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April 5, 2013Written By Paula Pant

Want to Buy a Rental Property? Read This First.

Do you want to buy a rental property out of state? It's not a bad idea as long as you do the research yourself. Here's the process you should follow.

Buying, Fixing Real Estate

Want answers to some real estate questions? Here’s the latest edition of Readers Ask.

One reader asks:

I have a long list of repairs and upgrades which my house needs, and I would like to find an impartial source for ballpark price estimates. What do you recommend?

Those estimates will vary, depending on what part of the country you live in. Labor rates and materials cost different amounts in different regions.

Furthermore, the costs will vary depending on the scope of work, complexity of the job and the seriousness of the existing damage. Installing large tiles on a non-level flooring surface, for instance, will cost much more than installing tile on a level floor.

You can check a website like Angie’s List for recommendations, but honestly, I would collect three or four quotes from each subcontractor. That should give you a good, representative sample of how much labor and materials for each project cost in your specific area.

Another reader asks:

What do you think about buying from a company that sells houses to investors? (Then he linked to a wholesaling website)

Here’s my take: there are plenty of people who will flip houses to other investors. They’re called wholesalers, and like with any other industry, you’ll find honest wholesalers as well as shady wholesalers. However, if you’re not familiar with the area/city, or if you’re new to real estate investing, you may be at a higher risk for falling victim to shady wholesalers.

Plus, the stakes are higher. Fall victim to a shady dry-cleaner or tailor, and at worst you’ve lost the cost of your jacket. Fall victim to a shady wholesaler, and you’ve lost tens of thousands.

That said, I think investing in a different state is a great option for people who live in expensive areas where not many houses meet the One Percent Rule.

If I were you, I’d take a trip to Atlanta or Memphis (or whatever city you were thinking about investing in). You can learn a lot by driving around, eating at local cafes, hanging out at coffee shops, and generally getting a “feel” for the area. You can also meet local property managers.

Beyond that, I’d get an inspector to check out the house before you buy it. This costs about $300 to $500 and it’s worth every dime. You don’t want to be blindsided. I’d also get an appraisal done, another $300 to $500 expense that can reduce the risk that you’re overpaying for a property.

Don’t believe the numbers that the seller gives you. If the seller says that he paid $2,000 last year in utilities, don’t just take his word for it — demand to see the bills. If the seller says the taxes on the house are $5,400 a year, demand to see the tax records.

And never, ever, EVER trust the seller’s “cap rate” or “cash-on-cash return” numbers. Many sellers inflate those numbers by pretending that the home has 100 percent occupancy and free property management. Do the math yourself.

If you have a good team in place (property manager, inspector, appraiser, contractor), you can be a successful out-of-town investor. Just don’t believe everything the seller says. Trust, but verify.

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Posted in: Real EstateTagged in: Buying Real Estate, Fixing Real Estate

11 Comments
Leave a Comment
  1. Mrs. Pop @ Planting Our Pennies

    # April 5, 2013 at 8:11 pm

    We like Angie’s List a lot and reputable companies will come out of check things out before writing out a formal estimate.

    Reply ↓
  2. Neil

    # April 6, 2013 at 12:46 pm

    Excellent post (as always)

    I exclusively buy property remotely as I haven’t seen the deals in my local area until I want to manage the remodel (which I don’t have time for as I am not leaving my day job any time soon).

    The most important pieces of being a remote landlord is having a good team – more important than a specific property. If you don’t trust the property manager and the contractor, do not go with them. I have found the process to be slow and frustrating at times, but ultimately rewarding.

    I travel to the market, check out their work (started, in progress, and completed), do interviews with the providers and get recommendations from fellow investors.

    Oh, and *always* run the numbers yourself. Many turnkey companies do not include many common expenses in their Cash on Cash return calculations.

    Neil

    Reply ↓
  3. Kyle

    # April 6, 2013 at 5:28 pm

    Where do you find leads for the homes you look at? Do you just troll the MLS websites, have wholesaler connections, a trusted RE agent, etc? Any specifics?

    Reply ↓
    • Afford Anything

      # April 11, 2013 at 11:29 am

      @Kyle – Because I’m an avid real estate buyer (I guess “avid” is relative, but I try to buy at least one house per year), I decided it was worth my time to get an RE agent’s license. It’ll more than pay for itself after my first commission, and every commission after that will be gravy. Plus, more importantly, it allows me to directly search the FMLS and directly speak with other agents, rather than having to rely on a third-party. That means I can move more quickly when I spot deals.

      Reply ↓
      • krystina

        # October 22, 2015 at 12:16 pm

        Hello! I am thinking about getting my RE license for the same reasons. Im holding back because I’d have t work under a broker for two years and I just don’t know where I’d find the time with my current full time job. Did you have to do that?

        Reply ↓
        • Paula Pant

          # October 24, 2015 at 10:47 pm

          @Krystina — You need to hang your license under a brokerage, but that’s not the same as working for a broker. That just means that you’re affiliated with a broker, who gets a cut of your commission. That’s all.

          Reply ↓
  4. Jesse

    # April 8, 2013 at 2:52 am

    yes interesting

    Reply ↓
  5. Little House

    # April 9, 2013 at 9:51 am

    I like the idea of purchasing a rental house outside of California, maybe Arizona or somewhere much cheaper. However, I’m also worried about managing the house since I live out of state. Do you use a rental manager for some of your rentals?

    Reply ↓
  6. Pin Snarker

    # April 11, 2013 at 4:57 pm

    I just got caught up on my Afford Anything reading… Having six new articles to read at once really made me appreciate how freakin’ much I love your blog. It is so well written and the information is genuinely helpful. You help me remember to stay on track financially and to keep my eye on the prize. Keep up the great work, and thanks!

    Reply ↓
  7. Tatiana

    # February 8, 2017 at 12:17 pm

    Hi, I really like you blog. I have read some of the articles and they are great. I understand there are a lot of factors to take into account before buying a rental property. But, I would like to know if you have written anything related with which states or cities that, form your experience, you think offer more options of finding good rental properties.

    Reply ↓
  8. Sam Li

    # March 28, 2019 at 2:33 pm

    I love what you said about checking out websites. I think that hiring a real estate agent is best. I want to buy property in the future.

    Reply ↓

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