Silicon Valley Investors Club (SVIC) is a global community of STEM professionals interested in making smarter investment and career decisions.
The Silicon Valley Investors Club is excited to have Minwei Xu join us for a talk about how to start investing in real estate out-of-state. Minwei Xu is a software engineer at Facebook and he is a real estate investor who is documenting his investing journey with a goal of financial independence at his blog Quanti-FI.
As a software engineer based in California, I have yet to set foot in the border of the state of Indiana. As of May, I had not yet met my agent or property manager in person either, but I managed to get my first house under contract.
In this article, I will walk you through how I overcame the fear of uncertainty to invest out-of-state and how to pick your team, market, and properties. I will also show you how I managed to avoid a money pit.
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Overcome your fear
When I tell people that I am investing out-of-state, their first question is always
How do you know that you actually bought a house? Won’t you get scammed?
I think I can answer this question in two ways:
First, if you have done any trading, when you open your account in Robinhood or Schwab or Fidelity, you would not ask to see a representative, right? When you buy a share, you do not have a certificate to prove you really own these shares. Yet you are totally fine with trading on these platforms and trust them with your money.
Second, there are many ways to make sure that the house is legitimate. You can use zillow or redfin estimate to know its approximate price and rent. Besides, during the process of closing, many others are involved. For example, escrow will assist you along the way, the lender’s appraiser will give you an appraisal report, and your inspector will also give you an inspection report.
There are so many people and reports involved. At least you can be sure of the size, the number of bedrooms, and the general idea of the house.
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But what if you miss something and suddenly you can’t resale or rent out the house?
Of course this can happen and, likely, will happen if you keep investing. You should treat it as a business cost, but you should also do your due diligence to minimize the possibility of it happening. I will describe one such case later in this article.
So far, I hope I have addressed most of the concerns. Below, I will detail what I did for the whole process.
Ask your friends, colleagues, and other investors for referrals for agents, property managers, and lenders. Even though referrals cannot guarantee that they are good, it is still better than a complete stranger you find on Google. If you don’t know other investors, go to Facebook and search for groups like “[city name] + real estate investors”.
After you have the contacts, look for their reviews on google or yelp or other places.
Call them, interview them, ask a lot of questions, but also double-check that they are indeed licensed.
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Find as much as possible in the SVIC facebook group, Google, and BiggerPockets about the city that you want to invest in. You can also find more about neighborhoods on niche and city-data.
One very helpful tip I found is to search the city and the neighborhoods on Youtube. Usually there will be agents that shoot videos talking about different neighborhoods. There are sometimes even videos just driving through a city/neighborhood.
Related Article: Long Distance Real Estate
Always use google maps to see what’s surrounding the property and use street view to see if there are any red flags.
I avoided a huge money pit because I happened to google map it, while another experienced investor friend almost fell for it.
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The state of the house was pretty good, and it could be rented out after maybe painting the inside with a more neutral color. 3 bedroom with a good zipcode and a high school with a 9 out of 10 score across the freeway. Getting it under 200k appears to be the deal of a lifetime.
However, once I opened Google Maps, this North Glen Village turned out to be a mobile home park. This house not only backs up to a freeway, but is also deep inside the mobile home park.
We have talked about the location, but for the condition of the property, you will learn about it mostly from your inspection report. This is why a good inspector is very important.
Related article: How to Interview Property Managers
If your inspector suggests you find more experts to do some specialized inspection, do not try to save a couple hundred bucks with the risk of thousands or more in repair.
Of course, you should not hesitate if there are many small items on your inspection report. Those are only expenses. If the number makes sense, you should still move forward with your deal.
It is actually usually easy to fix most of the smaller things with a contractor your agent recommends or you find somewhere else. As an investor, you should not be afraid of these small flaws. They are usually the best deals because they turn away most homebuyers; but, as an investor, you have the means and motivation to solve these problems.
To recap, I had to make offers before I had visited Indianapolis because of the pandemic and the slower rollout of vaccines in California, as well as the fact that the housing prices are skyrocketing during the first half of this year.
After I decided to pull the trigger, I chose a market, built a team, and started to make offers within the timespan of 3 months. Many offers later, I finally closed on my first ever house.
Related Link: The Real Estate Referral Generator
Investing in real-estate out-of-state is not a walk in the park, but it is also not mission impossible. Start with looking for a market that fits your strategy and then build a team. Once you have a team on the ground, you will be tapped into a network of resources and people to help you. When you are making offers, crunch the numbers to see if they can be profitable and do your due diligence to look for red flags not shown in the numbers. Trust the process and you will get there.
- How Did I Stay at Home and Buy a House Out-of-state - August 3, 2021
The content here is for informational purposes only, and should not be taken as investment advice. All views contained herein are my own and do not represent the views of any other organization.
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