Out-of-state investing, in general, is a hard investment strategy. Never visiting the property before buying…that’s harder. Investing in a property you’ve never seen AND renting it out while still never seeing it…that’s even harder!
How can it be done? Fat to the rescue!
Fat Taylor is a hands-off investor who bought two of his properties sight-unseen, and three years later, he still hasn’t been to either. In our recent conversation, he provided three tips for how to successfully buy real estate sight unseen.
Investing Sight Unseen Tip #1 – Get Your Mind Right
Before you even begin to pursue investing in properties sight unseen, Fat believes you must adopt the right mindset. “If you’re going to stress about [buying sight unseen], it might not be for you. If you’re able to take the emotion out of it and [are] able to put your trust in other people’s hands, it can be great.”
Personally, Fat found this mindset quite easy to adopt. He said investing sight unseen “was a little bit easier… because when you go to a property, for me, it’s hard to take out the emotions and it’s hard to not have it be perfect.” In other words, if you are a perfectionist, buying sight unseen may be your best real estate investment option.
“When I look at a place, I think of how I would want to live in it,” Fat explained. “Some of these lower-income houses need so much work that it’s not possible to fix it up to where I would want to live in it personally.” This is a trap many newer investors fall into. You have to realize that you’re not buying a property for yourself. You’re buying a property for the ~40% of the population that doesn’t own a home, which can be due to a multitude of reasons. “There’s a lot of people whose standards and costs of living are different than mine,” said Fat. “For me, it was easier to take the emotion out of it by not going to see the property first.”
Investing Sight Unseen Tip #2 – Put Checks and Balances in Place
Obviously, when buying properties sight unseen, it’s not a random selection process. You must have checks and balances and systems in place in order to mitigate your risk.
Here a few examples of checks and balances Fat has in place that allows him to successfully invest remotely without ever seeing the property in person:
- Personal Familiarity with the Area: “[I invest] in an area I was familiar with because I grew up in the same area,” which is Louisiana.”
- Friends and Family Near By: “I had one of my best friends who was already living in that same city and investing in that city.” Also, “my mom was pretty close by so she drove by the [properties]. My friend that was an investor [did as well].”
- Trusted Boots on the Ground: “Because my friend was investing there, he had a trusted property manager that [he] was already starting to do investing business with. I essentially put my trust in other people.” Fat continued, “I put my trust in the real estate agent to find a place and then I told the property manager where it was. He was familiar with the area, [and] he was able to go check it out. Then of course I had a property inspector go in there and give me a full report. Between the property manager guy talking to the property inspector and looking over the report, who basically says, ‘I can rent it out.’ If [the property manager] can rent it out, then [I] go ahead.”
Having a combination of personal familiarity with an area (you’ve lived there for an extended period of time), relationships with people who are near by, and putting your trust in a credible, boots on the ground team enabled Fat to purchase two investment properties in Louisiana without ever visiting them.
Investing Sight Unseen Tip #3 – Automate to Become Hands-Off
The two properties Fat purchased sight unseen are located in Louisiana.
The first property Fat purchased for $63,5000 and he believes it currently rents for $750 a month. “I say believe because I’m so hands-off that I honestly don’t have any of this stuff off the top of my head,” Fat said. “The property manager, he essentially had his team go in and do all the work, which I think was about $2500 worth of work, but I didn’t have to pay it upfront. He waited until it was rented out and started taking payments to pay off the $2500 out of rent.”
Fat purchased his second Louisiana property sight unseen for $38,000 and it rents for $550. This one didn’t require any immediate repairs or improvements. But if it did, the property manager would have followed the same procedure as the first property – paying for rehabs upfront and then paying himself back by taking a percentage of rents each month.
The property manager follows the same procedure for ongoing maintenance costs as well. “Together on my two Louisiana properties – I combine those on one spreadsheet – I think last year was a loss of about $1300. I think that was largely due to a couple of months where there were some pretty hefty repairs,” Fat explained. However, for all those repairs, he said, “the property manager takes that out of the rent before he deposits the rent into my account, so what I show is not a bill for $500 for whatever. I just see less on my income for those.”
What’s the advantage of handling repairs and maintenance in this manner? “Doing it that way is just another way I’m able to stay hands-off and have a little bit less stress on my end when dealing with things because [the property manager] takes care of hiring the people to go there. I don’t even know that anything happens until after it’s completed.”
By automating or being hands-off for both the initial renovations, as well as the ongoing maintenance, not only does Fat decrease out-of-pocket expenses, he saves a substantial amount of time and the headache that comes from dealing with contractors as well.
3 Tips For Investing in Real Estate Sight Unseen
Fat has three main tips for investors who want to purchase properties sight unseen.
First, you must have the right mindset. If the prospect of buying a property and never seeing it emotionally triggers you and/or stresses you out, then this isn’t the investment strategy for you. However, if you are a perfectionist, it may be worth investigating further.
Next, you must have checks and balances in place to mitigate your risk. Three examples are: 1) have familiarity with the area, 2) have friends and family nearby, and 3) create a trustworthy, boots-on-the-ground team.
Finally, automate as much as possible, especially the initial and ongoing asset management process. This is mostly accomplished by hiring a great real estate agent and property management company that you can trust.
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Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.