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Five Strategies for Successful Long-Distance Real Estate Investing
By Holly Daigle
Like many people, I got into real estate because my husband and I realized that if we wanted a different financial picture, we needed to make a dramatic change. Having both of us work fulltime jobs wasn't going to help us reach our goals.
My background is in engineering, but I had taken time off to stay home with our children. Being interested in real estate, I started taking Robert Allen's workshops - seven in all! - starting in 2004.
Depending on the class topic, these workshops were held at various locations across the U.S. For example, the foreclosures workshop was held in Detroit because at the time, it was the hottest area for foreclosures; the emerging markets workshop was held in Florida for the same reason.
* Next 37 17 investors only!
Because these workshops were held in different locations, I had the opportunity to do specific types of deals, and these experiences rapidly raised my comfort level. Using the techniques I had learned, and after making many offers, I ended up purchasing my first out-of-state property in Las Vegas, Nevada (which I still own).
Since then I've gone on to close many deals - both single and multi-families - all of which are out-of-state. In fact, the only property I own locally is the house that my husband and I live in. It also means I've learned a few things about out-of-state real estate investing. What follows are my strategies for successfully navigating this potentially complex yet ultimately rewarding path.
1. Trust your instincts.
When you invest out-of-state, you tend to use people others have recommended, whether it's a real estate attorney or a potential partner. However, someone can come highly recommended and with excellent references, but still set off your alarm bells.
If something seems "off" when you meet someone or you feel uncomfortable, trust your instincts. I learned this the hard way. A highly recommended property manager came my way, but ended up being a terrible person to do business with. It's not an experience I want to repeat. Had I followed my instincts, I could have avoided an unsavory experience.
2. Build foolproof logistical processes for keeping track of everything.
Paperwork and communicating are two of the biggest challenges associated with long-distance investing. Each state has its own real estate rules and regulations. It's imperative that you have legal counsel review all contracts - yet it can be a logistical nightmare to keep everyone in the loop if you don't have your processes down pat.
If you're rehabbing a property locally, you can simply drive to the site to meet with your contractor should something unexpectedly pop up (i.e. he found termites), or you can visit regularly to ensure work is being completed to your satisfaction.
You can't do this when your property is 2,500 miles away, which is why it's important that you communicate with your contractor constantly. It's also why I recommend you have an independent person - someone you trust - to come in and check on things on a regular basis.
Which brings me to my third tip . . .
3. Build a network.
By virtue of attending the Robert Allen workshops, I met a lot of people, many of who have become good friends and who are now part of my network. A few of these people also look at properties for me before I enter into a deal. I'll sign a Purchase and Sale Agreement based on a partner's recommendation, but I won't close until I've actually seen the property.
In addition, you'll need a team of experts for each state in which you own property. Currently, I own property in four states, which means I have a real estate broker, real estate lawyer, mortgage professionals, title companies, property managers, etc. for each state. (This is why it's very important you develop your processes - it can get really hairy sometimes trying to keep track of who's who.)
You can find many people to fill out your team via real estate investment associations (REIAs). I've attended a couple of REIA meetings in other states, but you can also call their offices and have someone help you find what you're looking for. Go to www.nationalreia.com to find REIAs across the U.S.
Another great resource, which I highly recommend, is Financial Destination. Headquartered in Derry, NH, they have systems in place that help thousands of investors across the U.S. by providing financial advice, education about real estate, and increasing one's cash flow. They also have the ability to plug into a national legal team that is well-versed in real estate. I've used them quite a bit and find them an incredible resource.
4. Look at properties and markets in a different way.
When you invest out-of-state, you have the opportunity to go after emerging markets that you wouldn't otherwise know about. For example, my husband and I were vacationing in St. Petersburg, Florida the year I started investing. We've always vacationed in St. Petersburg, but because I now had an investor's perspective, I started looking around at the St. Petersburg area and discovered a number of small bedroom communities south of Tampa. I ran the numbers and realized we could buy a property and generate positive cash flow. So we did.
Ditto for Detroit. At first glance, it seems Detroit would be the last place to invest with the market being down and the roiling changes in the automotive industry. However, the downtown area is revitalizing, the local government is rebuilding infrastructure, and people still need a place to live, which is why the rental market is very strong. You can easily pick up a nice four-family for $100K (try that in the Massachusetts market!).
I recently bought an ugly house for $10K (no, that is not a typo) on a beautiful street in Detroit and completely rehabbed it. If I sell it, I can make $30K, but right now I'm renting it for $900 a month.
5. Do your homework.
As with any real estate venture, you must perform due diligence, but it's even more important when you invest out-of-state. One of my rules is that I have to walk the streets where I'm considering a property. If I don't feel comfortable sleeping in the neighborhood, I don't buy there.
You also have to ensure your numbers work. One of the biggest pitfalls in real estate investing is forcing the numbers to work.
And finally, don't buy a property sight unseen. Because scheduling travel can sometimes be difficult, I'll ask that the inspection period be extended to 21 or 30 days.
Long-distance investing can be fun, challenging, and above all, profitable. Just as you would with local investments, develop your processes for keeping track of everything, build up your network of people you trust absolutely, and begin to look at other markets with a new perspective. You'll find that you'll generate positive cash flow with fewer investing dollars.
Holly Daigle is a full-time long-distance real estate investor. She can be reached at 978-457-3221 or by email at holly@sonjam.com.
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