Interview 2: Rehabbing Out of State With Hybrid Turnkeys

Out of State Investing

Today, I’m so excited to bring you the 2nd of a new series of interview posts! These interviews showcase actual real estate investors who are investing from a distance. They’ll share how they got started, what their current strategy is, and advice for anyone looking to get started, too.

I’m happy to bring you Laura Williams, a real estate investor from New York City. I’ve had the pleasure of getting to know Laura this past year since we’ve both been investing in the same out-of-state market. She’s a smart investor with a lot of experience managing property managers and rehab teams out of state. I know I rely on her feedback and advice often.

So without further adieu, let’s get on with the interview!


Background

Where do you live?

New York City

Where do you invest?

Kansas City, Cape Town (South Africa), New York City

If real estate investing is not your full-time gig, then what do you do for a living?

Commercial Model and Actress

How did you get started in real estate? 

My attention was first drawn to real estate investing when I was in my late teens working part time for an elderly famous artist in NYC to supplement my modeling and acting income.  My main duty was assisting him with all his accounting, including writing and depositing checks, monitoring his stocks, etc.  I soon realized that even though he was a well-known, successful artist, he could not possibly have maintained his lifestyle off his art-related earnings alone.  It became clear that he was actually depending on his real estate rental properties for most of his income.  Also, his son did not have a “job”, but instead owned 8 rental houses in California, and income from these alone had allowed him to travel the world, often spending several months at a time in some very exotic places.  He once told me that his favorite hobby was “sleeping”, which I thought was funny, though obviously and enviably, he did have enough free time and money to do practically anything he chose, or to do nothing at all.  These personal encounters made a lasting impression.

Later, when I was 24 years old and needed to rent my first NYC apartment, I was unable to find even a simple studio for under $1500 a month (which seemed ridiculously over-priced to me at the time), so out of curiosity, I took a look at the “For Sale” listings and after some calculations, was surprised at how much cheaper it was to own than to rent here!  That year, I managed to acquire my first piece of real estate, an apartment I could live in and save myself several hundred dollars every month, compared to renting. That property increased in value by 50% in 2 years, which greatly enhanced my desire for more!  In addition to expanding my “other” career, I continued to educate and familiarize myself with the RE business, so over time, I was able to obtain several other Manhattan properties (as well as several foreign ones), some of which I sold for significant profits, and some I still have.

What is your real estate investing strategy?

The first properties that I bought were investor friendly co-ops, mainly because there is not really much of a choice in NYC where approximately 70% of apartments are co-ops and only 30% are condos, plus condos sell here for about 50% more than co-ops.  It has often been a major pain dealing with the co-ops and their annoying rules and unpredictable, irrational boards.  Now I am currently buying single family homes in Kansas City, which is much easier.  I try to buy properties that allow me to end up with as much equity as possible, so I look for bargains/foreclosures/people needing to sell quickly.  I almost always need to do rehab because the best deals on houses are usually on ones that were neglected, plus a rehab can create instant equity.  Then I rent out for the long term.  I use the BRRR (Buy, Rehab, Rent, Refinance) method, and I do use bank loans.

Investing Out of State

Why did you make the jump to invest outside of your local market? Why not invest locally where you live?

I still live in New York City, and currently it is impossible to get cash flow here with a 20% down payment, plus the cost of entry is really high.  Prices took off about 10 years ago and have not come down since.

To give a good example of why I chose KC over NYC investing, one of my friends owns a one-bedroom NYC co-op apartment valued at $575K, for which he gets $2,800 rent per month, but for that same $575K, in KC he could easily buy several properties in very good areas and get $5,000-8,000 total monthly rent instead!

Another problem here is that the laws in New York City are not favorable for landlords when dealing with bad tenants.  In other states where the laws are more fair, it can be much easier to evict a bad tenant.

What steps did you take to learn your market?

I started by looking at the popular RE investment turnkey cities and then narrowed them down based on population growth, jobs, crime, natural disasters and business-friendly ratings.  Memphis was ruled out because of the high crime rate as well as many other cities because of their poor price-to-rent ratios, declining populations, or because too much of their workforce was dependent on just one major employer.  I really did not want to be in a place where natural disasters were a high risk, or where there could be recurrent problems regarding property insurance and damages, like in Florida where hurricanes are a major threat year after year.  I finally came up with Indianapolis and Kansas City as my two favorites.  After visiting both cities in person, I found that I much preferred Kansas City over Indy, therefore KC has been my focus for the past couple of years.

How do you invest out of state? I hear you have a hybrid turnkey approach.

I work with a turnkey company that lets me pick the properties I like, and after I purchase them, they rehab and property-manage them for me.  They use a hybrid turnkey approach—a somewhat different model from the typical turnkey company that sells houses already rehabbed and rented.

Before I buy, I view most of my properties in person, but then I have purchased a couple without seeing them beforehand because they were such great deals, and I was already very familiar with the area.  Of course, I did have my agent take a thorough look at them and also had the proper official inspections done before I closed.

Usually I get my agent’s advice regarding how much I should offer on a property, but I also have strong opinions of my own about value since I constantly study the market and the areas I like.  I am continuously monitoring prices, noting when properties first come up on the market, how long they sit, and for what price they eventually sell.  It is important to stay current so you can quickly recognize a good deal and take immediate action on it before it sells to someone else.  From the beginning, I have preferred to be more hands-on than the typical turnkey investor.

What are the biggest challenges you’ve experienced investing out of state?

I would say that finding trustworthy people to work with was the biggest challenge I have experienced.  Even though the first out-of-state RE person I dealt with had been recommended by someone I thought I could trust at the time, the guy turned out to be a really bad character.  Fortunately, soon afterwards I met the owner of the company that I currently use.

I would like to be more involved with the aesthetic aspect of the rehabs, which I could do if I lived closer to KC.  Living so far away has also caused me to loose out on some great deals, usually due to the difficulty in arranging for someone to go check out a house for me right away.  If it is a really hot deal, it can be gone or have multiple bids on it by the end of the day.  I learned from several disappointing experiences that the faster your “reaction time”, the better deals you can get.

Today and Beyond

What does your real estate portfolio consist of today?

2 properties NYC (bought years ago); 4 hotel condo units Cape Town; 10 houses plus 1 triplex in Kansas City, MO

How much time do you spend on your real estate business?

At least a couple hours a week, and some weeks much more (like during new purchases, renter turn-overs, major rehabs, or just staying updated on the market via RE networks and other sources).

What’s the end goal? What are you trying to achieve with your real estate investments?

Financial Freedom

What advice would you give to someone looking to get started in real estate? 

Most important is to buy in a good quality area.  I know of many beginner out-of-state investors who made the mistake of naively getting dollar signs in their eyes after some turnkey provider showed them “sugar-coated” spreadsheets of cheap property in bad areas, and they ended up making a bad investment.  I would advise to only buy in areas that you would live in yourself.  Look for good school districts, for the paths of progress—like a Starbucks or Whole Foods close by, for hip/trendy restaurants or services coming to the area, etc.  I’ve seen too many people lose tons of money by buying in undesirable neighborhoods.  On the other hand, if you buy in a solid, decent area, and can cover all your costs with the rent and hold on to the property, it’s hard to lose money over the long term.

Something About You

What’s the best thing you’ve read lately?

Necessary Endings

Where can people go to connect with you?

Bigger Pockets


Thanks Laura for sharing your knowledge and background with the community here!! Awesome story and inspiring to see all that you’ve accomplished.  

If you want to learn more about Laura, reach out to her on Bigger Pockets. 

5 thoughts on “Interview 2: Rehabbing Out of State With Hybrid Turnkeys

  1. Very cool, Laura thanks for sharing your perspective! All those properties, I would think you are pretty close to financial freedom?

    Do you prefer the “hybrid” way so you can have more say on the rehab process? Or is it so you can do the cash + refi?

  2. Loving this new series you launched OB!

    Great interview Laura! I don’t personally own any rentals yet, but find it interesting that I’ve heard investors often say to view your rentals not as homes that you’ll be living in. Implying that they can be somewhat of a lower class property because they only care that it cash flows. Sounds like you advise the opposite when saying to “only buy in areas that you would live in yourself.” Does this advice apply generally or only to your properties out of state?

    • Hi Julie!! Sorry for late reply….. I am just seeing this now 🙂 Maybe I should clarify to “could” live in yourself or you would feel safe putting a family member or someone you care about in that house/area. Some of the higher end places we want/would live in ourselves might not cashflow enough to make sense as an investment (i.e. NYC or LA). I advise investing in a good area because alot of sleazy turnkey places sell properties in the bad areas and tell the investor that it’s Ok & that it’s a way to get higher returns……after all the investor isn’t living in it themselves and that all you need is a “good” property manager. I see these post from turnkey companies all the time on Bigger Pockets and it makes me sick.

      Then the reality is that the good property managers don’t want to manage properties in bad areas and those houses get bad tenants that usually damage the properties or need costly evictions at some point. The areas usually get broken into/ looted..copper pipe/hvac/appliances stolen. Then after a couple of bad tenant turnovers or the house being robbed multiple times, the investor is out thousands and thousands of dollars in repairs….can’t get a good tenant. The next step is usually that the investor wants to get rid of the property and now they can’t sell for half what they paid cause they over paid from the sleazy turnkey company who probably paid the first tenant to rent it so he could sell it ‘turnkey’. I saw this happen to a friend and have heard countless other stories of it happening to other investors. I just had drinks with a guy who started a support group in Australia for Australian investors who were burned buying bad US turnkey properties…mostly in Kansas City. He was telling me how one of the biggest turnkey places in KC (that surprisingly has a good reputation on Bigger Pockets) the owners have been in and out of prison and changed the name of the company 3 times. Most of the victims of his support group bought from them.

      I’m sure there are people who can make the bad areas work …probably a local who specializes in those areas. But for people who are investing out of state and looking for passive cashflow it’s a lethal mistake. I own now 12 properties in Kansas City ….all in very good areas…and I can promise you that you will have enough excitement and problems without adding a crappy tenant base to the list or neighbors that will rob you blind the first second your house is empty or dealing with non paying tenants/evictions etc. You will be grateful to have good neighbors/tenants looking out over your property and notifying your PM of issues or having tenants with good jobs and paying on time, leaving your house in great shape when they leave and not smearing poop around the house and taking the front door with them (this actually happened to a friend lol)

      Also I didn’t even start on getting little to no appreciation on the bad areas. (unless it’s a bad area with new developments and path of progress then that’s different) Have a friend who bought several places in KC around 2012/2013. Some in good areas and some in not so great…just regular houses and not turnkey. He was looking to sell some recently. His good area properties have at least doubled in value since he bought them and his bad area properties he’ll be lucky to get what he paid..maybe even loose money on them.

      So this is why I’m really really passionate about investing in good areas. Even if you have to get a fixer upper & deal with a renovation instead of ‘turnkey” to have the numbers make sense I think it’s definitely worth it . If you “could” live in yourself then I think that will help you determine if the area is good enough for investing in. I’ve found with myself that the areas I like other people like them too and the more I like a place the quicker it always rents. I think of property as a business and my tenants are my employees so I want the best I can get.

  3. Thanks Brian!!

    Is a few different reasons I prefer the “hybrid” approach. First is that a house that is in good shape always sells for a premium & it’s very hard to have equity in the deal buying that way and/or buying regular turnkey. The more equity in the deal the more money you can refinance out and the more money available to purchase other properties. Plus I sleep better knowing that I could sell my properties anytime and have made a nice profit.

    Also I do like to have a say in the cosmetic aspects of the rehab to make them as nice as possible. And the 3rd reason I love the fixer uppers is that my insurance company gives me utility discounts for doing certain repairs (HVAC, Electrical, Plumbing, A/C, impact resistant roofs) which can cut my insurance cost in half. Plus if I buy a place below retail/ bad shape I can also try to get the property taxes reduced which saves me $$ as well. Between the discount in Insurance and taxes it can add another $30-100 on my cash flow.

    It’s more work and stress buying the hybrid approach and dealing with a renovation and contractors but I find the efforts to be well worth it.

    • The instant equity leading to faster refinancing and more properties is why I would consider it. That can really speed up the portfolio growth. I’m sure I could run some numbers that would prove to me that the time investment is worth it.

      I haven’t heard of insurance companies giving utility discounts, that is another benefit. I wonder if most insurance companies offer something like that, but most people don’t know / take advantage of it.

Leave a Reply