Today’s post was written for us by Rich from Rich on Money. Like Dr. Hartman who grew up to be a cardiologist, Rich was appropriately named at birth, possibly even unconsciously directed toward the path to wealth.
Today, Rich shares his thoughts on passive income generation through long distance real estate investing. If real estate interests you, this post gives some really stellar tips for success.
My name is Rich.
I love real estate.
I grew up in Southern California. I remember thinking about buying real estate as a kid. I was twelve years old. I thought if I could buy a house then, I would be able to sell it when I was eighteen and have enough money for a car! I was always fascinated by how fast real estate appreciated in certain places, especially near the beach.
Real estate is tricky for me. I’m in the military, which means I move every two to three years. Ten of the last sixteen years I’ve been overseas, including currently.
What kind of real estate investor moves every two to three years?
That will never work!
I’ve found a way to make it work for me. Over the past three years, I’ve purchased several buy-and-hold rental properties with cash. The income they provide has made me financially independent. Most of these purchases have been made from overseas.
Maybe some of my methods could be useful to you. I’ll summarize my advice in three main points:
- Fire people that suck
- Find the right management company
- Find the right real estate agent
1. If you are not getting the service you need, find someone better (fire people that suck)
I’m an introvert, the kind of person who wants to find ways to avoid tackling problems head on.
That doesn’t work.
Through experience I’ve found the key to dealing with poor service from anyone is being brutally honest about what you expect and then giving them a chance to fix it. End the business relationship if they don’t or can’t give you what you need.
With my first rental property in D.C., I went through two different management companies. In both cases, I clearly explained the problems I was seeing with their service and made it clear I would get rid of them if they didn’t shape up.
In one case, their bids on work were coming in way too high. I sent a handyman I hired independently over to check on the work they were doing. Turns out they were ripping me off, so I got rid of them.
Here’s another example. My first real estate agent in D.C. was awesome. I decided to use him again to buy a second investment property. He was so busy with the crazy seller’s market of 2005, he decided to send his new rookie agent in his place. I clearly explained that his expertise is what I wanted. He made some weak excuses and sent his new guy anyway. I fired him and found someone better.
2. A property management company is more than just management
If I had to pick the one thing you must do right if you are going to be successful with buy-and-hold real estate in a city you don’t live, it’s having the right management company. First I’ll talk about why they are so important, and then I’ll provide tips on finding the right company.
Location, location, location
In Alabama where I currently own real estate, I have an idea where to buy based on the advice of my investor-friendly real estate agent. I also lived there for nine months while attending a military school. On top of that, I network with other investors in the area.
But the MOST important part of buying a house in a good location is checking with your management company. I always give them the address of the house I’m considering buying. They tell me if they think it will rent well.
Sometimes they have rentals on the same street, even next door. I’ve found rentability varies widely not just by neighborhood, but by which street in that neighborhood. Go too far down a certain street, houses stop renting well. This can make a big difference in your bottom line. Nobody will know this better than a management company with enough houses and experience.
Before I buy a house, I get a professional inspection. This is helpful, but the most valuable information I get about the house comes from my management company.
They know what kind of problems to expect based on their experience with houses and renters over several years in that particular city.
The most important thing my management company does is actually inspect the house themselves, take pictures, and then call me to talk about what they think about repair costs and suitability for a rental. Sometimes they object to a house based on features they believe renters won’t like.
I’ve recently changed my mind three times on accepted offers based on their warnings. I consider that a blessing.
Your management company is your best referral source. If you want to meet other investors, they can introduce you to those they work with. If your real estate agent isn’t cutting it, they may have a better one for you. They know lots of outside contractors to refer you to. I’ve actually gotten leads on properties to buy from them.
Caveat: Everything I explained above will apply only if you have a great property management company.
So Rich! How do I find a great one?
Do some detective work.
First, get as many referrals as you can from multiple sources. Use the forums on BiggerPockets, find investors who advertise rentals on craigslist, ask real estate agents, contractors, and mortgage companies.
Once you have some candidates, start digging for info. Talk to the owners of the management company on Skype. This is more personal than a phone call.
Ask lots of questions about how their fee structure works, how evictions work, and how they charge for finding renters.
Ask how many properties they manage, how many they own themselves, how many investors they work with, and how long they’ve been in business. I like companies that own several properties themselves. Shows they’ve got skin in the game.
They should be comfortable sharing this info. If they seem evasive, that’s a bad sign. They may be hiding their lack of experience.
Check their online presence, social media, and the better business bureau (BBB).
Ask for references. Get permission to speak to some of the investors that work with them. Also get permission to speak to some of the renters themselves.
You get my drift. Do some investigating to make sure they are the real deal.
Remember: A good management company is worth it’s weight in gold, and a bad one will cost you a lot of money.
3. Find an investor-friendly real estate agent
The real estate agent is your second most important team member for out-of-area investing. They get paid good money for helping you find a house. Make sure they earn it. Use the same advice above. Ask for referrals, and check their online presence.
Most real estate agents don’t understand how to work with a real estate investor. They don’t understand how many offers we make, how important buying a house cheap enough is, and the kinds of features we care about in a house. It’s best to find an agent who already works with investors. If not, you’ll have to “train” them to do what you need.
Your real estate agent has to be comfortable being uncomfortable. They will be making lots of low-ball offers to see who is motivated to sell. Some agents just won’t do this. They’re too “embarrassed”.
They have to be willing to look at lots of properties and take tons of pictures.
My real estate agent wasn’t perfect when I started using him, but as I explained what I needed and why, he made the necessary adjustments.
They should always follow through on anything you ask them to do. If you find yourself reminding them too often, let them know that is not acceptable. If they don’t shape up, find yourself a better agent.
These are not as important as the three points above, but it’s a bonus if you can do these as well.
You’ll want to find and network with other investors in your area. They tend to be a friendly bunch, but don’t expect them to roll over and give you a list of every contractor they use. You may need to offer something useful before they will open up to you.
Like-minded investors can be found through the BiggerPockets forums, craigslist ads for rentals, real estate investment meetings (there may be an online presence of this), and referrals from management companies, real estate agents, contractors, etc.
It’s good to have a list of some trusted contractors. I’ll admit, I haven’t cracked the code on how to do major renovations while living far away. I’d want to be there in person for big projects. Let me know in the comments if you’ve cracked the code on this.
A last word of advice. If you are investing from afar, that doesn’t mean you never need to go there. There is no substitute in the world for meeting people face-to-face. Skype is second best, but it’s not near as useful.
I recommend traveling out in person to meet both your management company and your real estate agent before you actually buy a house. After that, travel out to see them and your houses as often as you can. Remember, the trip is a business tax write-off.
So that’s how I invest from afar. If you have advice to contribute, please add it in the comments section.
I’m happy to answer any questions. Comment or email me.
If you want to read more about how I do real estate and investing, check out my first blog post, My Wife Knows Money.
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