Long-Distance Real Estate Investing

How to Buy, Rehab, and Manage Out-of-State Rental Properties

David M Greene

• Publisher: BiggerPockets
• Year: 2017
• eBook ISBN: 9780997584769
• Topic: Business
• Subtopic: Real Estate
• Index: Business

Live where you want, and invest anywhere it makes sense.

"It is a common misperception in real estate investing that you should buy only where you live. David Greene has put that myth to rest…This is a must-read for investors who want to expand their real estate empire nationwide."
— David Osborn, bestselling author of Wealth Can't Wait

Are you interested in real estate, but you live in a hot market that is not suited for buy and hold investing? Do you want to take advantage of wealth-building opportunities, but that seems impossible until the next market crash?

Real estate investing is one of the greatest vehicles to build wealth, but it doesn't make sense in every market. Some locations provide incredible returns, while others make it almost impossible to find a single property that profits. Traditionally, investing out of state has been considered risky and unwise.

But the rules, technology, and markets have changed: No longer are you forced to invest only in your backyard! In this book, real estate investor and police officer David Greene shows you exactly how he's built a multi-million dollar portfolio through buying, managing, and flipping out-of-state properties, often without ever even seeing the properties in person. David shares every tip, trick, and system he has put in place for over twenty rental properties, so you can avoid making mistakes and shorten your learning curve.

Don't let your location dictate your financial freedom. Get the inside scoop to invest—and succeed—anywhere!

Inside, you will learn:

• How to assemble an all-star team to handle each aspect of a deal from A-Z
• How to find great deals in any state, regardless of where you live
• How to rehab a project from thousands of miles away without worry or complication
• How to speak the language of the agents, contractors, lenders, and property managers you will use
• How to quickly and easily know which neighborhoods to buy, and which to pass in
• How to choose the best materials for your rehab projects and pay the least amount of money
• And much more!

CHAPTER 1

WHY INVEST OUT OF STATE?

Ninety percent of millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.

—ANDREW CARNEGIE

In 1848, Andrew Carnegie immigrated to the United States. As the son of very poor parents, he became one of the first American rags-to-riches stories. Carnegie got his start working in a cotton mill for $1.20 a week and went on to work for a telegraph office and later moved on to the Pennsylvania Railroad.

Smart and hardworking, he began investing in a variety of industries including coal, iron, oil, railroad companies, and a telegraph firm (industries he was familiar with from his past employment). By his early thirties, Carnegie had amassed his first small fortune. This capital was later used to form the Carnegie Steel Company, one of the most dominant businesses the world had ever seen at that time.

Carnegie ran the company successfully until he eventually sold it to a banker for $480 million, making him one of the world’s richest men of his time. It allowed him to become the father of philanthropy. He penned “The Gospel of Wealth” and spent the rest of his life giving away the better part of his fortune while living a life many of us aspire to emulate.

It is safe to say Andrew Carnegie dominated the competition in his time. To go from a dirt-poor immigrant to one of the world’s richest men is no small feat, and yet with all his experience, success, knowledge, and business brilliance, Carnegie encouraged those who desired to grow their wealth to invest in real estate.

Powerful stuff, right? It’s tough to ignore the advice of a man who had seen so much, won so often, and grown to be so large. His quote above saying that more money has been made in real estate than through all industrial investments combined is powerful, and it speaks to the unique ways real estate works to grow wealth. I am one of those examples. Much like Carnegie, my family also emigrated from Scotland, and I worked in several different vocations before I began investing my wages. Like Carnegie, I have invested the profits from my endeavors in real estate for seven years. And I’ve got to say, it’s been one of the very best decisions I have made in my life.

I’m not very big on reinventing the wheel, and I’ve never been the most creative guy. My skill set is much less exciting, but I am good at being taught how to do something, mastering it, and then finding a more efficient way to do it. Some might call it laziness, but others will say it is industriousness. However you define the motive, the fact remains that I don’t like wasting time, money, or effort. You shouldn’t either.

How did I get here? I took what I learned and applied it to each job I had, from being a sandwich maker at Togo’s, a waiter at steakhouses, a police officer on the streets, and now a real estate agent in California. Part of this process has always been asking, “Why?” Why does everyone do it that way? Why is that the best? The “why” behind the “what” has always fascinated me. If you can understand the “why,” the underlying mechanics behind the result, you can find ways to improve your results.

What I’ve found through every profession, game, challenge, or undertaking is the longer you consistently seek to understand the process, not just the result, the better you will be at understanding patterns that emerge. If you study it long enough and commit to understanding its inner workings, you will start to see these patterns for yourself, and then you can begin to anticipate them and their actions. From there, you can make adjustments to capitalize on these patterns.

We see this phenomena in sports most clearly as rookie mistakes. What we are really referring to is someone’s lack of experience causing them to misread or overlook a pattern a more experienced player would have seen, like a quarterback who throws an interception because the safety baited him into believing he was headed in a different direction or the basketball player who gets caught up and chooses to shoot the ball instead of passing it to a wide-open teammate.

Yet for some reason, we don’t afford this same process to ourselves as new real estate investors. We expect ourselves to be perfect, to perform as the experienced ones do. When we don’t, we quit and assume we just weren’t cut out for this. Can you imagine how catastrophic this would be if professional athletes did the same? Peyton Manning would have realized he just threw too many interceptions to be a good quarterback and would never have broken the records he did.

Great players play long enough to allow their brains to start sensing patterns emerging more quickly to anticipate changes and beat the opposition. If you want to be a great investor, you have to go through this same process. You have to make mistakes and commit yourself to a learning process. If you understand the inner workings that make the whole thing tick, that will lead to you gaining the confidence to apply your skills anywhere.

A huge problem for many investors is that their mind is trained to look for reasons not to do something, especially with out-of-state investing. They see it as unsafe, unstable, and dangerous, so they don’t look much deeper and miss out on all the opportunities it brings to build wealth faster and more efficiently than traditional models.

I am going to discuss the objections, address the valid concerns, answer all the tough questions, and put the outdated and misguided assumptions about out-of-state investing to rest. I’m here to tell you that you can invest out of state in a way that is almost identical to how you invest in your own backyard.

If you are reading this book, it is safe to assume that one of your goals is growing wealth through real estate. As Carnegie said, real estate has created millionaires more than any other profession. You don’t have to be a genius or a wealthy hedge fund manager to recognize that real estate is manageable, controllable, and follows patterns. Real estate comes in many shapes and sizes, which can work for anybody.

It’s not reinventing the wheel but more so making sure to invest where it makes sense for you and your personal situation, not where it’s convenient, close, or comfortable. Wealth isn’t going to fall in your lap. You have to go build it. If you’re going to do that, you need to know where to find it.

Maybe you’re at the top of your market. Maybe prices are too high to find rental property. You want to know how to use real estate to grow your wealth when buying in areas that may not be close to you. For years, this has been considered foolish. They have been warned not to set sail for the far end of the sea, for surely they would fall off the other side when they reached the end. The key is, some of us have learned the world isn’t flat.

It is wise to listen to the advice of men and women who have gone before you. I also believe we can easily fool ourselves into taking advice from someone who sounds smart but who has no firsthand experience. Don’t continue to believe something just because others say it may be so. Don’t continue to operate under assumptions that haven’t been tested, the “why” behind the “what” that explains how things work.

Let’s take a second to explore how out-of-state investing came to be known as risky, why at one time this made perfect sense, and how the world has changed to make this no longer the case.

DON’T TRUST YOUR GUT

Curiosity will conquer fear even more than bravery will.

—JAMES STEPHENS

When I tell people I invest out of state, it almost always elicits a strong reaction. People sit forward in their chairs, adjust their body position, and typically give me their full attention. They want to know how I manage all the tasks that are part of real estate investing. Do I fly out and look at each house? How do I find the contractors? How do I make sure they don’t run off with my money? Do I use property management? If I turn the question back on them and ask why they wouldn’t try out-of-state real estate investing, I’m typically met with a shoulder shrug followed by the response “I don’t know, man. I just couldn’t buy a house I’ve never seen.”

Everyone says it, but very few of them really know why. Instead, it has just become a mindlessly accepted belief that you need to see a house before you buy it.

The whole thing just feels natural, doesn’t it? You have to walk the halls, get a feel for the layout. You want to be excited and feel good about a purchase this big, right? How can you know what you’re buying if you don’t go look at it? It’s just common sense to think that the risk gets bigger the farther away it is from you. The problem is, when I ask people why they believe that, or what they are basing this belief on, they usually can’t come up with many objective facts to back it up.

The reality is, people feel uncomfortable buying a property they can’t see in an area they don’t live in, and fear has a lot to do with it. The thing is, you aren’t buying a home; you are buying a small business—an investment. There aren’t many reasons to feel so afraid if you’re looking at things from an investor’s perspective. Investors focus on numbers; consumers focus on feelings. Going beyond our gut feelings as real estate investors forces us to get serious about our guidelines.

If you want to get into real estate investing and think your feelings will be a good financial barometer, you are making a rookie mistake. It can be scary, but decisions that once terrified me are now on autopilot. It takes a different level of thinking.

When D.A.R.E., a program with police departments to keep kids off drugs, was popular when I was a student, officers would go to elementary schools and talk to kids about the dangers of drugs and alcohol. One of the more common things they would show us was how hard it is to trust your motor skills when impaired by alcohol. The officers would place a pair of “drunk goggles” on students and then ask them to walk in a straight line. The goggles were designed to filter the image coming through them in a way that confused the students’ brains, much as alcohol would. We all laughed hysterically as student after student tried to walk in a straight line wearing the goggles but were unable to, despite their intense focus and effort.

When it came to my turn, I was able to walk the entire line straight from beginning to end without much difficulty because I thought about the solution at a different level. My peers and teachers were amazed and all thought I had some kind of superpower. The officer, however, just smirked and chuckled. He knew exactly what I had done to defeat the system and appear sober. All I had to do was close my eyes. The act of closing my eyes removed the stimulus that would have confused my brain and caused the senses I normally relied on to go haywire. By relying instead on my natural sense of balance controlled by the inner ear, not my eyes, I was able to appear unaffected. Simple, right?

Real estate investing should work this same way. Your emotions are the goggles, and your sense of balance is the numbers you use to evaluate properties. By learning to tune emotions out, you too can walk freely and easily in the world of real estate investing while those around you stumble and fall. It is the act of relying on a different set of parameters than those you are used to that will bring success in this business. It takes the act of faith of closing your eyes and blocking out the senses you have used to make decisions your whole life to reward you with the wealth you seek. If you are relying on the wrong advice, or the wrong senses, you can stumble and fall, setting you back years and erasing hundreds of hours of time and money. Don’t fall because you’re afraid to close your eyes.

Akira Mori, a wealthy Japanese real estate developer worth approximately $5 billion, has said, “In my experience, in the real estate business, past success stories are generally not applicable to new situations. We must continually reinvent ourselves, responding to changing times with innovative new business models.”

The fact is, if simply doing things the same way they have always been done is all it takes to succeed, the same people would be the only ones succeeding. What makes business exciting are the new doors that are opened for those who anticipate changes to the market and get there first. This levels the playing field and lets the new guy have a chance to compete with those who have traditionally dominated the market.

DISRUPT THE NORM

For a long time, investing out of state was incredibly difficult to do. Before the Internet, real estate was run so differently. Real estate brokers wielded intense power because they were the sole gatekeepers to the information. If you wanted to know what was for sale, you had to go to a broker. If you wanted to know the price, pictures, or details of the listing, you needed to ask a broker. If that broker wanted you to buy one of his or her listings first, that’s what you were shown. There was no way for people to know what was available to them because the information just wasn’t available, and you had to trust the broker. Because brokers controlled the cards, they could very easily mislead clients.

When you asked whether a home was priced fairly, it was very difficult to determine unless you had intimate experience and knowledge of that market. You just had public records kept at the tax assessor’s office you would have to go request in person and then read on your own! If you wanted to know what the school rating was like in a neighborhood, you had to actually know someone aware of the reputation of the school district.

The same was true for crime stats. If you were looking at a home in a new neighborhood you were unfamiliar with, how would you determine whether it was safe? Would your tenants want to live there? Would your tenants themselves likely be criminals? With no online crime stats to look up, you were more likely to be relying on the information provided to you by your real estate agent or broker.

When people don’t have information, they rely on trust. When people rely solely on trust, the odds of being taken advantage of increase exponentially. Unfortunate situations like this led to out-of-state investors being easy targets and getting a bad name.

The whole thing was ripe with opportunity for fraud, and that’s exactly what happened. Imagine people buying houses over fair market value because Wisconsi...

Table of contents

• Cover Page
• Title Page
• Copyright
• Dedication
• Contents
• Chapter 1: Why Invest Out of State?
• Chapter 2: The Power of the Internet
• Chapter 3: Rules and Relationships
• Chapter 4: The First Members of Your Team
• Chapter 5: The Rest of Your Team
• Chapter 6: Understanding Your Market
• Chapter 7: Working with the Market
• Chapter 8: Managing Out-of-State Properties
• Chapter 9: Finding Materials
• Chapter 10: Maximize ROI
• Chapter 11: Tricks to Find More Deals Out of State
• Chapter 12: The Long-Distance Investor