Abstract view of buildings in the city of Santiago, Chile
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Let me ask if this sounds familiar. Your market is expensive. Finding cash flowing rental property is very difficult, if not impossible. Your competition is paying way more for property than you would ever think makes sense, and you feel like you may be in another bubble. You hear people say there are good deals out there, you just have to find them-but, you’re giving it your best, and you’re just not finding anything.
Or maybe you live in a market that just isn’t conducive to long term buy and hold real estate. You recognize the potential to flip homes, but that’s not really your thing. Your goal is to replace your active income with passive income, and you know you need rentals to do that. It’s obvious your market won’t work for that purpose, but it’s just as obvious the buy and hold strategy is the right one for you.
This causes some anxiety. You start to consider adjusting your standards. Maybe it doesn’t have to cash flow on year one? What if airbnb is a viable option. Is there a way to put a “tiny house” in the backyard to increase the rent potential? Your thoughts become more and more creative in direct proportion to the frustration you’re having finding a rental in your home market.
Welcome to 2019! As real estate markets have steadily been appreciating as of late, many buy and hold investors have been priced out of their local markets and forced to sit on their hands. Low interest rates, a strong economy, and improved technological advances have made real estate investing easier than ever for the masses. Unfortunately, it’s also made it harder for you to find the deals!
I know exactly how this struggle feels. My local market of California became too expensive in 2013. I was forced to move outside of my state to find cash flowing rentals. First I moved to Arizona, then to Florida, then to Arkansas. Having done this several times in a row now, I’ve documented a system others can follow if they want to do the same.
For many of you, just reading that made your heart sink. Investing out of state can be scary and nerve wracking. An anxiety inducing mess!
I want to share with you it doesn’t have to be that way. For a long time, out of state investing was synonymous with real estate gambling. You had no idea what you were going to get. The area, the people, the house itself-all a big game of chance, and the out of area people were the ones being preyed upon. Out of state investing became “risky investing”. But was it, really?
Maybe it’s not out of state investing that is risky investing. Maybe it’s ignorant investing.
Now, to be fair, the two went hand in hand. You were forced to be ignorant about a market thousands of miles away from you. There was a time when investing out of state was very risky. Basically, you were flying blind. Trusting the word of a broker you didn’t know, had never met, and had no way of holding accountable, you were very exposed to risk. Without the internet or websites like Zillow, local county tax assessors websites, and rentometer.com, you just couldn’t confirm the information you were being given. The result was investors being burned and out of state investing earning a bad rap.
My argument here is, a lot of that has changed.
It’s changed for many reasons. One of these reasons is the fact technology has grown to the point it’s significantly reduced the risk of investing in out of state rental properties.
In 2019 we have many ways we can verify the information we are provided when we invest outside of our own market. These methods will be the focus of this article. By the time you’re done with this, I think you’ll have a much better understanding of how to conduct due diligence, why out out state investing isn’t as risky as you thought, and why I’m such a big proponent of it!
- The Internet
The internet has changed the game when it comes to due diligence. There is very little you can’t find out with a little online searching. Whether it’s the reputation of the person you’re working with, the price of materials in an area, or the rent you can expect to receive, a very quick online search can provide a ton of valuable information.
Many of the resources I use to confirm what I’m told come through the internet. In face, the next 7 reasons long distance investing isn’t as risky as you think have a lot to do with the internet! In today’s day and age, due diligence is conducted through online means. The internet has changed the entire landscape of long distance investing, as well as real estate investing in general.
- You Can Find Rent Estimates Easily
Websites like Rentometer and Craigslist make a preliminary rent search fast and easy. By simply typing in the address of a potential property with its number of bedrooms, Rentometer will give you a great idea what you can expect for rents. Once this is done, a quick visit to craigslist will let you see what others are charging for similar sized properties.
If you want more information, email one of the landlords on craigslist. Ask them how long the place has been vacant and if they’ve had to reduce the rent. If the landlord says they get a lot of calls on the property, there is probably a lot of demand in the area. If the landlord isn’t getting a lot of calls, there likely isn’t many renters wanting to move in over there. This doesn’t take much time, but will still give you a great snapshot of the area and what to expect for yourself
2. You Can Confirm The Condition Of The Property
In the past, you had no idea what a property looked like unless you travelled to see it. Who wants to travel thousands of miles to see the condition of a house? With today’s modern smart phone, you don’t have to.
I have my agents, wholesalers, property managers, and contractors all send me videos of the interiors and exteriors of property I’m interested in. If a contractor tells me the cabinets need to be replaced, or there is rotting in the siding, I have them send me videos and pictures to prove it.
It’s difficult to photoshop a video, and oftentimes would be more trouble than it’s worth for anyone to do so. If you want to make sure the work you’re being charged for is necessary, ask for videos or pictures to verify it!
3. Yelp Reviews
Yelp and other sites like it are an easy and convenient way for customers to either gripe or rave about services they’ve been provided. This makes it very simple to check out the reputation of the professional you’re considering hiring.
Want to see if your contractor, agent, or lender has scammed anyone before? Want to check out the reputation of the wholesaler or title company? A quick yelp search can tell you a lot.
While it’s not a formal background check, the odds of catching a dirty business person before they swindle you are much higher if you check sites like yelp out first.
4. You Can Find Out About The Agent You’re Using
While Zillow is terrible for getting an accurate value of your home, it is pretty good for a few other things. Finding out more information about real estate agents is one of them.
By searching Zillow for agents in your area, you can find top producing realtors much more likely to find you homes than casual or part time agents without as much experience. I always look for top producing agents, or agents with teams, when it comes to helping me find deals.
If you already have an agent in mind, Zillow helps you do a little research on that agent. Did they tell you they average about a deal a month? Zillow will tell you how many deals they’ve done in the last 12 months. Very easy to verify. If you don’t believe me, search me on there and see how my profile looks.
Zillow provides other useful information like reviews of past clients, as well as the specific properties the agent has closed on. If the agent tells you they focus on fixer upper properties, but all their past sales look like move in ready, turn-key homes, you may need to start looking for a new agent.
5. You Can See Pictures Without Having To Ask For Them
Want to see pictures of what a property looks like but don’t want to bother having to speak to a human about it? (Come on millenials, you know you want this). Or maybe you’re just introverted and don’t like human interaction as much until it’s absolutely necessary? Online listing portals let you see what a property looks like with a simple internet search.
Now keep in mind, pictures are taken to highlight the best aspects of property. As investors, we are looking for the worst. Keep this in mind and don’t use online pictures as your end-all, be-all when it comes to due diligence.
If you want a quick and easy way to check out a potential property, listing portals make it really easy to get a decent idea of what you’re getting yourself into.
6. You Can Find Comps Yourself Online
Realtor, Trulia, and Zillow are all listing portals that allow you to search past sales and get a decent idea what homes cost in the area you’re looking in. While I would never use them to determine my final ARV, they do provide me with a GREAT range of home prices in the area so I can get a better idea.
If you want to find an accurate ARV, my advice is to rely on the advice of an expert like an agent, property manager, or appraiser in the area. Online listing portals aren’t a substitute for that, but they are a good alternative to make sure it’s even worth investing your time into looking closer at a potential deal.
7. Biggerpockets.com
Biggerpockets.com is the undisputed king of real estate investing education. BiggerPockets allows you to network with other investors, ask more about an area, find specialists to help you with your goals, and provides you with a forum to ask as many questions as you’d like, all for free.
Want to ask a question of other investors? Go to the forum and post your question. You’ll likely find an answer within minutes.
Looking for a reputable and investor friendly agent to help you? Check out their premium service that connects members with agents to help them find deals.
Want help running the numbers on a rental property? They have free limited access to analysis software that will quickly help you determine ROI, cash flow, and future rents.
Interested in free information via podcasts, online articles, e-books, etc? It’s all there. Biggerpockets is a great resource to help eliminate the ignorance associated with risky real estate investing.
For years, investors had no way to meet investors outside of their area unless they became an expert in the yellow pages or flew to a new areas to find a meet up group. This isn’t the case any longer! You can now meet other investors and learn at an elevated trajectory-all thanks to our buddy, the internet.
There you go! Seven reasons why out of state investing isn’t as scary as you may have thought. The game has changed. Real estate investing is now more accessible than ever to more people than ever! If you’re having trouble finding deals in your market, you might just be looking in the wrong place!