Use them. Sometimes (and by sometimes, I mean usually) it’s better to take a modest return on your money over the sexy return that never works out. Your property manager is a great way to accomplish this. While the tenant may not own the home, there are certain cultural environments where it’s socially unacceptable to let your house get trashed. This can really speed up the rate at which you pay off the loan. … Each contractor should get the list and instructions to please fill out a price for each of the items on it. Location, location, location! The pictures will be top quality and highly detailed. When the world is your oyster, how will you choose where to invest? When you’re buying in rough markets, housing inventory tends to be older. While some areas are specifically suited only to a certain investing model, others can work for several. The key, however, is in establishing connections with individuals whom you can absolutely trust. Copyright © 2021 FortuneBuilders, Inc. All Rights Reserved. This is like flipping a loan. Once he or she has said no, I include in the contract (which conveniently is now just your itemized list of the scope of work—score!) That being said, there are usually signs an economy shows before it collapses. Although not absolutely necessary, partnering up with a local realtor can be great for your long distance business. A nicely tiled shower will really make a difference to your buyer or tenant, and if you already had to rip out the shower, it won’t cost you much more to use the upgraded materials. These accounts offer them a discount as high as 10 percent sometimes. The first and biggest metric a lender will look at is your debt-to-income (DTI) ratio. Once you’ve done a little research to compile a list of the top-producing agents in your area of interest, you want to do a quick Google search of the agents’ names for their websites. I don’t care as long as the rent covers my expenses. I then let the agent know that for anything he or she brings me that I flip, I will let him or her list the sale. How to find long distance real estate deals. Another app I love is a voice recording app called Rev. What’s interesting is that by the year 2015, almost every one of those same properties was worth more than it was in 2005. They will be heavily advertised through multiple media. (Half of first month’s rent for new tenants, advertising fees, yearly walk-through fees, callout fees, and so on.). If your contractor won’t send you pictures or videos, there is something fishy going on. When it comes to a rehab, there are two things that tend to go wrong: (1) The cost of the rehab goes up, and (2) the time of the rehab runs too long. Now, we are not explicitly saying long-distance … If you’re just starting out, don’t tackle a 2 percenter unless you have help from someone else who has had success—things can get out of hand very fast. Long distance real estate investing is investing in homes that aren’t in your local area, sometimes even invest in homes unseen. On my last project, the plumber charged me $60 to run the pipes over the shower because we had already ripped it out. The lender will look at the income you are bringing in every month and ensure this income is consistent. If you want to save even more money, ask your contractors whether they have an account at the store you’re buying your materials from. Knowing what kinds of jobs are moving into your area helps you determine what types of tenants are too. SUPERCHARGING YOUR EQUITY GROWTH, THE EASY WAY. In addition to using the Internet to help you determine what a property will cost to own, use it to calculate rent. While video can give you more of a bird’s-eye view, pictures allow you to really get an up-close and intimate view of the work itself. Outside fixtures such as birdbaths or other water features, Rock, stone, or brick decorations on accent walls, A large storage area added onto the square footage of the house attached to the laundry room, A den in a home with sufficient space to put a computer or work desk elsewhere, A playroom that is large enough to split in half to create a bedroom and still have half the playroom, A family room/living room/great room combination with multilevel flooring, An unused California room (an indoor-outdoor living space), The third-car space in a three-car tandem garage, A large sitting room near an older home’s front entrance. Interested in Learning How to Invest in Real Estate? After painting them, buy new fixtures for the doors. In essence, you’re just deferring paying these capital gains taxes. Some states have much, much friendlier landlord laws than others do. This starts to add up when doing $10,000 to $13,000 renovation projects. Though many investors really like this rule, I am not a fan because it’s too general. Remember to remind your contractor that you’ll need a closet made and a window possibly added, as well as wall, and a door frame and a door installed. The easiest method is to ask for photos and video. This grows your equity, and therefore your wealth, faster. Whenever I’m considering choosing a new property manager, I always ask whether he or she is willing to make electronic deposits into my checking account. If the home in question is worth $150,000, and the homeowner owes $100,000 on the mortgage, you can offer to buy the place for $105,000. When you think about it, there are very few people who are more qualified to give you a great design idea than a good contractor. Be sure to ask your agent about the biggest housing expenses in the area you are investing in. Long distance real estate investing can be very lucrative. Once you’ve got an entire portfolio of properties, you will want to make sure that the LTV ratio is at a healthy level. 7 Practical Reasons Long-Distance Real Estate Investing is a Charm. Some banks want to hold the loan long term and continue to collect the payments from you. I also want to ask them how they collect rent, how they enforce late fees, what systems they have in place to make things efficient, and how long they have worked for their current company. They can help you scout deals, negotiate deals, take photographs and even oversee construction projects. Furthermore, I include that if the job goes over the allotted eight weeks, there will be a 5 percent reduction in the overall cost taken from the last draw. A perfect way to pick an area out of state to start investing in, is to look for ways to create a competitive advantage for yourself in areas you have existing knowledge of. While number of sales is definitely not the most important factor to consider when looking for an agent, it is usually a great indicator that the agent works well with others. My real intent of these conversations is to build up my contractor subconsciously so he or she really wants to wow me. If property managers are willing to take on a war zone property, they are likely not doing very well financially and are desperate for business. If you need more convincing on why you should fork up some of your rental income in exchange for a good property manager, read up on the “Should I Hire A Property Manager?” debate. This is like owning a buy-and-hold property. On a thirty-year loan with a 5 percent interest rate and a balance of $250,000, you can expect to pay $233,139.46 in interest over the life of the loan if you make just the standard monthly payment with nothing going toward the principal. I don’t want to buy in a high-crime area. It also indicates the agent is less likely to waste your time and is more likely to have resources you will need later. Thank you! It is a hedge against unfavorable conditions and allows us to wait out the storm until it makes sense to sell. I recommend sending an e-mail to the agents on your list to reach out and make your initial introductions. Prepare those properties to be rented or sold by adding the most value for the least money When taking that into consideration, it’s crucial you have a competitive advantage in your business. This creates the opportunity for you to get taken advantage of. Much better bet is asking contractors for phone numbers of former clients. Don’t be afraid of a long distance … It allows you to record messages and label them to listen to later. Compare that with the $685 a month the property is making me now. Some of my very first mentors told me to always buy the smallest house on the block or the ugliest house in the best neighborhood. My favorite method is to call the store, ask for the kitchen specialist, and e-mail or text him or her the pictures. While it’s slightly complicated to explain, the gist of the system is that the lion’s share of the loan payment goes toward the interest in the beginning. A contractor who sees a potential problem and reacts with “What would you like me to do about it?” is not as attractive as one who says, “This popped up. When reaching out to different banks, credit unions, and mortgage brokers, you want to spell out very specifically what your situation is, what unique challenges you possess, and what kind of loan you are expecting. But what if the property has appreciated $100,000 since you bought it? Oops! The goal of a good buy-and-hold investor is to get a great house for a great price and collect small payments for a long time. Speak with all the contractors you are considering individually and ask where there is flexibility in their bids to reduce the price. Usually accompanied by some form of distress or a motivated seller, hot leads are worth much, much more than cold leads. This is a mixed neighborhood, where some of the properties are worth over $200,000 and others are worth $50,000. The goal of a good house flipper is to get in, get it sold, and get out. that if the work is done before eight weeks is up, I will include a small bonus to the contractor (typically 2–5 percent of the total job cost). By subtracting this $238.71 from the $500 you have left, you can quickly determine that the property will cash-flow around $261.29. One of the great things about owning real estate is that even if prices drop, it doesn’t hurt unless we sell. In most situations where you, as an investor, are rehabbing a property, these items will be overkill, and you should stop dead in your tracks if you find yourself wanting to include them, and seek outside counsel to ensure this is wise. Upgraded countertop materials like granite and quartz have become much cheaper over the years and in many areas are now downright affordable. If I’ve told them it will be a rental property that will rent for about $1,000, and they recommend crown molding, I know they are in over their head or are plain dishonest. This creates the appearance of massively high value but doesn’t cost you much money. However, there are some great market indicators that you can use to filter out any markets that might seem great at first, but might make for a bad investment decision. The concept is based on the premise that since you’re already going to be spending something, sometimes spending a little more can get you a big difference in quality. Are you tired of hearing this phrase yet? A low vacancy rate: Vacancy rates are a great way to get a quick pulse on a real estate market. If the job runs longer than a week over schedule, contractor will be assessed an additional 5 percent penalty. People do not sell their home under market value unless there is some compelling reason for them to do so. To use this rule of thumb, simply take the expected rent (in this case, $1,000), cut it in half ($500), and then subtract your mortgage payment. He is the author of two bestselling books—Long-Distance Real Estate Investing … Some areas are better known for having businesses that want to retain their employees. You then have 180 days to close on one or more of the identified properties. However, you’ll need to be extremely careful when selecting your partner. Putting in stainless steel upgrades will push me closer to that upper echelon of houses I want to be compared with when the rehab is completed and it’s time for the appraiser to come. If you find yourself with a competitive advantage in an area where rentals don’t make sense, don’t give up! You will drive yourself into the ground if you go through the steps of interviewing contractors for each job individually. The reason why it’s uttered so frequently is because it’s anything but superfluous — market location truly is the deciding factor for whether or not you’re making a sound investment. What I’m hoping to hear this property manager tell me is he or she would first ask the tenant to check the pilot light on the water heater in the garage. It is a common misperception in real estate investing that you should buy only where you live. Somebody attempted a rehab but did not finish, and the house is now being sold. Prices can go up, or they can go down. There are three factors that lead to buyers finding good deals. Owning a rental property doesn’t do you any good if people don’t want to rent it. While most people understand the popular acronym to stand for “research and development,” I have to give credit to my good friend Andrew for sharing his version with me—rip off and duplicate. I. by Eric Tyson and Robert S. Griswold Real Estate Investing FOR DUMmIES‰ 2ND EDITION The lower the LTV, the lower the rate, because it’s a lower risk for the bank. The Millionaire Real Estate Investor by Gary Keller. This means that for $1,900 to $4,000, I’m able to put granite countertops into a project instead of cheaper, uglier materials. If I have already explained to them what my goal for the property is (bare-bones rehab, HUD-approved tenant ready, all major issues repaired and the property brought up to modern-level expectations, and so on), they should be looking to do their analysis based on my needs, not on what will make them the most money or allow them to be done the fastest. However, if you take into account that I already needed to replace the appliances and my base rate was going to be $1,500, buying $1,800 worth of appliances suddenly becomes possible for only $300 more. HELOCs are low-interest lines of credit secured by the equity in your property. Just go to If you put $30,000 into a property and it’s bringing you back an ROI of 15 percent, you may be very pleased. The lower an LTV is, the safer the investment will be. REO: REO stands for “real estate owned.” This is property owned by a bank that has had a title transferred back to the bank when the owner stopped paying the mortgage. It hides bad smells, creates modern style, and makes an old home look new again. What is your average turnaround time for vacancies? While I’ll likely refer to the deal finder as an agent, please keep in mind it could be anyone (wholesaler, Realtor, probate attorney, turnkey provider, and so on). Do ask how they got started and what they like doing most in a project. A significant increase in the average number of days that available homes are sitting before going into escrow, Abnormal lending practices such as more adjustable rate mortgages, 80/10/10 loans, negative amortization loans, and interest-only payment periods, A noticeable pattern of companies leaving the area, Sellers’ having to offer significant concessions to buyers. If your contractor tells you he or she has a landscaping crew that works cheap and fast, you may want to consider asking how cheap that crew can landscape your backyard and what design options they have. The contractor won’t mind taking thirty seconds to show off his or her handiwork. Asking to have the materials delivered for free on a large order is likely to be accepted by the place you’re buying from and is a nice gesture to show your contractor you are looking out for him or her as well. Unless your local investing partner has great property management experience and is willing to serve in that capacity, hiring and working with a property manager (or more) for your long distance investments is absolutely critical. Another great perk to increased equity in your property is the ability to access the equity through a home equity line of credit (HELOC). Because the area that needs tile itself isn’t large, going for nice, expensive tiles won’t cost you a ton. In this book, Garry Keller is dedicated to impart … Actively investing in real estate, FortuneBuilders is uniquely built to provide investors with the right education and systems for success. You want to make sure you always have a significant amount of income rather than money going out. Something went wrong while submitting the form. So we broke down the steps it takes to successfully partake in long distance real estate investing. E-mail some of the people with homes listed for rent and ask them how long the properties have been vacant. You can’t buy just anything. The main questions I’ll want answers for are: I want to know how it will handle a maintenance request from a tenant. Although it sounds risky, it often makes for the most … Zillow provides us a list of the high-producing agents in the area with all the things I would want to see if I were looking for an agent there. One thing you do not want to do is upgrade your property so that it’s nicer than the surrounding homes. Two-tone paint schemes look more professional and noticeable. A solid employment level: A strong employment rate combined with burgeoning industries will demonstrate to you that the local economy is not only strong, but likely to improve. Normally, this would be true. If you want to get the most use out of your contractors, start by asking them what work they can do themselves and what work they have subcontractors for. Your local real estate investing partner, realtor and even contractor can all have hawk eyes to find great deals on your behalf. A nationally recognized authority on real estate, he is the co-host of the BiggerPockets Podcast and the author of two bestselling books— Long-Distance Real Estate Investing and Buy, Rehab, Rent, … #Realestateinvesting #longdistancerealestateinvesting #financialfreedomWelcome to the Dream Investment Adventure by Bigger Pockets & Mynd Management! BiggerPockets has also become the number one platform for networking with real estate investors and those catering to their needs. This is important to understand because every dollar that goes to the interest is a dollar lost. This is what separates real investors from those who just bought well during a recession—namely, the ability to buy an underperforming asset (the property) and make it a performing asset while simultaneously adding value through increased equity. I’ve learned to differentiate upgrades into two categories. Be a farmer, not a gardener. This app allows me to enter a mortgage amount, interest rate, and amortization and quickly see exactly what my mortgage will be. If the work runs past this deadline, contractor will be assessed a 5 percent penalty for the first week. In my experience, most investors don’t fully understand the impact a beautiful shower can have on a home buyer or a tenant. Without fail, you will need a contractor, from major projects to odds and ends types of jobs. Teaming up with a local real estate investor can save you a lot of time and effort. Making a payment every two weeks is the same as making one full month every twenty-eight days. GIVE YOUR CONTRACTOR INCENTIVE AND MAXIMIZE YOUR RESULTS. Attend a FREE real estate class to learn how to invest in rental properties, as well as strategies to maximize your cash flow and achieve financial freedom. 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