How to Buy Your First Rental Property (Out-of-State) in Just 90 Days!

Ashley:
Are you nervous to invest out of state? Are you worried that you won’t select the right market or be able to build a remote team? Our guest today has two out-of-State properties in his portfolio proving that distance is no barrier to getting started. Whether you’re dreaming of expanding beyond your backyard or just starting out, there’s so much to learn from his journey. This is the Real Estate Rookie podcast. I’m Ashley Kehr and I’m here with Tony J Robinson

Tony:
And welcome to the podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we’d like to welcome Jeff Costa to the Real Estate Rookie podcast.

Jeffrey:
Thanks guys. I really appreciate it. It’s like I’ve come full circle to be on the podcast. I’m so excited for today,

Tony:
Man. We’re super excited to get into your story, Jeff, and what we’re actually going to be discussing today is how to select your out-of-State Market, which is a big thing for a lot of new rookies who can’t invest in their own backyard. We’ll talk about how to analyze and source deals from afar and the potential impact of a bad property manager and what it can do to your real estate portfolio.

Ashley:
Jeff, to start off the show, give us a snapshot of your life before real estate investing. What was going on? Were you working? Give us a little insight of your life before real estate.

Jeffrey:
Absolutely. So I by W2 job am a product manager, which means I run a business inside a business for a technical company and it’s been going great. I was doing all the traditional investing vehicles, 401k brokerage and then we had a baby. So somewhere around the time she got to be about three years old. I sort of looked at life a little bit differently and I really didn’t like the fact that a lot of my investments were in the stock market, in the mutual funds and I didn’t have the span of control that I would’ve wanted over those investments. So I started researching real estate and it eventually led me to you guys. I started in a Reddit sub forum about real estate investing and everybody kept talking about BiggerPockets and I’m like, is that some kind of aphorism like money talks or time is money or is this somebody’s handle? And I just don’t know who they are yet, but eventually a Google search led me to you guys and the message boards and so forth. So that’s kind of what got me started, but really it was all about having greater control over my own destiny.

Ashley:
Jeff, I’m sure during that research and that time you also learned how high the fees are when investing in mutual funds too, that could help make your decision to transition to real estate. So when did you end up purchasing your first property? What was kind of that research and analysis phase before the first purchase?

Jeffrey:
It took me three months to do this. I was also listening to Brandon Turner at the time and he was all about action, so it didn’t take long.

Tony:
Jeff, I just want to ask because I want to make sure I’m tracking here. So you’re saying you started down this rabbit hole and from the time that you found BiggerPockets until actually finding that first deal, it was three months?

Jeffrey:
Yes, yes, and I did a lot of work in those three months. I actually went on BiggerPockets and instead of using the agent founder, I actually looked at agents who were active in the community and agents that were posting. I was looking at the answers and how engaged they were. Then a lot of those same agents have their own portfolios in their personal profiles. What I was looking for was someone who had done this before was definitely familiar and comfortable with the investors as clients, and that got me in there. The other part of this was whenever you’re learning something new, there’s a whole vocabulary that you are unfamiliar with. So I’ll be honest, the first couple of calls, there was some terms that went over my head that I had to skill up on, but I tried to learn as quickly as I could.

Tony:
Jeff, I got to ask some questions here because I think you accomplished something that a lot of folks listening to this podcast have not yet been able to do. 90 days is incredibly fast to go from finding out who BiggerPockets is to actually finding that first deal, and it sounds like what I want to be able to share with folks is how you were able to move so quickly. I feel like the normal timeframe that Ashley and I see on this podcast is 12 to 18 months of people kind of doing the whole education piece and kind of dipping their toes in the water, but you went full four, so I’m trying to uncover how you move so quickly. It sounds like one piece is you found an agent that was already active in BiggerPockets and had their own portfolio. What were some of the other things you did that allowed you to move so quickly?

Jeffrey:
Yeah, so as a product manager, I do a lot of customer research and research in general because when you’re building a software product, you have to make sure that you’re building the right thing that someone wants, and there’s a lot of analytics that go into that and analytical thinking, and I tried to apply that to everything I was doing in real estate because I feel like the skills are very, very transferable. So what did I do to answer your direct question was I started consuming as many podcasts as I could with all of my free time, driving, running, anything I could do to get, again, better versed in the vocabulary and understanding some of the common problems. I started looking in Atlanta first, which you’ve always heard that Atlanta’s a hot market. The southeast in general is growing. Why wouldn’t I just look in my own backyard?

Jeffrey:
So I started doing that first and then quickly ruled it out because the properties that I was finding in Atlanta that I could potentially self-manage or travel to in short distances really were out of my price range. I was looking for something right around the two 50 to three 50 mark and everything that I could find in Atlanta was just the condition or the neighborhood was really poor. So that led me back to upstate New York where I was from. I went to school south of Buffalo in a state university college called Fredonia, so I was familiar with Buffalo.

Ashley:
That’s where I went to college. Jeff, is it really? Yeah, I went to Albany and then I transferred to Fredonia.

Jeffrey:
Oh my gosh, that’s so funny. So I’ve been to Buffalo many times. I grew up in Rochester, so I thought, okay, I know both of these markets very, very well, and I felt that was a little bit of an unfair advantage that I didn’t have to go through. Learning the zip codes and learning what parts of town are good and bad, that was an accelerant, and then starting to invest out of state has its own set of wrinkles that are vastly different because I just can’t drive to a property and get a feel for it. You have to do a lot more detective work on your own and there’s some great ways to do that, which we can certainly talk about.

Tony:
I guess just to recap for the Ricky audience, you first said, where can I go? Once you made the decision that you couldn’t go in your own backyard, you leaned back onto another market that you already knew validated that market actually fit what it is that you were looking for, and then you went about building the team and it sounds like because of your W2 experience that you leaned on kind of a very systematic approach to say, well, hey, there’s no overthinking. I’m just going to lay out the roadmap and then execute all the steps along the way.

Jeffrey:
There’s a product management precept that says, just ship it. You probably have heard someone like Mark Zuckerberg say this, as you ship software, you learn, get it out there, get it in the world, it’s going to have warts on it, you’re going to make mistakes, but you’ll learn it, refine it, and it’ll get better over time. And that’s exactly the approach I used was got to get in there and got to, got to get the experience hands-on.

Ashley:
Stay tuned after a break. For more from Jeff, if you’re hoping to invest out of state, you’ll need a team to help manage your properties. Go to biggerpockets.com/property manager to learn more.

Tony:
Alright guys, welcome back to the show where we are joined by Jeff Costa.

Ashley:
Jeff, what was your plan with investing in real estate? What was your exit strategy? Was it just buy and hold on forever? Did you have a plan in place as to what you wanted out of your real estate?

Jeffrey:
My target has been 10 properties all along. I actually glommed on to, again, having a daughter, I glommed onto Brandon Turner’s initial comment about I’m buying a house for my daughter, putting it on a 15 year note and when she’s ready to go to college, she can keep it or sell it and boom, there’s her tuition. I don’t know why that’s stuck in my head, but it did.

Ashley:
It’s stuck in my head too. I love that story. Yeah,

Jeffrey:
It’s a fantastic way to think about it and I really thought about that and I’m like, I would like to leave something like that for my daughter. Perhaps she would be ultimately interested in the same thing and I could create some generational wealth in the process. So for me, Tony, to answer your direct question straight, buy and hold and keep growing organically,

Ashley:
Let’s go into that first deal. If you want to give us a little breakdown what that entailed, how you sourced the deal, what the numbers looked like on it, and your strategy was buy and hold.

Jeffrey:
Yeah, I always wanted a duplex because my thinking was if one unit is vacant, I can always have some portion of the mortgage covered by the other one. And guys, I went as conservative as I could. It is a one duplex in Lackawanna, which is a suburb of Buffalo, and it was probably the easiest way to get into it with the least amount of capital. I still got the duplex, it was in really great condition and I bought it back in 2021 for one 70 and it was immediately rented within a month of doing that purchase. So the mortgage on that one is 1129 and it rents for 1900. So the cashflow after my management fees and the mortgage is about $500 a month, which I consider to be a win for a very small property, but I had to go in and do cleanup, find a management company to take care of it in Buffalo since certainly I was remote but it felt comfortable and I’m in Atlanta and I can get a plane ride to Buffalo and be there in an hour and a half if something catastrophic happened, but I definitely wanted those boots on the ground to be able to help.

Ashley:
Did you take the plane ride to Buffalo to look at the property before you purchased it?

Jeffrey:
I did, but just before I purchased it, one of the factors I used in selecting an agent was could they actually do a FaceTime with me to walk the property as before we put in an offer? And that was a big criteria of mine. I want to be able to see the basement, I want to be able to see how the rooms flow and that kind of thing. So I was able to see it, but the very first time I saw it was I went in and flew up the day before closing and drove over to Buffalo from Rochester and got in to see the property for the first time. But no surprises. It was exactly as it was portrayed in the photographs and in the FaceTime videos,

Tony:
Jeff, and it sounds like you going out there is more so just kind of like an emotional thing like, hey, I want to feel good about this decision myself. And we talk about that a lot in the Ricky podcast where obviously if you need to do that, go do that, especially if you’re doing it remote and you can get there. But I think what a lot of Ricks need to understand is that if this is your first investment that you’ve ever done and you have an experienced realtor who you found through the BiggerPockets agent finer, that also invests in that market, has done a bunch of deals, they go walk that property for you, they give you their opinion, you do a property inspection and you have an unbiased third party go through and tell you every single thing, big or small that could potentially be wrong with this property. You maybe have a handyman or a contractor walk through and give you a bid on what the repairs might be. After all of that, how much value are you actually going to add as a first time investor other than just walking around and saying, yeah, this is what I thought I was getting into. Right. So you kind of illustrated that point, Jeff, but I just want to highlight it for the rookies that going out there isn’t a bad thing, but really lean on those experts that you hired to give you that confidence move forward.

Jeffrey:
I thought the only thing I could have told you is, oh, this is dirty and it needs to be cleaned.

Ashley:
So Jeff, we have to always bring this up, but you mentioned that you bought this property in 2021, so to make us all grown, what was your interest rate?

Jeffrey:
It was 4.5%

Ashley:
For an investment property. That’s a great right to get right now.

Tony:
So Jeff, was there any extensive rehab or was it mostly just cosmetic cleanup, getting the unit ready for the next guest type activities?

Jeffrey:
Cosmetic cleanup? There was the only I would say major thing I did is there was a fuse box, if you can believe that in the second floor I replaced that with a circuit breaker. That was probably the extent of it. The rest of it was just pure cleanup. A couple of electrical outlets were wired wrong, really, really minor stuff. So it’s been very good so far.

Tony:
Jeff, one follow-up question on the lending side, you said your rate was just over 4%. How did you find that lender and then what type of debt was it? Was it commercial debt? Was it in your personal name? Just give us the details of the debt itself.

Jeffrey:
Yeah, straight up 30 year fixed. I did learn from you guys keep your name and your spouse’s name separate as you’re buying property so that you can have more than, I believe the stipulation is 10 units per person on your name. It was Wells Fargo, so I used a bank that I was familiar with that also had a branch here in Atlanta. So if I needed to go in and get a cashier’s check or make a deposit or do something banking related, I definitely had a local bank presence to be able to do that. So that factored pretty strongly into my decision.

Ashley:
So Jeff, what was the next step after this property? You’ve got it stabilized, you have tenants, what’s your game plan from there?

Jeffrey:
You get the bug. I swear it just the first time that the rent comes into you’re like, wow, okay, this is real. And it spurred me to continue looking and unfortunately I ran right into the headwinds of everyone trying to buy at the same time. So it took me a little bit longer to find the next property, but I also tried to refine how I was looking for those properties as an out-of-state investor. Again, you have all those tools of boots on the ground and an agent, but I used to have a boss who said, surprises are for birthdays and the last thing you want to be is surprised when you’re purchasing a rental property. So I got really good at looking at more and more properties. So I would use Google Street Maps and look at the property and look at the neighbor’s property.

Jeffrey:
Are they taking care of it? Do you see landscaping being done today? All the rages drone shots of the roof, great. If your roof looks great but your neighbor’s roofs are dilapidated and need repair, that’s a bad sign. I got to be really good at looking at all of these different elements that go into where the property is and if you luck out and you happen to get photos in Google Maps where it’s the holidays, you can see are people decorating for Halloween or are they not? What kind of cars are parked on the street? I got good at that and looking at more of the traditional things like what’s the median income for this zip code and then here’s my projected rent, is the rent going to be 30% of that median income? So I was trying to keep refining my buy box and my criteria even if there weren’t properties that were readily available to me. Again, a shout out to Brandon where he said, you have to look at a hundred properties before you buy one. And I think that the spirit of that is the more research you do, the better you get at this and the easier it is to dismiss properties more quickly that don’t meet your criteria and move on to the net.

Tony:
Jeff, I guess one other question I have for you. We know how you financed and funded that first property, but for the second one that you purchased, was it just saying more cash you had saved up going back to Wells Fargo or how did you finance the second one?

Jeffrey:
Yeah, it was still Wells Fargo. It was a convenience factor like oh, another mortgage sitting in the same web interface that I had already had. So for each property though, I did create a separate checking account and a separate savings account and a separate credit card so I could keep them straight. And my accountant didn’t hate me at the end of the year, but I decided to do that and I’m just a very avid saver. So we just kept building cash and I haven’t taken anything out of the rental properties. This was all just saving from W2 job. I try to recycle the money that’s coming in and keep a nice rainy day fund for these properties and keep growing.

Ashley:
So let’s talk about the purchase of the next property. So give us a little insight of that deal breakdown.

Jeffrey:
Yes, another duplex, but this one was a bit larger. It was a two two, so in a section of Russia called the Ron Deco, and this one was sold for, I bought this for 2 25 and this didn’t happen until August of 2022 to give you some sense of the span of time between the two purchases and the mortgage on this one was a little bit higher at that time. I want to say this one is at 6%, 6.1%. The mortgage is 1579 per month. It rents for 26 29, which is really nice. So I get a pretty significant about 840 in cashflow after the management fees on that. So that’s been another great win. And I did have some rehab to do on this one. So the kitchen and this one looked like grandma’s 1970s kitchen orange countertops, really dilapidated cabinets. So I had to go in there and do a full gut on the kitchen and that was a little under 20,000 to get that done, but it really helped it rent, I think it rented at a higher rate than the unit below it, and I think that rehab really did help that. So the return investment there was certainly positive.

Ashley:
With that being a bigger rehab, did you use the same contractor? Did you lean on anybody to get referrals for contractors?

Jeffrey:
I used a referral from a property manager and I backed that referral by asking my local real estate agent in Rochester if this was someone he knew about and if they had a good reputation, I wish there was some kind of database where you could go look up contractor reputations like their eBay scores, but there is no such thing. But I lucked out and I really got the opportunity to work with a great contractor who sent me the periodic photos of the evolution of the demo and the installation. I got on a few conference calls with a cabinet guy and the contractor and honestly managed it remotely. It’s almost shocking to think that you can do a full kitchen rehab without being there, but that’s exactly what happened.

Ashley:
I wanted to add on to your point about recommendations for rating contractors and finding one. James Dayner talked about this at BP at the conference stating that he’ll pull permits and he’ll look to see who the contractors are that are on the permits. So you can look at how long a permit has been open for. So obviously if this is a small kitchen rehab and the permit’s been open for two years, this probably isn’t a great contractor. And you can also look at if there’s been any liens or judgments against a contractor too. So he said he does a lot of that backend county work to look at the records to kind of take a basis off of if a contractor has done good work or not for others.

Jeffrey:
That’s a really clever idea.

Tony:
Jeff, one follow-up question on the rehab piece. So did you go out there at all?

Jeffrey:
Not once. Once it was all FaceTime videos and photographs. If I had questions, why is this here? We had one problem with the cabinets over the refrigerator. We sorted all of that out via phone call. The first time I saw it was right before it was going to get rented and I went in there and did an inspection myself and it was exactly what it looked like and was how it was portrayed in the photographs.

Tony:
And Jeff, I think this really illustrates the power of that first deal and we’ve talked about it a lot on this podcast, but the knowledge gap between the person listening to the podcast who hasn’t done any real estate deals and the person who’s done one is so much bigger than the person who’s done one and the person who’s done two because your first deal, you flew out there, you’re like, lemme make sure that everything’s actually here. Lemme make sure this house exists, right? And now you’re just FaceTiming the contractor saying, Hey, get the cabinets in. And that’s the level of confidence that’s gained going from deal zero to deal one. Alright guys, we have to take our final app break, but while we’re away, we’d love to hear from you. Do you invest in real estate remotely? Just like Jeff? You can answer in the Spotify app or in the YouTube app during the break.

Ashley:
Okay, let’s jump back in with Jeff.

Tony:
So we talked a little bit about managing the rehab remotely, but what about just actually managing the property? Now I know you have property managers in place, but you still have to manage the managers. So just for you being in Atlanta properties, being in western New York, what’s the experience been for you managing those from afar?

Jeffrey:
Yeah, Buffalo has been great. No problems at all. Irish Jones has been great. My first property manager in Rochester was a bit of a different story. I again was looking through my agent’s Rolodex for, I’m looking for property managers that he would recommend and he gave me a name of a guy that five of his clients were using and I called him and introduced myself and he seemed legit and I ended up going with him. He was an ex-military guy, so my lizard brain was thinking processes and rigor and systems and all of that. It didn’t turn out quite that way. I think every real estate investor has a little bit of a horror story and this would be mine ultimately. It started off well, but it ended up ghosting me in the middle of a contract about six months into it. So learned a lot from that one.

Tony:
I guess. What did you learn, Jeff, if you were to maybe try and avoid that as a new rookie, what other steps would we be taking?

Jeffrey:
Going back to your comment earlier about as you do this, you learn and grow. When I first met him, I went to his office, it’s in Rochester. He is got a nice little office that he rents, had a conference room while we were in there. He got a phone call, he’s doing his own rehabs and I’m like, oh, this guy knows everybody. He’s successful, he’s got connections, but he’s the only one in there. And then I look at that now in retrospect and I’m like, no property manager is a solo act. There should be at least three to four people in there that handle various aspects of the property management thing. And the fact that he was working on his own deals, while it was impressive to me as a newbie is also a bad sign of they’re not going to have time to pay attention to my property because they’re paying attention to their own. So again, the things that you think of when you first do this tend to be different over time. That’s sort of some of the things I learned when I asked him about how do you manage these properties? What rental system do you use? He’s like, I don’t really use one. I’m kind of going to want to build my own. And again, rose colored glasses. At first I build software as my W2. So I’m like, oh cool, so somebody’s building software I can respect that.

Ashley:
Definitely Googled you, Jeff, and knew what the right topic hit.

Jeffrey:
And I was like, oh, I really respect that. And then you come to learn like, no, that’s not how it works. There are plenty of existing software as a service platforms that get you there. And don’t get me wrong, you can really go astray if you’re not paying attention to some of this. And at first, the rents were coming directly to me. So super fun to get that little Zelle notification that you got paid. And then I would pay the property manager via PayPal In a normal environment, that is not how it works. The property manager is the one who does the accounting. They collect the rent, they give you a disbursement every month. But again, looking back on it, I didn’t know what I didn’t know. And that really has changed how I approached the business itself. Yeah,

Ashley:
Jeff, I can completely relate. I went through an experience with a property management company where looking back there are those red flags and it seems to you that you were looking to hire a company, but it was really just one solo person probably trying to cover their own expenses on their properties by managing for someone else the fact that he is not using property management software. I did that when I first started as a property manager because there was none in place and I literally cried every single night, wanted to rip my hair out until I put that property manager software in place. So I definitely see those red flags there. And with the company I used looking back now too, I didn’t ask the right questions. And that was a great learning experience. And on biggerpockets.com, if you go to, I think it’s in the pro articles, there is a section that’s like 25 questions you should ask a property manager when you’re interviewing them.

Ashley:
And we’ll try and link it in the show notes if I can find it again. But that was a great resource written by Steve Rosenberg. And really that’s a whole part of it as to how you ask the question. And we talk about this consistently for any person that you are interviewing, if you’re talking to an agent, do you represent investors? Yes, I do. And maybe they have one investor, but you can change the question and say, how many investors do you do deals for? How many I investor deals have you closed in the last six months? You can. Same with loan officers, tailored the questions that way to get more specific, and that was a huge learning lesson for me.

Jeffrey:
Yeah, I think you’re right. The questions are paramount and there’s so many ways you can do this detective work. One thing I found that worked really well was most property management firms have their own website with their own listings on that website. Go look at those, go look at what the photographs look like. Were they taken with an iPhone four? What’s the description of the property look like? Right? Are they selling unique things about the property? Because if they’re going to do that on their own website, that probably means that the quality of what you’re going to get when they syndicate those listings is going to be equally as poor. So it’s a very simple little thing you can look at. And then look at their social media presence and how they’re posting about properties. What are they saying? Are they posting about properties and that kind of thing. So there’s some really interesting ways that you can kind of go about also doing your homework on a property manager

Ashley:
To go along with looking at their listings that they have in their website. Look at when the rent ready date is because if the rent ready date says this is available on May 1st, but it’s now July 15th, that is a vacancy that they’ve been having sit for a long time and hasn’t been filled. I also do that too when I’m doing market analysis. I’ll go and find the property managers in the area and I’ll look at their websites to see too, are there properties that are actually sitting too.

Tony:
I guess one question here, Jeff, because you’ve made a lot of progress with these two properties and it seems like the confidence has grown a ton. You basically went like turnkey for the first one. Looking back, would you take that same approach or do you feel that maybe you would’ve focused on a value add where you’re doing a bird? Because I think a lot of people struggle with that idea on that first deal of, do I go turnkey and just kind of plug and play, or do I maybe try and squeeze a little bit more juice out of that first deal? So knowing what you now know, would you still go turnkey first?

Jeffrey:
Great question. And I think I would do the exact same thing. To me, it was a way to minimize risk and I didn’t want to turn myself off to the entire concept of real estate investing then by biting off more than I was ready to chew. And I feel like I have slowly moved up that scale and the next thing might be a bur. And I feel like I have the confidence to tackle that now, but I don’t think I would’ve changed anything. I think I would’ve still used the same process in the same flow.

Ashley:
Yeah, I mean they seem like they have been successful deals for you going that route. So what’s next for you, Jeff? What’s on the plan? Have you decided to pivot from jumping and working towards 10 properties? What’s the agenda?

Jeffrey:
Yeah, the wife and I decided to remodel our own basement this year, so we kind of took a year off of investing to do that. But I can’t lie. Every night I’m looking at Zillow, a realtor to look at different properties and with the interest rates coming down, it’s certainly more appealing. Next for me, I think, is to continue that progression like a fourplex or an eight plex, seeing something that could easily be manageable and grow from there. I still think there’s a crawl, walk, run method to doing this that has served me well. So not really looking dissuade, diverge from what has worked. So that’s really kind of where I want to go next.

Ashley:
And then what would you say to a rookie investor thinking about getting started today, investing in today’s market? Do you have an opinion on that?

Jeffrey:
I do. I would say do your homework. Listen to as many BiggerPockets podcasts as you can until it becomes second nature to you in terms of the vocabulary and what people are doing. But you actually have to do it. There is a point in time where you have to get your hands dirty and you have to jump in with both feet. It’s going to be scary at first. It always is, but it is the only way you learn and the only way you grow.

Ashley:
Well, Jeff, thank you so much for joining us. Tony, any other questions?

Tony:
No, I think just overall, Jeff, if there’s one big takeaway that I have from your story, it’s that all of the rookies that are listening, obviously the tactical things, the X’s and O’s of how you chose the market and all that is super important. But I think the biggest takeaway from your story is just taking action and not getting so caught up in analysis paralysis that you listen to the same podcast a thousand times, hoping to discover that one piece of information that’s going to finally give you the confidence to move forward. And I think so many people are afraid to step out of that comfort zone and take that one little baby step towards the goal that they’re working towards. They just get stuck. So that’s the biggest thing for me, Jeff, you’re in your story, is that you really embody the, Hey, let’s figure this thing out and start taking some action.

Ashley:
So Jeff, thank you so much for coming on today and you have inspired so many rookies I am sure to get started on that first deal or even onto their next property. If you want to find out more about Jeff, we’re going to link his information into the show notes. You can reach out to him or learn more about his story. Thank you guys so much for listening or watching. If you’re on YouTube, make sure to like this video and to subscribe to the channel. We have a new YouTube series coming out called Rookie Resource where you get a free downloadable checklist or template with every single video each week. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie.