Buying Properties Long Distance, Does It Make Sense?

By Toyin Dawodu, FOUNDER/CEO at GIC DEAL FINDERS

Some investors have been lucky to purchase and profit from buying properties away from where they live. For others, it’s been a disaster, especially if you don’t know what you are doing.

I once ran into a lady who owned a property in Ohio. She lives in California. The property has been vacant for almost six years. It has accumulated code violations, tax liens and possibly growing mold. This leads me to the question, should you buy in your backyard or venture out of state?

Most experts say you should not buy investment property more than forty miles from where you live. I live in Riverside, CA, about sixty miles east of Los Angeles. Under normal traffic, it’s about a forty-five minute drive.

For those who live in the Riverside area and work in LA, the traffic is a grind. It takes two hours in the morning and two hours at night coming back home.

I have bought a lot of properties. At the last count, I have over 400 properties bought and sold under my belt. There is so much information, or dare I say, misinformation that a lot of would-be property investors or newbies become confused and get lost in the shuffle. Hence they end up being paralyzed instead of joining the veterans and making money in the twenty trillion dollar real estate industry.

I bought most of my properties in and around my area of Riverside and San Bernardino counties. It’s a metropolitan area of about three million people known as the Inland Empire. Every empire must have its king, so I sometimes refer to myself as the King of Inland Empire, when it comes to buying and selling properties, because I have bought a lot of houses here.

A few times, I have had to venture sixty miles away into Los Angeles thinking it made sense. The numbers were right, but I failed to add the cost of my time, driving back and forth, inspecting and safeguarding the property. Since I buy about 5-10 properties a month, I always like to drive around my properties on weekends just to do inspections and review work done by contractors.

The first time I bought a property in Los Angeles, I had to travel there during the week. The sixty mile round trip took six hours. It took me almost four months to sell the property. The frustration of back and forth traveling forced me to dump the property without realizing my minimum profit of $30-40,000 per deal.

Since then, I laid down my rule for buying in Los Angeles, or away from home. I must net $1,000 for every mile of the property distance. So if I get a call for a purchase in Los Angeles, I will not pull the trigger for a purchase and flip unless I can net $60,000.

Although I buy all over the nation currently, and I know it’s hard to apply the same rule. However, I still try to make sure there is enough profit on the table to hire all the help without having to jump on the plane or drive across country. My current deal is almost 5,000 miles away from home, but there’s about $90k in the deal to play with.

Whether you buy to flip or hold, distance is a huge factor to your profit and cash flow.

What is your rule for buying long distance? Should newbies even try it? What advice do you have for newbies who want to buy away from home?

  • Jeri Creson

    I work with clients from the Los Angeles area – my former primary market – who invest in another state where I currently focus on, and hold a license. (Louisiana) which provides the kind of market that is more conducive to stable, long term real estate investments with substantial positive cash flow – Most landlords in Southern California have little to no cash flow if their properties are over 65% encumbered. In my Louisiana market, rentals are a premium, vacancy rates minimal, and positive cash flow with 80-100% encumbered properties is the norm. The key is to locate and build a relationship with a broker in the market that you wish to invest in, and stay on top of communications and checklists for your property. Technology makes this simple, but you need a high quality, conscientious broker in the market of your investment to make this feasible and profitable. Otherwise it becomes an unacceptable level of risk.

  • Thanks for the article. If your investing for cash flow (buy and hold) I think it makes sense to invest where the numbers are favorable, and then live where you want (which is often not where the numbers are favorable for cash flow). HOWEVER – I agree with you that it can be a nightmare if you don’t have the right team on the ground. My company has invested in a few hundred deals long distance and we learned this the hard way. Now we won’t invest in a city until we feel confident in the team on the ground, and the only way to feel confident with the team on the ground is for us to test them with small projects, before we go big. This limits where we invest. No matter how good the numbers are, we won’t invest unless the team on the ground is performing well. Amazing numbers turn out not that amazing without the right team.

    Alan Siebenaler
    Founder
    http://www.RetireOnIncome.com

  • RE_Insider

    We wanted to share a comment from one of our readers who emailed us saying:

    Buying properties long distance? It’s a crap shoot. If you have a trusted associate or partner living in the area who is familiar with property ownership in the area you can lessen the probability of a crap shoot but not by much. Family members are notoriously unreliable. We have experienced a lot of misinformation and misrepresentation. For example, we got involved in a fix and flip in Texas. The owner was living in the property along with 25 pitbulls and wanted to sell the property without an inspection. His “agent” was not a licensed realtor but a “wholesale” specialist. We finally sent a “trusted” contractor to view the property and they actually gained access and spoke with the owner. While inside the house they noticed there was no foundation!!! The owner tried to keep the fact hidden by not allowing inspections and selling “as-is” but when local investors passed on the deal, the “wholesale” specialist reached out to California investors…..we have learned that this is a dead giveaway that there are undisclosed “problems” with a property when no one “local” will buy the property….. Also with a “wholesale” specialist, the good faith deposit becomes non-refundable and the pressure to put down a deposit becomes relentless. That is another clue that the deal might not be “kosher”.

    There are other “unknowns” in unfamiliar areas. Title companies operate differently in often “puzzling” ways. Here in California, you can get a “prelim” or preliminary title report showing any potential problems. That is not true in other areas. It can take a month for the “title” company to provide any kind of report and it usually shows every lien and mortgage going back to the turn of the century. Not only that but they insist on investigating every lien to see if it is related to the seller in the transaction even when the facts show a different social security #, address, date of birth, etc. We have had them ask for money upfront and then conveniently “forget” to list it as a credit on the closing statement because they had worked “so hard” on the transaction! Another title company said that they “didn’t like the deal”. As if we came to them for advice! Lenders can be different…some are rip off artists asking for front fees……knowing that because there are thousands of miles between you and them that you won’t go after them……they cover themselves by saying things like “advisement fee”.

    Even if you close escrow and own the property, collecting rents becomes problematic on several levels. If a tenant falls on hard times and stops paying rent, there can be rules that they quote from “city” regulations on how much time they have before they have to pay or leave. If you have a “trusted” associate collecting rent, you run the risk of that person absconding with the rent or singing you a sad song about how they needed some of the money…..Even management companies have been known to “lose” the rents…..I have had investors give bank account numbers so tenants can just deposit the rent. Sounds good doesn’t it? But when a repair is needed, many refuse to pay rent until the repair is made…..

    Repairs, a pesky problem to deal with long distance. Even locally, repairs are a continuing “PROBLEM”…..but long distance, sellers often get ripped off even by “trusted” family members and associates. Some absentee landlords let tenants “make the repairs” and the owner never increases the rent because they believe that the tenant is maintaining the property. When they finally after many years are ready to sell and inspect the property, they learn the sad, unbelievable truth. The tenant has never ever made one repair…..when the garbage disposal stopped working, the tenant took it out and put a bucket under the sink. When the shower diverter quit working properly they used pliers to operate the shower and on and on it goes…..many absentee landlords are “afraid” of property managers for fear of getting ripped off or afraid of the cost but then get ripped off by the tenants. Also, tenants sublet bedrooms and collect rent. Absentee landlords have no idea who is living in the property and as long as the rent comes in, they turn a blind eye. But when the rent stops coming in, they visit the property and learn the sorry truth of what has been going on…..

    Often there is “bias” on the part of tenants, title companies, management companies against “outsiders” buying property in their community. I have heard this repeatedly in subtle ways.

    Purchasing property “long distance” is a CRAP SHOOT!