First Time Investing Out-of-State
3 Lessons I Learned the Hard Way
Looking back, I don’t know how I cleared a profit on my first out-of-state investment property.
I made every mistake in the book.
Luckily none of these errors completely sunk my ship.
I’ve bought 5 more small apartment buildings across the Midwest since then.
Each deal has gotten better than the last.
And it’s primarily because I got these 3 costly lessons out of the way early.
Lesson #1: Only Inspect When Necessary
At $600 - $1,200 per inspection, this line item adds up quick.
I’d never advise against paying for inspections altogether.
But I highly recommend only inspecting the properties you’re seriously considering closing on.
When I was hunting for my first deal, I wasted thousands on inspections.
Rather than negotiating an adequate due diligence period to walk the property myself first, I’d book an inspection the moment I placed the property under contract.
Now days, I only carry out a formal inspection for a fraction of the properties I place offers on.
Before I pay a penny to an inspector, I’ll tour the property with my GC (General Contractor) to identify any potential areas of concern.
If nothing stands out as a deal-breaker, I’ll pull the trigger on calling the inspector.
Lesson #2: Avoid Seasonal Markets
One of the first out-of-state properties I purchased was a 3-story row home in North Philly right next to Temple University.
The game plan was simple: renovate and rent it to college students for top dollar.
Great strategy in theory, but practice is another story.
Like every renovation project, it took longer than anticipated.
As result, we missed the window that most college students are locking in housing for the upcoming school year.
This eliminated a huge segment of our tenant base and flipped our entire operational strategy upside down.
Ultimately we were able to place a tenant in the property, but it took way longer than expected and we paid for every day of the delay.
Vacancy and carrying costs took a chunk out of our projected profits.
We ended up selling this property about five years after we bought it.
If I was to buy another student rental I’d triple my reserves.
Having capital set aside to cover construction delays and leasing challenges is a must when investing in seasonal markets.
Lesson #3: Take Referrals With A Grain of Salt
Before we sold that property in North Philly, we found ourselves neck deep in a legal battle with a squatter.
Someone broke in while it was vacant and claimed they had been paying rent in cash.
Of course this was a lie.
But we needed a lawyer to prove it.
We hired an eviction attorney that was referred by the property manager we were using at the time.
Considering we came by way of referral, we figured the attorney would treat us as valued clients, or at least tend to our case with a decent amount of care.
Unfortunately that didn’t happen.
The communication was nonexistent and we had to hound the lawyer for updates every step of the way.
After more than a year of failed negotiations, we ended up getting rid of the squatter and securing the property for sale.
Had I not blindly taken the recommendation of our property manager, I could have saved myself time, money, and 12 months of headache.
They say what doesn’t kill you makes you stronger.
When it comes to real estate, what doesn’t bankrupt you makes you a better investor.
It hurt my pockets learning these lessons the hard way.
But sometimes there’s no easy way out.
You have to pay-to-play.
And I’m glad I did.
By getting these mistakes out of the way early, I built confidence in my ability to execute even when things get shaky.
It taught me that the turbulence is only temporary.
And that small losses lead to big wins.
They’re all part of the ride.
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