How to: Long-distance real estate investing in 2020

Is long-distance real estate investing viable? Oh yeah! But only if you do it right. I’ve never seen half the houses I own, and I rarely visit the rest. All I know is that they bring in a paycheck. 

It should come as no surprise that I think building wealth through real estate is the way to go. There are a lot of reasons for this but fundamentally, if you buy a good house and leverage it – you should net a pile of money. 

It’s also a great long-term investment. Buy a house in a good area and you’ll always have an ever-increasing source of income

But what if you don’t happen to live in a lucrative real estate neighborhood? Well…

  1. You could move
  2. Commute to deal with your house
  3. Go hands-off and get into long-distance real estate investing like I do. 

So today you will learn some pros and cons to remote rentals, why I think everyone should pursue it at some point in their wealth-building journey, as well as the best way to make it happen. We’ll cover:

But first, gather around for Mr.FIREescape’s genesis story

I actually bought my first house almost ten years ago! Was it long distance? Oh yeah. I had to get on a plane for 5 hours to go see it. And I bought it before I even had a home to live in. The deal was just that good
My family all thought I was crazy, (hence part my stealth wealth genesis story) but it rocketed me towards my early retirement status, so I was hooked ever since. And I’ve learned a bunch of lessons and made a bunch of mistakes so that you don’t have to. Like…
Lessons learned from my real estate portfolio
Top self-management tools 
Top courses if you want to get into real estate investing

long-distance-real-estate-investing-meme

What do I mean by long-distance real estate investing?

Essentially, it means that I’m not going to deal with any house issues myself. Either because it’s way too far from my house or because I’m on a trip and won’t come home to collect a check. 

(Or maybe the long distance just means further than my basement and I’m too lazy to go see my tenants. Who invented pants anyway?)

By the way, Fundrise and stuff like that doesn’t count for this article. That’s just a fancy mutual fund. I’m talking about owning an actual house with your name on the line. 

Why would you do this?

Pros to long-distance real estate investing

My number one reason – It’s not what you’d expect.

The real reason I’m into this is that I like being hands-off and not even being able to do anything on my houses. It forces me to figure out how to stay out of the loop and how to empower my management team (more on that later) to do it for me. Living far away leaves me with no choice but to be efficient. 

To be honest, the nearest one of my properties is just thirty minutes away, and I’ve gone there once… to buy it. But beyond that, I’m not giving up my precious time to drive there just to fix the washing machine. Nope. too far for me. 

long-distance-real-estate-investing-lazy-meme

An even better reason – more options.  

This is the more cold, hard, and calculated reason. It’s good to not be restricted by where you happen to live. Different real estate exists in different parts of the country (or even in other countries) and it’s better than just watching the listings in your neighborhood. 

For example, if you are looking for cash-flowing rentals but you happen to live in San Francisco, you’ll run into issues. Or the reverse, if you live in urban Detroit but you want an expensive house that can appreciate with a big mortgage – you might not get what you’re after. 

Freeing your limitations can be good for you. 

There are plenty of cities to choose from and some are more lucrative than others. People say you make money when you buy real estate not when you sell, so buy it somewhere with better deals. Being open to long-distance real estate investing will let you do that. 

Take this house in Cleveland for example:

It yields almost 1% of its value in rent every month. Can you find something like that in your neighborhood? See, it’s good to be open-minded. 

Cons to long-distance real estate investing

See this is great. Awesome deals. No work. Everything’s easy. 

But there are some obvious downsides. 

1 – You need a property manager. 

They charge 10% or more from your monthly rent payments. (Well, 10% is typical, but they secretly mark up repairs or service fees and things like that.) You might be able to cut a deal if you make a lot in rent, but still. Ten percent is a lot. 

2 – You are paying full handyman fees for repairs. 

Fixing a toilet, fixing a window, it always seems to cost more than you think it’s worth. (Which actually makes being a handyman a pretty sweet job if you need cash.)

To me, it’s worth it but you have to weigh it all out before you know if it’s right for you. But there’s one more thing:

The scariest aspect of long-distance rentals…

The scariest part is not seeing your house before you buy it. I mean WHO DOES THAT?

Well, turns out it’s not as terrifying as you’d think. You’re not buying a house to live in for the rest of your life, you’re essentially buying the numbers. If the numbers are good and the house isn’t about to break (an inspector should tell you that,) who cares what it looks or smells like! 

How to make long-distance real estate investing work for you

This is crucial. Get this right, and you’ll get the best of both worlds – great deals and hands-off. There are three big lessons you need to learn first:

Lesson 1 – Find people you trust. 

The biggest issue that people have when they buy somewhere new is that there’s no easy vetting process. They essentially have to sign up with the first person they meet. The first recommended property manager, the first recommended repair guy, it’s hard to vet people. 

So focus on just this one goal. Have a solid team you can TRUST. 

Interview at least 3 management companies and get referrals. A good manager will make your life awesome. They will know good repair guys and they will protect your money. A bad manager is worse than a bad tenant. They not only charge you money, they also need constant babysitting to avoid expensive surprises. 

An hour spent in vetting will save you ten hours down the line. 

Same thing goes for inspectors. If you know you are buying a good house without any surprises, the financial equation is very simple. And a thorough inspection is a must when you can’t be there yourself. 

Real life story: I had a manager who seemed good. It was a big company with lots of processes and lots of employees. They seemed to have a handle on things during the first year, and I was fairly happy. 
But then I began to notice that this house always had more “surprises” than any of my other houses. Tenants behind on rent; driveway suddenly too broken to function; water bills not paid; even a surprising fee from the city that ultimately led to an eviction. Ay-caramba. 
Each event had a rational explanation, but there were just too many events. 
So I fired them. 
The replacement manager was sooo good. She solved a bunch of problems for everyone on the first day – like I waived an old late fee that had compounded but added $10/month to their rent. Boom. Done. Eviction avoided. Two years later, still no issues. 
So you need a good team. 

Lesson 2 – Don’t buy houses from the wholesalers. 

If you’ve never been to a city and don’t know it well, don’t buy a house from a wholesaler (like RoofStock) online. 

Buying in the right neighborhood can be tricky. In some cities you cross the street and all of a sudden you’re in the wrong part of town. 

So again, you want to have a good real estate agent who knows rentals well. Luckily, property managers are usually also realtors. Yay! Half the work! 

long-distance-real-estate-investing-bad-neighborhood

Also read:
Crowdfunded real estate – top eREIT picks
Turnkey real estate – is it worth it?

Lesson 3 – Automate as much as possible. 

Your manager should be electronically depositing your money for you. Ideally, your manager should also be paying your taxes and your handymen. 

Sure, you can mail cheques all over the continent, but nothing’s more annoying than waiting for your money to come in the mail. (And be prepared for some choice words from contractors who get ticked off by snail mail too.) 

Okay, so having a team you can trust is important. But on the flip side… 

Would I self-manage an out-of-state rental? 

It depends. 
I spent $63K on management in 2019. Self-managing can save you a loooooot of money. 

There are a lot of amazing tools and apps out there that can automate all the repetitive bits and process almost everything you need – including contracts and rent processing. 

I won’t go into too much detail here because I’ve written a huge property management tools comparison article where I go into features, pricing, and what’s worth it and what’s not. 

I haven’t pulled the trigger myself though. I feel like having a real human visit my tenants is important. (Remember that scene from Up in the Air when Clooney just walks away from the video firing? That’s not me.) And it’s not like I can go there myself.
(I’d probably do it if the house was rent to own…because you tend to get better tenants but that’s not my bag).

But I’d be curious if you would. 🙂 So leave me a comment to tell me what you think. 

TL;DR – Long-Distance Real Estate Investing 

  • I like it because it’s hands-off but also because it opens you up to better deals 
  • An obvious downside is that managing it is more expensive
  • If you want to make it work, make sure you: find a team you trust; have a realtor you trust; and automate as much as possible. 


Mr. FYFE's Top Tips to get into Financial Shape

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2 thoughts on “How to: Long-distance real estate investing in 2020”

  1. The hardest part in long distance real estate investing for me when directly owning real estate is the ability to source deals and to find the right team to help manage the property.

    As you mentioned in your post, a street or two can change the feel of the neighborhood completely. How can one account for that without having been at the city?

    Also, finding a good team is hard. It’s already hard to find good contractors and rental agents when they know I am close by and can inspect their work/progress. I can’t even fathom firing a handyman/contractor when they know I can’t even check on what they have done.

    Reply
    • So putting in the time to find a good agent is the nexus (sometimes rental managers are also agents too, reducing the work). Getting referrals and references is really important. Referrals can come from any agents you know, or if you happen to know other landlords.
      References are easy, the person should give those to you and you just call them. I’ve hired lots of people (dozens at normal work, and dozens for real estate) and calling up 3 references per candidate is huge. If one person says “they screwed me” then I’m out.
      Also, Google reviews and BBB are great if there even are any reviews.

      Then for a handyman. Your agent/manager can refer one, you can call them, get references if you wnat. And the agent should check their work (them checking is normal). I would be less concerned about a handyman though and almost never get references. If they screw up, you can send another one/lose a few hundred dollars. A bad manager or agent has contracts and can cost you many thousands before you know what’s up.

      After your good question, I now realize I should put in some steps in the article for this more than just “get referrals” 😛

      Reply

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