Have you ever considered buying rental real estate that is not local to you, maybe only seeing pictures, or in a city you’ve never been to?
I had at one time bought 2 houses in the Austin, TX area. At the time I was very inexperienced and didn’t have a lot of the processes around this worked out. The two houses that I had bought in TX were both bought without a lot of planning behind them, both were new construction, and at the time while prices were nearing the peak in the of the housing bubble, we hadn’t given any thought to management, vacancy, or maintenance. Both of these housed never did well, one barely broke even, while the other lost money each month, because shortly after buying them, rents and housing values dropped. It was rough but we finally were able to get rid of these, I lost a lot on them, but was happy to finally be rid of them.
A few years ago, I had the opportunity again purchase a rental property that was not local. I thought I don’t have the ability to be there very often, but this time I want to plan it out better, and put a process around it. Below is the process I use in purchasing out of area real estate.
Review the properties
I start by getting specific in what I am looking for. An example would be “I am looking for a 2-3 bedroom house that is priced between $40-70k and either needs no work, or minor repairs”
Once you have this, I begin looking at houses that are in MLS, that wholesalers send for me to review, craigs list, Zillow, etc. I review these looking over the pictures and reviewing what is stated about the property and note all of the ones that meet my criteria. I also run rough estimates of what my costs vs rent will be to weed out ones that just won’t be profitable. In the end I may have gone over a few hundred houses, but will have around 10-15 houses on my list.
I’ll take my list and fly or drive to the city. I will spend a day driving the areas these houses are in looking at the following:
- I’ll drive the neighborhood to see if it looks safe
enough that I would feel comfortable going there if I had to.
- A safe neighborhood also will help in finding and keeping tenants.
- Do the other houses in the neighborhood look well maintained and is the neighborhood free of trash and litter. I also want to see that there is not an abundance of board up houses.
- I look at who is out on the streets.
- Kids playing = good
- Working age adults looking like they have nothing to do = bad
- Finally, I look at the house (I don’t schedule a
realtor I just look from outside).
- Is it in the condition it looks like from the pictures I saw
- Does the exterior look well maintained?
- Does the roof line look strait and the roofing look like it is in good condition?
- If there is an AC unit, does it look like it is in good condition.
- Does the yard look kept up, or look like the house has been abandoned.
- If I can see in a window, I look to see if the interior looks ok too.
Make an offer
After my trip to the area, I will typically only have 0 – 2 houses that met my criteria. Assuming there is one left. This is where I would make an offer, contingent upon an inspection. If the offer is accepted, I will fly/drive to the city again to meet with the inspector and actually go into the house. I will walk the house with the inspector, and note any items that are either safety related, or that could be issues that would be very costly to resolve.
The results of the inspection will determine if I need to back out of the deal or can move forward. In the event of a larger item, one criteria is, can it be resolved within a month. If so, I may either ask for a credit or to have the issue resolved prior to closing. If it is not resolvable, may take multiple months to investigate and repair, or has the potential to turn into multiple high cost items, I’ll back out.
Close on deal
I don’t always, but will try to travel 1 more time for the closing. This gives me an opportunity to drop by my property managers office with the keys, and go over the items I need resolved before placing a tenant. If I do a remote closing, I will send the keys and details through ups or fedex.
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