11:18:40 PM »
ARS that is certainly an interesting way to FI.  That seems to be the most information you provided on here about your strategy or otherwise if you mentioned before in the forum, I just never came across it.  I don't blaim you for not mentioning too much or otherwise other mustachian's may start copying your strategy and competing with you.


arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #12 on: June 19, 2014, 11:32:04 PM »
I would not buy property where I had not been to the area and "sniffed the dirt."

Still, I can't imagine not looking at a property once unless I was an investor that was doing a very large volume of deals where one bad property could be offset by lots of good ones.

I'm another boots on the ground type. 

I understand (and knew when posting this) that the VAST majority of people won't feel comfortable with this.

Most people will come on this thread and say "what about this and that" and "I could never buy a property I haven't seen."

That's fine.  I'm just sharing with you another idea to ponder.

Always invest within your comfort zone.  I certainly do.  If I don't have a strong team in place that I am happy with (and usually with backups/fallbacks in mind as well), I don't buy a property, period.  Doesn't matter how great the property is.  The team is the important part for an out of area investment like this, to me.  Good deals will keep coming.

And let me be clear: I agree that boots on the ground is paramount.  I just don't think they have to be my boots. Cause the person standing in my boots doesn't know as much as the people he hires for their specialized knowledge.  ;)
« Last Edit: June 19, 2014, 11:38:29 PM by arebelspy »
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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #13 on: June 19, 2014, 11:34:41 PM »
Who do you trust to tell you that the contractors didn't muck something up?   I worked in the construction industry during college and I can't begin to tell you the things that subs would muck up on multi-million dollar rehabs (Shaker Heights mansions from the 20s).   At one point they were blaming it on a haunting and even had a picture of the ghost to prove it.

Other members of the team - the property manager, for example.

What about just getting a feel for a house.   Pictures, video and skype are fantastic.   But I like to walk in and see if the doors shut right, what the handles feel like (cheap fixtures tell me to head for the hills, if you don't put money into that, what else are you cheaping out on) etc.    Is the Realtor doing this for you or someone else?

I don't feel the need to get a "feel" for a house.  If I have a good team and the inspector says it's in good shape, it needs some minor rehab, the property manager tells me it'll rent in 3 days for $X amount... what does it matter to me how the house "feels"?  If a door doesn't shut right, that'll be on the inspection report.

Again, if you aren't comfortable with that, and you like to feel the house, go for it.  :)   I just don't give two cents about that, to me it's all in the numbers and what the experts say.
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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #14 on: June 19, 2014, 11:35:26 PM »
ARS, what kind of cap rates are you getting on your remote investments? Some people don't like that metric for SFH so if you prefer something else that's fine. How much better does the cap rate need to be on a sight unseen property for you to be interested?

If I'm going for cash flow, and out of area, I don't bother even looking at anything less than double digit.
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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #15 on: June 19, 2014, 11:39:18 PM »
ARS that is certainly an interesting way to FI.  That seems to be the most information you provided on here about your strategy or otherwise if you mentioned before in the forum, I just never came across it.  I don't blaim you for not mentioning too much or otherwise other mustachian's may start copying your strategy and competing with you.

No one has asked (on the forums) before.  I shared it with a bunch of people at Camp Mustache last month in an open real estate discussion.

I'm an open book; I share everything.

I don't care about competition.  There's always more.
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expatartist

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Re: Purchasing Real Estate You've Never Seen
« Reply #16 on: June 20, 2014, 12:00:50 AM »
We're still small-time investors. We haven't even visited the towns where our properties were located, before buying them (afterwards, yes). Our properties have all been purchased after extensive online research and consultation, and with full knowledge that we could lose our cash if something goes wrong. It has always been cash we could afford to lose. We have very specific renters in mind when purchasing the properties: they're for long-term holiday rental.

Agree 100% with arebelspy's methods and motivations. Eventually we plan to invest in one or more US cities, and will probably follow a similar approach (to ARS's) there.

Signing the papers on another place we've never visited next month, when we visit it for the first time (we have to be present to sign final papers, per Italian law). Here's to hoping it really exists! ;)

Edit: for clarification
« Last Edit: June 20, 2014, 07:58:29 PM by expatartist »

dragoncar

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Re: Purchasing Real Estate You've Never Seen
« Reply #17 on: June 20, 2014, 08:16:53 AM »
What does it cost you to send a team out to report?  Ok other words, do you lose $1k every time they come back and say "that place is not worth it"

Bearded Man

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Re: Purchasing Real Estate You've Never Seen
« Reply #18 on: June 20, 2014, 08:24:11 AM »
tagged.

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #19 on: June 20, 2014, 08:33:30 AM »
What does it cost you to send a team out to report?  Ok other words, do you lose $1k every time they come back and say "that place is not worth it"

Nothing.

I make sure not to waste their time though - it's rare that I send them on a mission that ends up being pointless, and when it is, it'll be due to some obvious issue that wasn't foreseeable. 

By the time I'm to the inspect property stage, I've already done a lot of due diligence on the market, neighborhoods, etc., and I have a feel for what is/isn't a good price and why.  So I have a good idea of what to pursue.

A newer investor with less idea of what they're looking for might end up annoying some people by wasting their time on obviously bad deals.  Try to avoid this.  :)

tagged.

Tag back, you're it.  No tag backs!

/No idea what's going on with this post.
//I sometimes have my students play "reverse tag," a game I invented to get them all engaged and playing and exhausted.  In reverse tag, you WANT to be it.  So everyone chases whoever is it, and if you tag them, YOU'RE it, and everyone starts to chase you.  The neat thing about this game is it lets the slow kids play too.  In normal tag, when a slow kid gets tagged as "it," they can't catch anyone and they're it forever and the game sucks.  In reverse tag, it starts out as the fastest kid is it, but then people chase them down as they get winded (some get winded faster, and rest while others chase the fastest, eventually the fastest is winded and the people who had to stop and rest a minute before are now rested and can catch them), then someone else is it, and so on, until all the fastest ones are winded and the slower kids, who have been preserving their energy, can catch them and be "it" for at least a little while until they're caught.
///This is totally on topic, because ... real estate investing like in this thread is like reverse tag?  Instead of identifying a property and then working towards acquiring it, you build a team, and the property is incidental.  ..Sure!  That really tied it together.
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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #20 on: June 20, 2014, 08:34:47 AM »
We're still small-time investors. We haven't even visited the towns where our properties were located, before buying them (afterwards, yes). Our properties have all been purchased after extensive online research and consultation, and with full knowledge that we could lose our cash if something goes wrong. It has always been cash we could afford to lose. We have very specific renters in mind when purchasing the properties: they're for long-term holiday rental.

Agree 100% with arebelspy's methods and motivations. Eventually we plan to invest in one or more US cities, and will probably follow a similar approach there.

Signing the papers on another place we've never visited next month, when we visit it for the first time (we have to be present to sign final papers, per Italian law). Here's to hoping it really exists! ;)

A vacation rental is another great example. If you can find an area where the numbers work, you absolutely have to build your team (especially a local person to turn the unit between guests, hopefully help you get it rented, etc.).

Thanks for the great example, expatartist! Good luck on the Italy purchase.  :)
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Icecreamarsenal

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Re: Purchasing Real Estate You've Never Seen
« Reply #21 on: June 20, 2014, 08:49:35 AM »
I just made an account on bigger pockets and I've started my perusing.  Property managers seem to be the biggest part of the puzzle. Do you find them just by googling? Or are there specific recommendations on bigger pockets? Something tells me the latter.


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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #22 on: June 20, 2014, 08:53:58 AM »
I just made an account on bigger pockets and I've started my perusing.  Property managers seem to be the biggest part of the puzzle. Do you find them just by googling? Or are there specific recommendations on bigger pockets? Something tells me the latter.

Neat.  BiggerPockets is a good place for quick browsing, but make sure you check out some of the real estate books recommended in the sticky thread in this forums.  There's only so much one can get from short (a few sentences to a few paragraphs) posts like on forums and blogs.  Sometimes you just need a book to fully dive into a topic.

I do get recommendations & referrals for (nearly) all of the people I work with.

I admit this would be tough to do in a very small market, but I don't see any compelling reason to invest long distance in a very small market.
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dragoncar

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Re: Purchasing Real Estate You've Never Seen
« Reply #23 on: June 20, 2014, 09:24:02 AM »
tagged.

Tag back, you're it.  No tag backs!

/No idea what's going on with this post.


I think he just posted so new replies show up in the "Show new replies to your posts" link, which I know I use when I don't have time to sift through the "Show unread posts since last visit" link, which sometimes has many pages of posts.  Now if only I could "ignore" certain threads so they just stop showing up all together...

brandino29

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Re: Purchasing Real Estate You've Never Seen
« Reply #24 on: June 20, 2014, 09:50:59 AM »
This is an interesting thread, thanks for starting. 

This is the first time I'm realizing that ARS is so extensively invested in real estate outside of your home base.  Which makes me want to know how long it took you to start buying places sight unseen?

I know I'm currently not comfortable in doing that but I could see myself getting there with more experience and more property nearby.  It would open up a world (literally) of opportunity that I'd never really considered before.

Left

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Re: Purchasing Real Estate You've Never Seen
« Reply #25 on: June 20, 2014, 10:30:49 AM »
Quote
I do get recommendations & referrals for (nearly) all of the people I work with.

I'm not into real estate yet but been contemplating it for the past few years (no enough funds to actually get a rental yet) but how do you "vet" people? This is the most important part to me since once I have the funds I can do the research and find the area/house I want, I still won't have a team of people. Since you have rentals all over, do you put together a new team each time? Or do you have one team that you ask for their connections into that market? Since different area's have different laws/requirements I can't see you using the same team everywhere. I'm guessing you aren't using local CL "teams" but do you just look companies up in phonebook and look at their reviews/BBB/court issues/etc? This would be my biggest concern but this is for both local and remote buying.

I'm guessing you don't assume that a referral/recommendation is the end and just take their word for it?

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #26 on: June 20, 2014, 11:58:08 AM »
This is the first time I'm realizing that ARS is so extensively invested in real estate outside of your home base.  Which makes me want to know how long it took you to start buying places sight unseen?

I happened to live in a market where 2009-2012 was a great time to invest, so I did, locally.  Then the prices shot up and the numbers no longer interested me.  I spent much of 2013 investigating other markets and building teams there and doing the process described in the OP.  Had I been in a poor market, I'd have done it much sooner, I just happened to not need to until recently.


Lots of questions from eyem all embedded in one paragraph, so I'll take them one by one.  :)

how do you "vet" people? This is the most important part to me

Yes, that's the most important part in general.  As I said, there will always be more deals, so the team is more important than a particular property.

Since you have rentals all over, do you put together a new team each time?

Yes.

Or do you have one team that you ask for their connections into that market?

No, real estate is local.

Since different area's have different laws/requirements I can't see you using the same team everywhere.

Correct.

I'm guessing you aren't using local CL "teams" but do you just look companies up in phonebook and look at their reviews/BBB/court issues/etc? This would be my biggest concern but this is for both local and remote buying.

No.  Other investors are the first people I talk to, then I start getting recommendations from them.  I contact Realtors and get recommendations from them.  Rehabbers, ditto.  You start seeing the same names come up.  You talk with them and find out about their portfolio or work they've done.  Get their references.

Networking is how you do it, not cold calling from a Google search.

I'm guessing you don't assume that a referral/recommendation is the end and just take their word for it?

Correct.

Did that answer it more?  :)
« Last Edit: June 20, 2014, 12:04:36 PM by arebelspy »
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gimp

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Re: Purchasing Real Estate You've Never Seen
« Reply #27 on: June 20, 2014, 12:12:09 PM »
So I'd love to get your thoughts on getting started and how you got started, and more selfishly, how you might deal with the problem if you couldn't find anything you could invest in (not from a returns point of view, but from the required cash amount being too high point of view) - not today, because today you're a deep well of wisdom and know your shit - but how you would have done it when you were green to the business.

Your question requires a whole different thread to answer, as I'd rather leave this one on the topic of "investing out of your area" rather than "getting started when your area is not a good place to invest."  I will start a thread to answer that soon, or feel free to start it yourself to get other's input in the meantime.

Thanks. I really appreciate it. I might start that thread today - I need to put together some numbers. (All of my previous numbers were about 401k/roth/taxable, whereas I'd love it to be about 401k/roth/real estate.)

GoCubsGo

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Re: Purchasing Real Estate You've Never Seen
« Reply #28 on: June 22, 2014, 09:18:59 AM »
I've been the local Realtor for a couple of out of town investors and it has worked out quite well for my investors and myself. I also supplied the contractor contacts and handled the property management.  I agree more with arebelspy in regards that you don't need to eyeball every house as it isn't very cost or time effective if you are going to be evaluating multiple properties.  My clients are software developers and really wouldn't have any idea if what a contractor or inspector was telling them about rehab costs were accurate or not.  At a certain point you will have to trust someone in any transaction after performing your due diligence.

That said, both investors I have worked with came in town once to meet with me to make sure I could deliver what I said.  I'd probably be the same way if I was setting up a "team" in a market I've identified and wanted actively pursue.  It was important on my end too, as I wanted to make sure they were serious and were committed to moving quickly on deals that I identified. 

I guess I would suggest a hybrid approach.  Make one visit to meet your "team" and discuss expectations and see the area.  Once that's done, I wouldn't see much of a need to ever go back.

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Re: Purchasing Real Estate You've Never Seen
« Reply #29 on: June 25, 2014, 07:50:57 AM »
Arebelspy, which states are you currently invested in?  I have never seriously evaluated properties out of state due to fears about differences in state rules "protecting" tenants from landlords who want ridiculous things like for them to pay rent.  lol
Do you look at legal considerations and length of time to evict a tenant, etc. before deciding which states to invest in?

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #30 on: June 25, 2014, 07:59:17 AM »
Arebelspy, which states are you currently invested in?  I have never seriously evaluated properties out of state due to fears about differences in state rules "protecting" tenants from landlords who want ridiculous things like for them to pay rent.  lol
Do you look at legal considerations and length of time to evict a tenant, etc. before deciding which states to invest in?

NV, MS, VT, OH, VA, MI. Some of those are rentals, some notes, some flips, etc..

Landlord/tenant laws are one thing I look at, yes. See my post as the first response in this thread:
http://forum.mrmoneymustache.com/real-estate-and-landlording/how-do-you-find-the-best-places-to-buy-a-rental-property/

It is one of many things factors taken into consideration.
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arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #31 on: June 26, 2014, 10:44:04 AM »
In Warren Buffett's latest shareholder letter he talks about what you can learn from his two real estate purchases.

I posted about it here:
http://forum.mrmoneymustache.com/real-estate-and-landlording/buffett's-annual-letter-what-you-can-learn-from-my-real-estate-investments/

One thing I want to highlight - particularly relevant to this thread, especially given the thread title - is this passage:
Quote
In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I have a son who loves farming, and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out.

I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop, and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property. Now, 28 years later, the farm has tripled its earnings and is worth five times or more what I paid. I still know nothing about farming and recently made just my second visit to the farm.

...

[He goes on to talk about his other RE investment, and notes:]
 
I joined a small group including Larry and my friend Fred Rose in purchasing the building. Fred was an experienced, high-grade real estate investor who, with his family, would manage the property. And manage it they did. As old leases expired, earnings tripled. Annual distributions now exceed 35% of our initial equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I've yet to view the property.

(Emphasis added.)

Warren needed no specialized knowledge or particular real estate skill.. he picked solid investments that had a good current return and good potential upside, then put it in the hands of people who knew what they were doing.

That's what I'm going for in this thread: the idea that one can evaluate a particular deal and pull the trigger and have it perform well. Warren Buffett is amazing at analyzing companies, but I think the analysis done on these real estate deals could have been done by any reasonably smart person, as he didn't use any particular knowledge or skills he had built up for that analysis.

The article goes on to talk about how to apply this line of thinking (long term investing) to the stock market, and the whole thing is worth reading, but I wanted to highlight that part for those interested in this thread and the "long distance real estate investing" idea.
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malacca

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Re: Purchasing Real Estate You've Never Seen
« Reply #32 on: June 26, 2014, 05:08:18 PM »
I flipped a bunch of properties in Arizona. I was on the other side of earth. But I had an expert - an agent who actually knew what he was doing.

I also bought condos in Asia without seeing them. I assumed the interior would have to totally redone and factored it into the price.

The first few are hard emotionally. Then they are just another transaction.

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #33 on: June 26, 2014, 06:18:21 PM »
I flipped a bunch of properties in Arizona. I was on the other side of earth. But I had an expert - an agent who actually knew what he was doing.

I also bought condos in Asia without seeing them. I assumed the interior would have to totally redone and factored it into the price.

The first few are hard emotionally. Then they are just another transaction.

Awesome.  I'd love to hear more of your story if you're willing to start a thread on it.  :)
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Re: Purchasing Real Estate You've Never Seen
« Reply #34 on: June 26, 2014, 07:34:37 PM »
Awesome.  I'd love to hear more of your story if you're willing to start a thread on it.  :)

Me too! Malaysia is one of the few places we would buy in Asia (Japan possibly being another). I have a very soft spot for George Town ;) We dreamed of getting some of those old Chinese shophouses and doing them up, but arrived too late - after the UNESCO listing.

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Re: Purchasing Real Estate You've Never Seen
« Reply #35 on: June 26, 2014, 07:59:22 PM »
Buffett saw the farm when he bought it and one of the partners in the NYC deal was a long tine real estate investor.  It's not like he went into these deals blind.

He states in the letter that his kids and grandkids will ultimately receive the income from his real estate investments.  Not a lot of folks understand that evaluating a potential investment property for it's long-term income potential and then holding it for generations is the low cost way to go.  Kind of like buying and holding a dividend paying stock or even a low cost index fund and passing it on to the next generation. 

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Re: Purchasing Real Estate You've Never Seen
« Reply #36 on: June 26, 2014, 11:50:40 PM »
Buffett saw the farm when he bought it and one of the partners in the NYC deal was a long tine real estate investor.  It's not like he went into these deals blind.

No doubt, and I wasn't trying to imply that he was.  Just that he was smart enough to run the numbers and say "this makes sense" and then pull the trigger.  He visited one of the investments twice in 29 years, the other never, but relied on other people (presumably experts in the area).  That's what I'm trying to get at, as a valid strategy.  And, as Nords pointed out, it certainly scales better.  Buffett doesn't want to be checking up on them all the time.

He states in the letter that his kids and grandkids will ultimately receive the income from his real estate investments.  Not a lot of folks understand that evaluating a potential investment property for it's long-term income potential and then holding it for generations is the low cost way to go.  Kind of like buying and holding a dividend paying stock or even a low cost index fund and passing it on to the next generation.

Absolutely.  He saw they got decent short term yields, and they had significant future upside.  It's all long term thinking with him, and I'm a big fan of that.  I'm not personally investing for next year, I'm investing for next century.  ;)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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malacca

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Re: Purchasing Real Estate You've Never Seen
« Reply #37 on: June 28, 2014, 11:51:56 PM »
I flipped a bunch of properties in Arizona. I was on the other side of earth. But I had an expert - an agent who actually knew what he was doing.

I also bought condos in Asia without seeing them. I assumed the interior would have to totally redone and factored it into the price.

The first few are hard emotionally. Then they are just another transaction.

Awesome.  I'd love to hear more of your story if you're willing to start a thread on it.  :)

OK, will start a thread about this soon.

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Re: Purchasing Real Estate You've Never Seen
« Reply #38 on: June 29, 2014, 12:29:11 AM »
Well, this is an interesting discussion.  I'd love to hear from a Canadian who is doing this in the US from a distance. 

My own strategy is not as strategic as Arebelspy and I don't think the net ROI is going to be nearly as good - partly because I'm in Canada and partly because of sticking to my local market in Canada.

I purchase higher value multi-family properties, inspect each one, and manage them myself.  I attended all inspections and have done work on each unit.  I do hire people to do most of the work for me. 

This weekend I'm up at our vacation rental property.  I have hired help to get ready for summer, but I'll still put in about six hours myself because I'm here.  I don't mind at all.  I like it.

I don't think I'm attracted to real estate investing purely for the money.  I enjoy the fixing and making it look nice part too. Granted,  I wouldn't enjoy it as much if it was not cash flow positive and if it did not have excellent long-term returns.  It will create a significant amount of income for us later in life in addition to the paid-off assets.

When I imagine investing in a house I will never visit, well, it is not very motivating even if the returns are higher than the stock market.  I think I might prefer the lack of hassle of the stock market if it is going to be a pure investment without personal involvement or connection.

I feel the same way about business.  I only do what I like and have no desire to own other businesses even if they make a fair bit of money. 

It does give me something to think about though - maybe I'm too set/comfortable in my views on this.

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Re: Purchasing Real Estate You've Never Seen
« Reply #39 on: June 29, 2014, 07:55:38 AM »
Your approach makes perfect sense to me. Visiting a property would do nothing for me since I know little about property, so my "feel" for a place would not be based on facts and would therefore likely do more harm than good. Not to mention added cost of transport, lodging, and time. I've been interested in rental real estate, but used my lack of specialist knowledge and high COL area as mental barriers to entry. Obviously, I have a lot to learn, but I feel like my strengths (research, organization, and reading people well) fall in line with your approach. Thank you very much for sharing!

Also, hell yeah reverse tag!! What an excellent idea! Good on ya.

Edit: typo
« Last Edit: June 29, 2014, 07:57:18 AM by Nancy »

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Re: Purchasing Real Estate You've Never Seen
« Reply #40 on: June 29, 2014, 08:27:33 AM »
What Buffett did was similar to buying up houses in Las Vegas or Phoenix in 2009 to 2011.  Unless you bought a lemon or you bought into a warzone, chances are you did pretty well.  And there is a difference between people who have skin in the game as your partners, as was the case in the NYC office building, and people making a living off of you.  With real estate, a lot of people don't really know what they are buying, and are in a position to get burned.




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Re: Purchasing Real Estate You've Never Seen
« Reply #41 on: June 29, 2014, 08:47:59 AM »
I understand that one might buy rental properties in different areas, even without visiting them first, but how does one manage a flip without having his own boots on the ground?

I can only assume that you send an inspector to check the property out, then a few contractors to give you bids on it. But after you pull the trigger and make the purchase, how do you manage the contractors and subcontractors? It's hard enough to find trustworthy contractors when you're breathing down their necks, but if you're not there, how do you ensure they're not skimping out on quality and craftsmanship? And where is their assurance that they'll get paid?

I get that it's important to build a local team and do your due diligence, but surely you have to hire a project manager to check up on the contractors and subcontractors, and how do you ensure that that project manager is acting in your interests?

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #42 on: June 29, 2014, 10:52:17 AM »
I understand that one might buy rental properties in different areas, even without visiting them first, but how does one manage a flip without having his own boots on the ground?

I can only assume that you send an inspector to check the property out, then a few contractors to give you bids on it. But after you pull the trigger and make the purchase, how do you manage the contractors and subcontractors? It's hard enough to find trustworthy contractors when you're breathing down their necks, but if you're not there, how do you ensure they're not skimping out on quality and craftsmanship? And where is their assurance that they'll get paid?

I get that it's important to build a local team and do your due diligence, but surely you have to hire a project manager to check up on the contractors and subcontractors, and how do you ensure that that project manager is acting in your interests?

You get trustworthy people who do what they'll say they will do, and get paid to do it.

This is why referrals and finding good people is the most important part.

You may have a project manager, you may have the property manager do it, or others.

Here's my point though: if it was the house next door to you, would you be qualified to judge the quality of their work (and I'm not talking about cosmetic stuff like paint and carpet, which you can evaluate with pictures/video online, but plumbing and electrical and such)?  If yes, then you may want to do so.

If you'd be relying on trustworthy professionals even if it were next door to you, then what does it matter if it's next door or across the country?  Either way you need trustworthy professionals to make sure it's done right...

For someone like MMM or AR, with their specialized skills, this may not be the best path for them.  For someone who's better at networking, running numbers, and not so good with the contracting stuff, this can offer a good solution to investing, even when your local numbers don't make sense.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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GrayGhost

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Re: Purchasing Real Estate You've Never Seen
« Reply #43 on: June 29, 2014, 11:15:52 AM »
If you'd be relying on trustworthy professionals even if it were next door to you, then what does it matter if it's next door or across the country?

Well, there's a point. I guess the main thing, then, is to do extensive networking first in order to find those trustworthy professionals. Do you have any more specific pointers on how to do that, Arebelspy?

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Re: Purchasing Real Estate You've Never Seen
« Reply #44 on: June 29, 2014, 11:28:15 AM »
I guess the main thing, then, is to do extensive networking first in order to find those trustworthy professionals.

Oh, absolutely.  Once you get into a situation where you need someone to bail you out, you're compromised.  You need to build your team before you buy a property, definitely can't do it the other way around, mainly because it takes time.  Time to build rapport, trust, time to get references, time to vet them, etc. etc.

Do you have any more specific pointers on how to do that, Arebelspy?

Someone asked a similar question in another thread.  Here was my reply:
As someone with no experience in real estate investing, what is the best way to network with local investors if I am looking to invest remotely?

Here's two easy ways to find active, local investors to an area you aren't located in:
1) Go to www.BiggerPockets.com and connect with people who invest in that area and start chatting with them.  (You can tell who's active based on their posts.)
2) Go to www.meetup.com and virtually "join" the various REIA groups in the area and start connecting with investors via email first, then phone. (You can tell who's active based on the meetings they're attending.)

Write a short introduction letter (that you'll email/private message) about yourself and what you're looking to do and learn.  You'll be surprised how many friendly, helpful people there are who just love to chat real estate.

In the end, real estate is a people business.  Start with finding good, knowledgeable, reliable and trustworthy people.  And go from there.

Which is probably something I should have mentioned in the OP: if you're an asshole, this strategy probably won't work for you, though there are other real estate strategies that will (that involve less people, less work, but require more money).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Nords

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Re: Purchasing Real Estate You've Never Seen
« Reply #45 on: June 29, 2014, 12:37:21 PM »
Which is probably something I should have mentioned in the OP: if you're an asshole, this strategy probably won't work for you, though there are other real estate strategies that will (that involve less people, less work, but require more money).
That explains a lot about a significant minority of the people in the real estate industry...

KBecks2

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Re: Purchasing Real Estate You've Never Seen
« Reply #46 on: June 29, 2014, 12:58:28 PM »
I would like to know the cost of a first deal with this method. Right now I am considering that stock and option investing can do very well-- so why add real estate unless it can do better than 12 percent?
Leverage is a tool and also a risk.

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Re: Purchasing Real Estate You've Never Seen
« Reply #47 on: June 29, 2014, 01:20:28 PM »
Leverage is a tool and also a risk.
Are you referring to stock options or real-estate mortgages?

arebelspy

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Re: Purchasing Real Estate You've Never Seen
« Reply #48 on: June 29, 2014, 01:36:44 PM »
I would like to know the cost of a first deal with this method. Right now I am considering that stock and option investing can do very well-- so why add real estate unless it can do better than 12 percent?
Leverage is a tool and also a risk.

Obviously returns vary, with or without leverage.  Most of my out of state investments don't involve leverage, but some do/will.

I do generally expect double digit returns before counting appreciation and equity pay down (I.e. cash on cash), unless I'm specifically shooting for lower.  It varies based on market, property type, etc.

I don't know enough about options to decide that I can reliably, with as little risk as possible, make double digit returns.  I don't believe it's possible for most people, whereas I believe it is in real estate, though I'm obviously biased towards what I know.

If you can, great.  That seems like it could be a lot less work, so go nuts.  It's rather outside of the scope of this thread though, but feel free to start an options investing thread, I'd be interested in reading it.  Rare hedging by sophisticated investors aside, I feel like it's mostly used as a gambling strategy for the uninformed.  But again, I could be wrong.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

KBecks2

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Re: Purchasing Real Estate You've Never Seen
« Reply #49 on: June 29, 2014, 02:16:28 PM »
Leverage is a tool and also a risk.
Are you referring to stock options or real-estate mortgages?

Both. :).