Client Case Study on Turnkey Real Estate Investing | PREI 023
In this episode we talk to one of our youngest investor clients who is on track to purchase seven (7) turnkey investment properties this year. He started at the age of 22, and plans to acquire a lot more next year in 2016.
He shares with you some tips and suggestions on how he got started, what he looks for in his investments and how you can do the same. There is no magic, just following a system and doing your due diligence. All this and more on today’s episode.
If you missed last week’s episode, be sure to listen to The “Buy & Hold” Strategy with Linda McKissack.
Enjoy the show!
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Client Case Study on Turnkey Real Estate Investing
In today’s show, we have a current client of ours. His name is Lance. I wanted to bring him on as a bit of a case study because this guy is only 26 years old. He started investing at the age of 22. He’s on track to close on his seventh property this year. He’ll potentially have eight by the end of the year. He plans to buy a whole lot more next year. He’s really following our philosophy and our advice of buying prudent income-producing properties in market’s that make sense, that cashflow from day one. He’s diversifying according to the strategy that we’ve laid out for all of our investors, all our clients. He’s really jumped in and made it work. He’s had great success. He’s also an analytical person who likes to do his research and due diligence. As Ronal Reagan used to say, “Trust but verify.” That’s exactly what Lance does.
It’s my pleasure to welcome one of our clients. His name is Lance. He’s one of our youngest clients. I believe he’s 26 years old. He’s got some very clear and aggressive real estate investing goals, which is just fantastic. I wanted to bring him on the show today as a bit of a case study to share his experience with investing, not only on his own but even through our network at Norada Real Estate Investments. I’m sure he’ll be able to share some tips and some ideas for you today. His name is Lance. Lance, welcome to the show.
Thanks for having me on, Marco.
It’s my pleasure. You are one of our youngest real estate investors at the age of 26. We have had clients from the ages of 19 all the way up to their 60’s. It’s quite a wide range. You started off quite young as I recall. I remember you contacted us. It was actually my birthday. January of 2015 is when you had first called our office. I like you to share with our listeners how you got started in real estate investing, where it all began and how it progressed, because I know you started off at a very young age.
I always knew when I was younger that I was going to get into real estate investing at some point whether it was residential or commercial. I wasn’t exactly sure where. My family owns some real estate so I thought it was a good investment. When I was 22, I actually made my first purchase. I purchased a townhouse. At the time, it was a place that I would live in. I also was looking for, “If I move out of this place, I want to make sure that it would be cashflow positive.” That was my only criteria. At the time I was thinking, “Here’s an investment I’m going to make and 30 years from now it’s probably going to pay off. That’s where I’m really going to make the money.” I purchased it and shortly after, I ended up getting moved for work. I rented it out. I did pretty well and at the end of it all, I ended up netting probably $150 to $200 a month throughout the course of owning it. What really paid off was earlier this year when I sold it. I had a lot of appreciation from it. I used it to buy more real estate. That was my first taste of it.
I remember thinking to myself when it started cashflowing, “This is really cool. I’m making money every month passively without really doing anything.” That’s where it all began. It really started to excite me. It’s funny, after that, I was looking for more properties I wanted to purchase. It took me a couple of years to buy another property mainly because really my time with my job, I was moving a lot, and just really busy with work. That’s how it started and that’s really what excited me. That’s where it took off from there.
You were 22 at that time, and that was in California that property?
You were at the right place at the right time. You experienced a lot of capital appreciation. Was it a conscious decision to sell that property and take the equity out? Or did the greed factor come in and you just thought, “I should take my $150,000, cash out and run?”
It was the capital appreciation. I had no idea it would appreciate like that. I was so focused on the rental portion of it. I’ve seen how cyclical the markets are and it goes up and down. I pretty much said, “I have money in this.” I ran my own calculations and said, “I can get a better return somewhere else.” That’s why I decided to sell it. I said I don’t want to be so greedy as to wait and try to pinch out every penny and try to get lucky and get to the market when I was on the top. I basically said, “I’m going to be happy where it is and take my good luck and take it elsewhere.”
A lot of people start off that way and become accidental millionaires because they just don’t realize that the market will do what it does. Over time, all of a sudden, they are equity rich. You bought another property sometime between age 22 and before you contacted us, is that right?
Yeah. Almost probably a year and a half or so, it took me a few years after I purchased that property to pick up the second one. Like I was saying, I had the money, it took me a while just because of my time and having to evaluate and look at properties and walk them and see what type of work they needed, and things like that. Outside of turnkey, you don’t find properties that are just ready to go, fully remodeled, don’t need anything, any work, and they’re cashflow positive, they went out really well. It took me a while.
My next investment, I went multi-family. I don’t necessarily know why exactly, but it was following the house hack mentality of buy a multi-family place you can live in a unit. That’s the direction I took. I bought a fourplex in Southern California, and lived in a unit. I was only there for a short period of time before I was relocated for work again. I’ve moved a bunch of places, like a trend, all good things with a good career. When I moved again, the place was cashflow positive. What was funny about it though was I thought it was going to be much more cashflow positive than it was. It was a good experience for me because the first place I bought was actually fully remodeled, mainly because it was a foreclosure and the loan required the bank to replace a lot of things. That was in great condition and it was a great time to buy. With this property, I was expecting similar returns out of it, cashflow-wise. I ended up learning a very valuable lesson about especially maintenance, and then vacancy as well.
On the maintenance side, the place needed a lot of work. A lot of things came up. I was hit with a $5,000 bill on different electrical issues, things like that. That was a good learning experience in terms of due diligence and how conservative your numbers are. On the vacancy side, it also wet my appetite for my risk tolerance, how risky do I want to be. This was not in the best area. As a result, there was a lot of tenant turnover. I learned that multi-families in general are going to have a different type of tenant turnover than a single-family residence. Also in that type of area, I’ve dealt with evictions. I’ve dealt with tenants that have just walked out, leaving the place trashed, things like that. A lot of those things were learning experiences, just a trial and error type of thing. That was my second investment.
On that second investment, you underestimated what you were budgeting for a vacancy factor and you also underestimated what you should have budgeted for maintenance and repairs. That was maybe a harder costly lesson right from the get-go. Was that a fixer-upper that you bought? Was it livable, rent-ready?
It was livable, rent-ready. Everything was rented out when I purchased it. But it had a lot of deferred maintenance. It didn’t need any remodeling. There were just certain things I guess that were needed on it that had to be repaired. I purchased it. I put probably $8,000 to $10,000 into it, which I planned for. But then it was much more than that as I was in there longer. Overall, where it ends out, I’m probably fairly neutral, maybe a little bit positive, but almost neutral. Luckily, it’s not negative. It was so awful that I expected solely because of those maintenance and vacancy estimates I had that were totally off.
One thing we talk about on this show is the difference between the active and passive investing. Active investing being along the lines of rolling up your sleeves and doing most, if not all of the work, from finding the deal, making that acquisition, often you jump in and write up a scope of work and do the renovations and maybe you’re managing it, maybe you’re not, but you’re heavily involved, deeply invested, and often taking on much of the risk. Versus a passive real estate investment, whereas it’s a done-with-you model, not so much a done-for-you model, at least with us that’s how we operate. Why did you choose to buy turnkey properties? How did you even find out about a turnkey investment property?
To be honest, this experience taught me that I do not want to be an active real estate investor. That was just not for me. I was, at this point, thinking I’m going to invest locally. California is a really expensive market. The more I looked I realized these numbers just suck. They just suck. I wanted to buy stuff that was more ready to go. At the time, at the very beginning, I thought I need to buy a place and actually remodel it and it’s good. I started just doing a lot of research. I jumped on BiggerPockets and got really involved and found out about turnkey properties. I did a lot of research. I reached out to you in January but I knew about you for probably six to eight months before that. I spend a lot of time researching. I found out about turnkey and I literally thought this is exactly what I want. I don’t want to buy a place, remodel it, deal with the risk, the hassle, the time. I wanted to buy a place that was ready to go. In turn for that, I’m aware of the differences in active and passive. I said I’m not trying to buy a place nickel and dime, how much I can make off a flip, things like that. That’s a business. I’m not looking for another business. I’m looking for an investment. That’s why I did that. After I found the turnkey, I did a lot of research. I called a few different turnkey companies.
One of the things I’ve learned from the turnkey experience is there’s a lot of shady turnkey companies. There are a lot of bad stories that I’ve read about on BiggerPockets. That taught me how much to build inside for the process. Your name actually, specifically, kept popping up on BiggerPockets. I actually remember the conversation I had with you in January. I think at the end of it, I told you I’m definitely working with you. I already knew you were reputable and well-respected and you had a really good reputation. After we spoke, your approach and having so many markets was great. I was focused more on finding the right partner than finding the right market. After I found the partner, felt like with you, we could work on the right market versus picking the market, finding the partner for the market, and then having to vet every other market I want to go into.
For me, the transition into turnkey, and we’ll probably talk a little bit about my progression from starting turnkey to where I am today, a lot of that is because of the right partnerships and the right investments. For me, being able to invest passively and not having headaches, not staying up all night worried about a $5,000 bill that comes in on a place that has a bunch of deferred maintenance and all my tenants qualified and things like that. That’s why I got into it.
It’s important for listeners to understand when we talk about a passive real estate investment, which is the name of this show, Passive Real Estate Investing. You’re never completely disengaged or disconnected from your investment. You always have to be involved. Even though it may be a “passive real estate investment,” you are still actively involved in overseeing it. You need to budget anywhere from fifteen minutes to an hour per month after you own that property. That could be just reviewing statements, depositing your check, updating your QuickBooks or your spreadsheet, whatever the case is; maybe having a conversation or a few emails with your property manager. You’re never completely hands-off or disconnected. Would you agree with that?
Absolutely. It’s funny when I think of passive, a lot of people don’t realize active investing can take so much of your time. To be honest, the fifteen minutes to an hour I probably spend a month, I probably spend about an hour each month on all my properties, it’s time I really enjoy. To me, it’s the fun stuff. When I’m evaluating properties, I love the spreadsheet, evaluating what I want, researching markets, researching properties. To me, that’s the fun part of it. From there, to me, the passive part is someone that’s already came in and fixed the place up and remodeled it and have a nice beautiful place ready to go. I love when I review the home inspection. I remember the first home inspection I got back, there was nothing on the property. I remember it was in Indianapolis and it was completely clean. I’ve never seen that before. The rehab process with a turnkey property, you know what to remodel, you know what to look for. That alone is a big piece of stress that’s off your shoulder.
After the purchase, the involvement for me, I always keep track of obviously rent that comes in. I have different accounts, I have different spreadsheets that I keep track monthly to evaluate the cashflow, and evaluate really how they’re doing. I get monthly statements for each property that I review. If I have any questions on it, I call the property managers or I email them depending what it is. When you use the word passive, I think of an hour a month as very passive. If you leave your property there and you don’t do anything, you could miss what’s going on with it. It’s important to still stay close to it without having to turn into a business, managing it.
I asked you the question why you chose to invest in turnkey properties. You said something without actually saying it. A lot of clients that we work with, the main reason they choose to work with a company like ours and purchase turnkey properties is because of the time factor. They have full-time jobs, maybe they run a business, they’ve got a family, they’ve got engagements in the evenings and on weekends in terms of their kids’ soccer game or whatever it may be. It leaves them very little time to actually work on the business of investing in real estate. However, if they work with a turnkey property provider and there’s many of them across the country and the majority of them are local. If you work with a provider, they should be able to take you by the hand and provide you with about 70% of the work and the due diligence that is necessary to build your portfolio. That time is the biggest factor we find with our investment counselors that investors come to us and look to work with a company like ours to buy investment property. Time is number one.
Two, I would say, is probably lack of knowledge or experience. They might be seasoned investors but they still need the help or they might be a new investor and they need to work with someone who can give them good advice, unbiased advice, hold their hand, and take them through the process. You fit into that initial category even though you’ve had some experience with your property in California and then your fourplex after that. You made a comment too about reputation. I guess you found us online. Just for our listeners, so they know, you mentioned BiggerPockets a few times. BiggerPockets is one of several real estate forums online. It’s just a bunch of real estate investors on there talking and discussing issues and ideas about real estate investing. It’s just an area to learn. I guess that’s where you found us, right?
Yeah. That’s where I found you. To touch on both those things you just mentioned, it’s funny because you go on a forum and you’re trying to learn and research, and there are people that have so many different opinions. I look at turnkey as an investment vehicle. It is what it is. You’re getting a great property that is ready to go. You’re getting a lot of handholding through the due diligence process. One thing I love is getting neighborhood profiles that you provide specifically, being able to see breakdowns of median income and unemployment, things like that. Being able to have these quick snapshot analyses that would take you a really long time to try to do yourself. All the way down to helping figure out maintenance and vacancy and things like that.
As a funny story, early last year, I remember talking with a friend of mine about how I was going through the turnkey route. My friend has a full-time job, travels a lot for work as well. I remember him telling me, “That’s not what I want to do. I want to get rich really fast.” He found this opportunity and said, “You know what I’m going to do? I’m going to buy a place. I want to flip it. I’m going to have some equity in it and then I want to rent it out.” This is the first time I’m going to do it by the way. Just out of the blue said all of a sudden he wanted to be this experienced, hands-on investor. He told me how he was going to make $20,000 off of it. He’s going to have a good rental, everything you can imagine.
He gets business with the project and headache after headache, his 30-day rehab took 120 days, ended up having to dump it after that. It took him about seven months or so to sell the place, ended up losing a bunch of money on it. Obviously never going the rental route because he just had to dump it and take his losses and then literally called me about it. He was like, “Maybe you’re right about the turnkey thing.” Some investors want to do that. Some people want that route. They want to be active. They want that as their business. That’s a very different strategy than going the turnkey route. I told him, “I go the turnkey route because I want a passive place. I want them to take the risk. ‘You buy the property. You do the rehab. You get it ready to go. I’ll jump in at the end. I’ll buy it. I’ll rent it out.’ That’s what I want to do. That’s where I want to invest.”
A lot of people on a lot of these forums have a lot of different opinions. You have to realize, what is your goal with your investment? How active or passive do you want to be? You’ll find the right fit. I recommend going into it with the right ideas. I knew I wanted something more passive. For me, it was very easy to seek out the best way for me to passively invest. Obviously, I ended up working with you to do it all. It’s just important to note the multitude of opinions online and make sure that you’re focused on what your goals are and don’t let anyone persuade you into taking on a whole new levels of risk that you’re not prepared for.
The great thing about real estate forums is that there are a hundred different opinions. The bad thing about real estate forums is there are a hundred different opinions. Everybody’s entitled to their own opinion but you just need to think for yourself. Don’t be swayed by other people’s experiences or successes or failures. Just gather the information, ask a lot of intelligent questions, educate yourself, build that commodity of knowledge, and then invest wisely with the help of a good team. That’s what we have here with our referral network is a really good team from builders and rehabbers, down to property managers, title companies, inspectors, lenders, etc. When you have that good team, then you’ve got people working on your side. They’re going to make sure that you’re successful because their success is dependent upon your success.
Let’s talk about the market. You invested in Indianapolis first, and I believe you acquired three or four properties right off the bat. You started in Indianapolis and then you moved to Kansas City. You’re an escrow on a couple of properties there. I believe you’re also under contract for a fourplex in Texas but that is being tweaked or changed here because that project might not actually get off the ground. How did you pick your market in the beginning earlier this year?
To go back to the first thing I mentioned, for me, it was finding the right partner to work with. After I found you and I decided I want to work with you, I remember we had a lot of conversations about the markets and where I wanted to go and what I was looking for. My first market I went to was Indianapolis. I was actually focused on Indianapolis and Kansas City. I like both those markets. For my first investments, I was really focused on just sheer cashflow. I wanted the highest cashflow but I also wanted to be in the better neighborhoods. I had that fourplex experience, so I really wanted to be in those A-neighborhoods. For me, these are all long-term holds. Far down the line, you have some type of extra strategy because a homeowner would want to buy it. Also, I know I’ve given up some of the cashflow in turn for some more appreciation and better tenants and less headaches hopefully. That was my guideline.
It led me to Indianapolis because when I was first looking, that’s where I found those A-neighborhoods with the best cashflow. That’s what I focused on. I love Indianapolis. About two at first and that process went perfectly. It went so smoothly. I found two more near the end of it. We jumped into those immediately after. I did four in Indianapolis in a really quick amount of time. I’m very happy with those. I called the property manager of the company and I talked to other property management companies in the area as part of my due diligence to find out, are these houses what I think they are? Are they in neighborhoods that I think they’re in? Is the rental value what I’m expecting? Everyone really confirmed that. Talking to the property management company there, I decided this is definitely a company that I want to work with. I picked up four really quickly there and like I said, very happy with those.
Through more conversations, I want to diversify through markets. One thing I love about working with Norada is that I can diversify very easily. I couldn’t imagine saying, “I want to go to Kansas City,” and then having to figure out who is the turnkey provider there and having to vet everyone out through the process again. Versus me and you, because I trust you, we’re partners already, I can just give you a call, we can just chat about the market or other markets. For me, it was very easy to jump into Kansas City; same goals, with all the A-neighborhoods, high cashflow. I like the appreciation aspect of it though as well. My philosophy is that the appreciation is important because you always want it to be a wanted property. If it’s appreciating, people want to buy there. If people want to buy there, people want to rent there. I buy for the cashflow. That’s the bonus. I almost look at them hand-in-hand a little bit. That’s why I went over to Kansas City. I’m an escrow in two properties in Kansas City. I believe they should be closing next week or so. That’s why I ended up shifting over there. I like the Kansas City market and the Indianapolis for the same reasons I went there, that’s why I went to Texas.
I live in Texas today and I love the market in Texas. I think of Texas as a little less cashflow but more appreciation. As long as you have the cashflow and you’re going to be cashflow positive with your conservative numbers, then you could invest anywhere you want. You can make any appreciation guess you want as long as there’s cashflow and as long as you know that. That’s why I went over to Texas, which is a great market. We’ve also talked about potentially Jacksonville as well. For me, it’s having the diversity of jumping around markets and picking up units in a few different places and diversifying my portfolio. That’s how I started and moved around a bit.
Whether you know it or not, you’re following along with one of our ten rules of successful real estate investing. That is diversify your real estate portfolio, which means you diversify across markets. A very, very general rule of thumb that we have for our clients is three to five properties in three to five markets; five being the high, three being the low. You don’t have to stop at five properties in every market, but if you are in three different markets, geographically separated in other states, then you mitigate your risk because every market is local. They each have their own factors, drivers, and economies. Whatever happens in Indianapolis is going to be different than what happens in Kansas City, which will be different in what happens in San Antonio or whatever market you’re investing in as a third market.
As you build your portfolio, you can have three to five or more properties in that one market then you go to your next market and your next market. Three is a great number. I don’t think you need more than five. You’re following along that strategy and that philosophy quite nicely. There was another comment I wanted to make about cashflow. I always say cashflow is the glue that holds your real estate deal together. Cashflow gives you an immediate return, it’s a cash-on-cash return. It puts money in the bank account, money in your pocket. You could use that. You could spend it or reinvest it, do whatever you need to do with it.
While you have that cashflow, you have an immediate return and your tenant is now paying off your mortgage for you, which builds equity in the property. Over time, you, in almost every case, will experience appreciation in the property. That’s how your net worth or your wealth is created. It’s the short-term cashflow and the long-term wealth creation. That’s what we talk about on this show all the time. As far as the properties that you chose, Lance, how did you go about picking those properties? Did you stumble along or did you set yourself a clear criteria or did you figure it out as you went?
The beginning was figuring out as I went. Me and you had a lot of conversations about what I ultimately wanted to buy. Eventually I came down to my criteria; I wanted to be in an A-neighborhood. Within the A-neighborhoods, you have plenty of different pockets and plenty of different types of A-neighborhoods. I wanted to be in an A-neighborhood. I really wanted a low unemployment rate and a good median income. I want to see those numbers rising every month as well. Primarily, those are really the factors that I was looking for out of those areas. With an A-neighborhood, you have high homeowners, which for me means better appreciation and resaleability, hopefully.
What you’re saying is there’s a high percentage of owner-occupied homes?
Yes, that’s what I meant, high percentage of owner-occupied homes. Because in the future, if ever I want to sell, there’s going to be people who want to buy to live there. I’m not just selling to investors, anyone could buy it. That to me was important. For the same reasons, you get an appreciation with it as well. I liked that. From a tenant perspective, I like a good school district. I want tenants that come in there, families, that are going to want to stay for a while. You really make your money on tenants staying for a while, not from turnarounds and losing tenants every year. I want them to stay for a long time, in a good school district. You’re going to attract good families that are looking to send their kids to good schools as well. With those types of tenants, you get people that have good jobs. The idea is less evictions, less turnover, all those types of things. In all of those things I experienced with my fourplex before, and that helped to define my investment strategy today of how do I get those longer term tenants.
Someone listening to this show that’s a new investor looking to get started in real estate investing or maybe they’ve purchased one or two recently or in the past, but they’re looking to expand their portfolio and they’re looking to work with a company like Norada Real Estate, what advice do you have for these investors that are looking to get started or to just take their investing to another level?
First thing I always say is, never make an investment that would keep you up at night. That’s really important wherever the investment is. If you’re not going to sleep at night, just don’t make it. With that said, I would make sure you’re really comfortable with the decision you make. I’ve referred a lot of people to Norada. I truly believe to have a call. It doesn’t have to be, “I need to buy something really quickly.” The call could really be around, “What markets should I look at?” Let Norada advice you and be the partner to help you to find what your risk tolerance looks like. How much risk do you want to take? Do you want to buy $50,000 houses in C-neighborhoods in Kansas City? Or do you want to buy $130,000 houses in A-neighborhoods in Kansas City? Or do you want to be in a market like Texas? There are so many different strategies and criteria you can pick to invest in. I personally would say, let them help you to find what your risk tolerance is, help to find the type of neighborhood you want, what the rental amounts are for the type of tenants you’re going to attract, what market you want to be in for numerous different reasons. It will narrow down from there and you’ll find the best strategy. You’ll feel really comfortable with the decision you make. That’s the first thing.
The second thing is, everyone suffers from analysis paralysis. You’re going to spend so much time analyzing numbers and sometimes you’ll feel like you’ll never find the right deal. Eventually you’ve got to just jump in. If you already have decided your criteria, you know you’re going to buy a turnkey property, you just have to do it. I jumped in, best decision I’ve made. The sooner you invest in it, the sooner you get cashflow, the sooner you can buy more properties. The longer you wait, if you take a year analyzing deals, a lot of these properties happen to me before. They get picked up really quickly by people. You have to be confident in your criteria that you select for yourself. Once you believe and trust in yourself and your strategy, follow that strategy. Let your strategy work out.
I like to think of a football team, maybe the Patriots this year. They’ve been really successful all year. They’re going to follow that strategy to the Super Bowl. If they lose the Super Bowl, they’re not going to look back and say, “We should’ve done something differently.” They’re going to look back and say, “We followed the strategy to a tee that’s been really successful for us all year.” Follow it and have conviction in what your philosophy is and then own it.
Thirdly, become obsessed with it. Become obsessed with real estate. I call Norada all the time to talk about different markets and properties and strategies and long-term goals, short-term goals, things like that. I threw out the goals for myself. I become so obsessed with it that I like to become an expert with it and talk with people about it and teach people about it and refer and recommend people about it. When you become obsessed in something, you start to be able to see a better long-term vision, a clear-cut future for yourself. When you become obsessed with it and set the goals for yourself, it becomes really exciting when you know, “I’m this far out from being financially free, or I’m this far out from saying I don’t need to work anymore.” It doesn’t mean you won’t, but now maybe it’s cashflow that equates to what your income is at work. Whatever the goal is that you set for yourself, it starts becoming really exciting. It will change the way you think about, not just investing, but the way you think about life day-to-day.
If you ask anyone, “What would you do differently over the past 30 or 50 years?” I feel like everyone would say, “I wish I bought more real estate.” anyone that has owned a real estate over 30 or 50 years. With turnkey, you have the opportunity to go about investing in the right way with good properties and good cashflow. I suggest people to create a strategy, create a criteria, follow the path, and jump in and get going.
A lot of what you said, Lance, is psychological. I have a client right now. He’s 19 or 20 years old. He’s one of our youngest investors. He is in the process of closing next week on a duplex in Kansas City. This property, he waited about a month and a half to actually get to the point where he closed on it. It was newly acquired. He told me what he wanted. I said, “We just picked up this property, it hasn’t been renovated yet but if you’re willing to wait, you can have it.” It’s going to be a cash cow for him and it’s in a great little area. The guy is only 19, 20 years old. He sat down with me one day and he just had all these questions. A lot of his questions were just getting over the long distance aspect of things. “How do I know what I’m getting if I’m an armchair investor? How do I do my research in due diligence?” I’m sure there are people who say, “How can you possibly live in one state and invest in another?” Let me throw that question out to you. I don’t know if you had this experience or even as a problem. How do you get over the long distance work? The out of state investing objection if it even is one.
A lot of it comes down to trust. After you identify your criteria and you find a property that you’re looking to buy in the due diligence phase, what I did was, I called a lot of different property management companies. I asked all of them, “I’m looking at this house. Here’s the address. What’s the neighborhood like? What’s the average person in the neighborhood like? What types of people are living there? Are there families?” I’d verify the school district. I’d verify the rent and things like that. To me, when I talk to five other property management companies and I get the same answer from all of them, for me, that’s what I needed from a trust perspective to really trust it.
I dig it on Google Maps, I like to see where it is, I like to see the street view, look around the neighborhood, see what it looks like. You get a really good feel for those neighborhoods. That’s the first piece in terms of out-of-state investing. It’s funny, when I first started researching turnkey investing, I lived in Los Angeles. In the past year, I lived in Los Angeles, parts of Utah, Austin, Texas, and now Dallas, Texas. I’ve moved a bunch. I personally rent. In a week I’ll be at seven properties. For me, I like that I can rent, I can move around and I can do what I want. I’m not necessarily tied down anywhere. I can move for work. I have no house tie down. I love that I can own real estate and be part of the real estate investment in other areas where it really does make sense. That’s how I personally have felt about it.
There’s definitely a process and we call it a top-down approach. A lot of investors start off by looking at the property. “Here’s a good deal, the numbers look great. By the way, it’s in a dilapidated area or a bit of a warzone in the heart of Detroit.” There’s such a focus on the property itself and the numbers. But it really starts at the very top. It’ like a funnel. It all begins with the psychology, what’s between your ears? Do you have the desire and the motivation? Can you bring yourself to working with people that can help you achieve your goals? You define, what are my goals? Every investor has to have some level of defined goals that they are trying to achieve. From there, you’ll know what your strategy is. Then you start choosing markets. After you decided on a market, with your team, you start looking at specific neighborhoods and property combinations. Then you do your due diligence on what kind of neighborhood is that property in, and what are the numbers on that property? You talk to the property management company.
This all comes down like a funnel. It starts very broad at the top and works its way down to specific properties. You eventually get to a point where you say, “I’ve found the right market, the right neighborhood, the right property, the right team. That’s the property I want to buy.” You put that property under contract. That process could take days. That process could take weeks. That’s how you knock these properties off one at a time and add them to your portfolio. That’s exactly the process you went through without actually knowing that you were doing it.
I tried to buy other properties before I ended up buying the properties that I did buy. I remember we were under contract on them, my criteria completely changed. I started doing due diligence. The property wasn’t exactly what I thought it would be. The numbers were exactly as I thought they would be. As I really researched and thought more and looked at neighborhood profiles, I said, “That’s not exactly what I want to be in. Higher cashflow, sure, but not the type of tenants I wanted to deal with, not the type of appreciation I wanted to see.” That’s totally natural as well as part of the due diligence process and finding out where you want to invest and what you want your portfolio to look like. Like I said, once you define what that criteria is, you’ll know.
You’re not alone there. A lot of our clients will start off by saying, “I want a property in this particular market. I’m looking for this type of cashflow.” They’ll have a very, very basic definition of their criteria. As they start going through the process, they start to realize, maybe that’s not exactly what I want. I want something over here with this cap rate, these numbers, in an A- or B+ neighborhood. It does change as you start to open your eyes and look at the different possibilities and options that are out there. That’s what we help people do anyway. They come to us not knowing exactly what they want to do, but through conversation and asking questions, all that stuff gets defined.
You really were a big part in helping me to find what my criteria was. After it was defined, still to this day, I would send you a list of properties and I want to see neighborhood profiles, I look at numbers, I look at the grade of the neighborhood. You still respond to me today and say, “I don’t like this one for you. I don’t like this one for you. This is my favorite one for you.” As you handpick them out, that’s really unique because these are properties that you offer, that fit criteria for certain investors. You know that this does not fit Lance’s criteria. You always tell me, you pull it out. “I know you’re interested in this, but this is not your criteria.” Obviously if I changed my criteria, I could. I really like that aspect of it because we’ve built that partnership where you understand me, I understand you, and I trust that you understand me. Now, we get to handpick them together. That’s really nice as well having that type of partner. That’s part of the handholding process, that’s one of my favorite parts about it actually.
You’re great to work with. You’re a lot of fun and easy to work with. It’s been a good relationship. Lance, what else would you like to share with our listeners or provide them in terms of tips, advice, or direction? Because you’ve been through this process and you’re acquiring property very quickly. In one year, you’re going to be at six, seven properties. What else would you like to share with our listeners in terms of tips, advice, suggestions?
On top of everything I’ve already mentioned, I personally believe real estate is the best investment vehicle for me. That’s what I’ve decided. That’s why I’m jumping in aggressively. I took plenty of time to decide that real estate was the route I wanted to go. I went from being a piece of my portfolio and then this year I’ve tried to turn it into my portfolio. On my end, that’s what I love. There’s never been anything, investment-wise, I’ve been more passionate about than real estate. For anyone listening, that’s wondering if you’re on the fence about real estate investing, call Norada. You should jump in and start learning about it and defining how you want to invest and what your investment style looks like. That’s the best advice I can give. If someone’s listening to this and they’re interested in, I just would love to give my recommendation wholeheartedly, just like I referred some of my close friends and family to Norada, to give them a call and get started with the process. It’s never too soon. You will learn so much from just talking live with Norada and finding out what you’re looking for. You’ll find out so much more just by picking up the phone and calling, than you would on the forums and taking a lot of time with research. You need to do the research as well. But if you’re on the fence, “I don’t know if I’m ready yet,” just give them a call. It’s no big deal. There’s no pressure. It’s good to learn and talk about markets. It’s exciting about this stuff.
We don’t really push it or advertise it too heavily, but we always have offered a free strategy session. We’ll probably start advertising that here soon. If anybody’s listening to this and they want to have no obligation, free consultation, just give one of our investment counselors a call. Take fifteen minutes of your time and we can just talk through what you’re trying to achieve and what you’re thinking, give you a dose of reality and direction. Whether you choose to work with us or not, that’s completely fine. At least you’ll know more after that fifteen-minute call than you would have or that you did prior to. I appreciate all the kind words, Lance. You’re a great inspiration for many and a good model client. It’s been just great working with you. I appreciate your time.
Thanks for having me on.
There you have it. Lance is a great client, an aggressive investor, a young guy who’s getting it done the right way at an early age. I hope you got a few nuggets of information and some tidbits and tips from this episode. If you have any questions about what we talked about today or questions for future episodes, be sure to email us. Fill out the contact form on our website or just send us a voicemail through the website there’s a little app on the right side. Be sure to download our free report if you haven’t done so already. It’s the Ultimate Guide to Passive Real Estate Investing. It’s a chock-full of great information. If you’re new to this podcast, please remember to subscribe. You’re going to get free content every week. We would love for you to leave us a rating and review on iTunes. Again, thanks for listening. We love having you here. We do this every week. We look forward to future episodes for you. We’ll see you on the next episode.
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