- The Complete Guide to Investing in U.S. Real Estate from Anywhere in the World
The Complete Guide to Investing in U.S. Real Estate from Anywhere in the World
Are you ready to start investing in real estate out-of-state or even out of the country?
I’m sure you have heard time-and-time again “invest in your backyard or somewhere within a couple of hours’ drive,” or if you’re living overseas, you’ve heard “wait until you get back to the States because investing in real estate requires so much effort.” While these statements carry some merit, with the technology available today, especially the ubiquity of video conferencing, investing in real estate from anywhere in the world can be quite simple. Although there are several different ways to invest long distance, each method carries its own required level of effort, risk, and reward. Below are four ways, listed in increasing amounts of effort required, that will allow you to invest in U.S. real estate from anywhere in the world.
So, let’s get into it…
1. Invest in a Syndication as a Limited Partner
Passive investing is an investment strategy where you invest your capital with a General Partner (GP) team to purchase multifamily properties or other commercial real estate. As a Limited Partner (LP), you are providing funds for the deal and you are a crucial part of the business. However, you are not actively involved in organizing the deal. The General Partners will find the properties, secure the financing for the properties, and manage the properties until they are sold. You just sit back and collect your distributions…and that’s why it’s called passive investing.
A real estate syndication is a group of people with common goals, who pool their resources to purchase real estate, such as apartment communities, mobile home parks, storage units, or retail. Syndications allow people to invest in larger assets together, rather than buying properties they couldn’t invest in individually.
In the 1930s, real estate attorney Larry Wien pioneered real estate syndications. For the first time, income-producing property was possible for groups of people to purchase. The Empire State Building was one of Larry Wien’s most famous syndication purchases. Larry and his partners, Harry Helmsley and Peter Malkin purchased the property in 1961 for $65 million. They raised $33 million by selling 3,300 shares to investors for $10,000 per share.
As a passive investor in syndication, you will typically be an equity investor. As an equity investor, you act as a stakeholder in the business. You are offered a cash flow return on a mont
hly or quarterly basis and a portion of the profits after a cash-out refinance or sale of the property. The return is either a waterfall structure, also known as a preferred return or a straight split.
Preferred returns can range from 2% to 12% annually based on the experience of the GP and their team, the risk factors of the project, and the investment strategy. A preferred return also specifies a split of the overall profits between the LP and GP. A certain minimum is paid out to the passive investors before any of the general partners are paid.
A straight split uses the same split across the board, for all returns – cash flow as well as any profits from the sale of the asset. If a deal uses a 65/35 split, that means that 65% of all returns (cash flow and profits from the sale) go to the limited partner investors (you, the passive investor), and 35% goes to the general partners. No matter the amount of the returns on the property, 65% is distributed to limited partners and 35% is distributed to the general partners.
Alignment of Interests
When you’re preparing to passively invest in a real estate syndication, one of the first things you need to make sure to do, before you ever look at a single investment opportunity, is to reflect on your own personal real estate investing goals. Make sure to evaluate the integrity and experience of the GP team and ensure the investment strategy aligns with your financial goals. Fully understand both the opportunities and risks associated with the specific investment and learn more about the market where the investment is located. Please, take the time to really analyze and discuss the benefits and risks of the deal with the general partners before moving forward with any decision.
Communication, transparency, and accessibility are extremely important. Every general partner should be communicating any potential risks involved with the deal. Reports should provide clear information that is easy to read. If you ever have questions, ask the GP team. The GP team should be available via phone or email to answer any questions or concerns.
Real estate syndications are like snowflakes. No two deals are exactly the same.
2. Invest as a Private Lender
If you want an investment strategy that requires a little bit more effort on your behalf with typically shorter hold periods, then you can become a private money lender. As a private money lender, you can invest your own capital with other real estate investors and secure your loan with a mortgage against real estate. Simply put, the loan you provide will be secured by real estate that is worth much more than the loan itself. Typically, real estate financing comes from banks and other institutions; however, due to strict requirements and longer timelines, investors are willing to pay the higher price tag that comes with private funds. So now you get the opportunity to become the bank! Pretty cool right?
Here are four typical types of borrowers/investors you may encounter in the private lending space:
This type of borrower will purchase run-down property, renovate it, and sell it. Because these borrowers purchase houses in poor conditions, they will typically not qualify for financing and if they do, there are often time restrictions on when the loan can be refinanced or paid back. Therefore, private money can be used in a more timely and profitable manner.
These investors use the BRRRR method: Buy, Rehab, Rent, Refinance, Repeat. Their strategy is almost exactly the same as the house flippers described above but instead of selling the property after rehab, they will rent it out. This allows them to refinance when the rehab is complete and free up your private money loan.
Commercial operators/investors will purchase distressed properties to renovate, stabilize, and then refinance. These commercial properties range from multi-family, retail, or industrial. Typically, these properties won’t qualify for agency debt and will sometimes require a private money “bridge loan” until they can be stabilized and refinanced.
Builders or Developers
These borrowers purchase vacant land to develop and will often turn to private money due to the speed at which private money can be assembled and the fact that banks might not lend on speculative development.
I’m sure your thinking “cool, but how do I make money as a private lender?!”
Here are four typical ways private money lenders get paid:
Because you are essentially the bank now, you get to set an interest rate that makes sense to you. Typical annualized interest rates can range from 6-20% depending on the risk.
Points are basically fees paid by the borrower. Points are calculated as percentages of the overall loan, with one point equaling one percent of the loan. You get to set these as well; if the borrower will be using the money for a shorter amount of time, then you might want to charge points because the amount you would make on interest would be so low.
A profit split via a joint venture (JV) can be one of the most attractive options for financing investment. In this type of agreement, lenders can negotiate to receive a percentage of the final profits which could be very profitable depending on the structure.
This fee structure requires the borrower to pay a predetermined amount when the loan is repaid. Often times this fee is negotiated as a percentage of the overall loan amount.
As you just read, there are several types of investors that look to private lenders for funding. And more often than not, you can negotiate a combination of the fee structures described above in order to maximize your return. If you would like more information on how to find borrowers, please email us.
3. Invest in Turnkey Real Estate
Turkey real estate companies typically offer single-family or small multi-family (2-4 units) investment properties that are already rehabbed, tenant occupied, have property management in place, and are producing positive cash flow. Although this sounds like an amazing opportunity, with little or no effort required on your end, not all turnkey companies share the same values, and some are more motivated by making money than actually working with and for their customers. Therefore, it is very important to vet the company offering you these services.
Before searching for the perfect turnkey company, you first need to identify which city you are interested in investing in. Understanding how certain metrics affect real estate is outside the scope of this guide but in general when evaluating a city, we look at five metrics:
- positive population growth
- positive income growth
- positive house value growth
- low crime rates
- positive job growth
A final metric you want to look at is the price-to-rent ratio in the area. Meaning if a house costs $100,000 and it rents for $1,000 per month, the price-to-rent ratio would be 1%. In general, you want to invest in areas that are close to or above a 1% price-to-rent ratio because those markets will most likely have positive cash flow.
Once you have identified the city you would like to invest in, then you can start looking for turnkey companies in that city. Just simply search “turnkey real estate in [insert city].” If the city is a solid investment market, there will be several turnkey providers in the area. Now you will need to narrow them down by doing your due diligence on each company that piques your interest.
Here are some things to look into when vetting a turnkey company:
– Do they have in-house property management or is it outsourced? A company that has in-house management will be dedicated to the success of the property because they are still tied to it. However, there are some turnkey companies that have preferred property management companies that they work closely with. Ask a current customer if you want more info on how their properties are managed.
– Do they sell their properties already leased by a resident? If they are selling you a property that is not already leased up, then that is just more work for your property manager and you. And it makes it easier for the company to cut and run after you close on the property. However, when there is a resident in place, you still want to review the lease and the metrics the property management company used to place the resident such as the background check, income verification, references from previous landlords, etc.
– Do they provide a complete list of renovations they performed on the property? If they are a solid company, they will provide you with a full scope of work – a detailed breakdown of all the work completed on the interior and exterior of the property. Look for before and after pictures of renovations and the pictures of new appliances, water heaters, A/C units, etc. Also, ask for a copy of all the permits they pulled in order to complete the work. No permits, no deal. Not being able to provide you with all of these items should send you running in the other direction.
– What is their business history? How long have they been in business? You want to invest with a company that has a concrete reputation, has offices located in the area that they are selling turnkey properties, and has a strong online presence via blogs, educational videos, and perhaps even a podcast.
– Do they provide you with current customers to reach out to? A company that is unwilling to give you references should raise some red flags. However, when following up with references, make sure you ask those people for other references and then follow up with them as well!
– Are they selling you dirt cheap properties? You want to keep the properties you are purchasing at or around the median home price for that market. If it’s drastically lower, that should be a red flag!
– Finally, are they trying to hide anything? This should go without saying but avoid companies that don’t fully communicate with you about the property and that don’t involve you in the decision-making process regarding the property. If they aren’t providing you with current operations or financials regarding the property, then you probably don’t want to be involved with them.
There are plenty of great turnkey companies out there! If turnkey is something that interests you, we can give you a few recommendations that we know and trust in the industry. Just drop us an email.
4. Build your own team
Are you still interested in acquiring single-family or smaller multi-family homes but do not want to invest with a turnkey company? Well, there is definitely another way and that’s by building your own team to acquire properties at a discount, renovate them, and then rent them out!
Once you’ve identified the area you want to invest in, you’ll need a solid team there to be a successful real estate investor (see strategy 3, paragraph 2 above if you need help with picking a market to invest). Building a long-distance team can seem like a daunting task and can become quickly overwhelming, but it doesn’t have to be! Before transitioning to multi-family syndications, our first adventure in real estate was building a long-distance team in Cedar Rapids, Iowa. Although it does require quite a bit of work to set up your team, we break down exactly what we did step-by-step below, so you can follow along and be on your way to building your team and achieving your goals in no time!
Step 1 – Find a property manager.
Since you will be investing out of the area, we highly recommend that you find yourself an amazing property manager. Your property manager will be the most valuable person on your long-distance team. If you narrowed down your investing area to three cities, then interview property managers in each of those cities. Once you find an awesome property manager, choose that city to invest in.
How do you find an amazing property manager? Start by searching on BiggerPockets.com. Start a forum post (it’s free) and ask for property manager recommendations in your city. You’ll be amazed at the responses people have both good and bad. Since people have keyword alerts set up on BiggerPockets, ensure that you list the city and the state; you could also list surrounding cities as well to get more eyes on your post. You can also search for area-specific property managers on BiggerPockets as well (https://www.biggerpockets.com/real-estate-companies/property-management). Navigate to the URL and type in your city. A list of all the property managers will be populated that service your area.
Next, post in local investor or real estate Facebook groups that you are looking for property managers. You’ll get several names that people use and several names for you to avoid.
Once people start referring the same two or three people over and over across all the platforms, then you’ll know who to interview. Setup a Zoom call or some other video conferencing platform to interview them because you want to be able to see his/her facial expressions.
We found our property manager by searching for property managers in our area on BiggerPockets. After interviewing several, we chose to go with a smaller property manager who has a lot of potential for growth because we wanted to grow with him. He didn’t have all the turnover fees and other fees that most property managers have, and he was using AppFolio to manage his properties – an amazing property management tool that is beneficial for both the resident and landlord. Also, our property manager was willing to stop by weekly during our rehabs to take pictures and videos for us as another set of eyes, so we aren’t blindly trusting our contractor. Some PMs might ask to be compensated for their time, which would still be totally worth it for the additional peace of mind.
Having an amazing property manager on your team can save you thousands of dollars. Although we have thoroughly researched our area and have “driven” around for hours on google street view, without the intimate knowledge provided by our property manager we could have easily decided to purchase homes in the wrong area because the numbers were so appealing.
Step 2 – Find a real estate agent.
Once you find your property manager, the next step is to find your real estate agent. You’ll probably be able to get a few referrals from your property manager which will be a great place to start. However, we would also recommend finding the local real estate Facebook page and posting that you are looking for an investor-friendly agent. You can also search on BiggerPockets as well for agents that are investors. We suggest narrowing down your selection to less than five and then interview all of them via Zoom or another virtual video conferencing platform. You want you to be able to see them and gauge their reactions to your questions, just like you interviewed your property manager.
Here are four things you should consider when choosing a real estate agent.
- We suggest that your agent needs to have experience working with investors in the past.
- We suggest choosing an agent that doesn’t currently work with any investors or just a few investors. As a new client without a track record of closing with your agent, you will most likely be at the bottom of the list when it comes to getting pocket deals (off-market) and you will most likely be competing with his/her other investor clients when writing offers.
- Your agent cannot be afraid to write low ball offers and multiple offers during negotiation.
- Your agent should never try to tell you what you should offer before or during negotiations. He/she does not know what your numbers are, and you should stick to what you determined to be your highest and best price, not what your agent “feels” is best.
Step 3 – Find a small local lender.
If you plan to scale past four properties, then we would suggest working with a local portfolio lender from the very beginning. A portfolio lender can be a small local bank or credit union that has a commercial loan department. Although you’ll be able to get better interest rates with a residential mortgage company and a large bank, you’ll be limited to the number of loans you can have due to your increase in debt-to-income (DTI) ratio. A commercial lender typically won’t care about your DTI and is only concerned with the debt service converge ratio (DSCR) that the property produces.
Your agent will have a list of local and national lenders that they work with or have worked within the past. Call every local lender on that list and see if they are a good fit for what your future plans are. Once you find one, set up a business bank account with them to let them know you are serious. The commercial lender you talk to can help you do this.
Our local lender will only lend in the county they are located and the counties that border that county. They will lend up to 80% loan-to-value (LTV; what the property appraises at). They will also lend up to 80% of the purchase plus the rehab costs (LTC) which is great since our focus was purchasing houses that need a lot of rehab. And they have no seasoning dates on homes that are purchased with cash. Meaning we could purchase a house with cash, rehab it, rent it out, and then immediately refinance it with them without any specific limitations on time. Some banks require a six- to twelve-month seasoning period before they will allow you to refinance.
*side note* The Military Millionaire community has recommended agents and lenders, click here to get connected to our team!
Step 4 – Find a reputable home inspector.
You can find a list of home inspectors from your real estate agent. It is imperative that you reach out to several of them and ask for a sample home inspection report. Once you have these reports, you can compare them to each other to see who performs the most thorough reports. Additionally, some home inspectors will guarantee their inspection, meaning they will buy back the house from you if they miss something huge like foundation issues, faulty wiring, etc. Our home inspector offers this, and we suggest you try to find one that offers something similar. A solid home inspector is an integral part of a long-distance team because you need to know all the underlining issues with the house so you can communicate them to your contractor(s).
Step 5 – Find at least three contractors.
This might be your most challenging step as solid contractors are few and far between. Start by asking your property manager, real estate agent, inspector, and maybe even your lender if they have a list of contractors that they would refer. Additionally, asking for referrals and searching on BiggerPockets and the local real estate investor Facebook groups is key as well.
We emailed about fifteen different contractors in our area and only heard back from a handful that was willing to talk to us over the phone. The ones we liked and trusted actually came from referrals from our agent and our home inspector. At the end of each interview, ask for multiple references. You want references from people that have hired them and from sub-contractors they have hired in order to paint a full picture of how they run their business. Then FOLLOW UP on these references and ask these people for at least one additional reference and follow up with them. This is going to be the best way for you to find solid contractors to round out your long-distance team. Once you find three, use all three of them to bid on your project(s).
Yes, this process will require a lot of effort, but we hope that we were able to break it down step-by-step so if you chose to invest this way it will be just a little easier for you. If you would like a list of questions that we ask each service provider during the interview process, please feel free to reach out to us.
Once you have your team set up, it’s time to take action! Get out there and crush it!
If you want to supercharge your long-distance investments, why not pick a combination of the strategies listed above so you can really put your money to work for you! Because in the words of Robert Kiyosaki, “it’s not how much money you make, it’s how much money you keep!”
We truly hope this helps you get started investing in real estate from wherever you are in the United States or in the world. As always, if you have any questions please reach out to us at:
Until next time… begin investing from anywhere in the world!
Explore more. Adventure awaits!
Michael & Suzy
Suzy Sevier and Michael Barnhart are the Founders of Adventurous Real Estate Investors. They specialize in strategically targeting core-plus and value-add multi-family commercial real estate investment opportunities to offer lucrative returns to their investors through the implementation of a business model that provides value to both residents and the local community.
In addition to his passion for commercial real estate, Michael is an U.S. Air Force Officer with over 15 years of military experience. He first enlisted in the Air Force as an aircraft mechanic in 2005, and after graduating from basic training and technical school with honors, he was on the fast track to receiving his commission. In 2011, he graduated from the United States Air Force Academy as an Academy Scholar and continued his education at Colorado State University where he defended a master’s degree in 2013. Upon graduation, Michael served as a counter-proliferation program manager overseeing the successful acquisition, implementation, and disposition of over $100MM of defense systems. Since then, Michael has proudly served his country around the world with over 380 days in combat in Afghanistan.
His previous tour was at the U.S. Air Force Academy as a senior instructor of biology where he discovered his true passion of teaching, both traditional and non-traditional. Whether in the classroom as a biology professor or as a mentor for real estate investors, he lives to give back to students, colleagues, and friends. Currently, Michael is a PhD student in biochemistry at the University of Cambridge, the second oldest English-speaking University in the World, located in the United Kingdom. Upon completion of his PhD, he will return to the U.S. Air Force Academy as an assistant professor and will finish out his military career there before transitioning to real estate investing full-time.
“I want to be in an even better position to help others and look beyond my four walls to see who I can serve. I want to share these experiences with others by learning as much as I can so I can help others become financially free.”
Suzy is a real estate investor currently living in Cambridge, England. She is currently working for a large biotechnology company as a supply chain coordinator and program manager. When Suzy is not working, she is mentoring current students from the Daniels College of Business at the University of Denver or volunteering at the University of Cambridge Museum of Zoology or Sedgwick Museum of Earth Sciences. She graduated from the University of Denver with an MBA with a concentration in Marketing in 2019 and is currently studying for the Six Sigma Green Belt Certificate. Leveraging her business education background and her passion for real estate, she is working to achieve financial freedom by the time Michael retires from the military.
Copyright © 2020. ALL RIGHTS RESERVED
No part of this publication may be reproduced or transmitted in any form or by any means, mechanical or electronic, including photocopying and recording, or by any information storage and retrieval system, without permission in writing from Elbert Bridge, LLC, d/b/a Adventurous Real Estate Investors. Requests for permission or further information should be addressed to: Adventurous Real Estate Investors PSC 37 Box 3834, APO, AE 09459. Published by: Adventurous Real Estate Investors. Website: www.adventurousREI.com
While all attempts have been made to verify the information provided in this publication, the author and publisher make no representations or warranties with respect to the accuracy or completeness of the contents of this publication. Neither the author nor the publisher assumes any responsibility for errors, omissions, or contrary interpretation of the subject matter herein.
This publication is intended as a reference volume only. It is not intended for use as a source of legal or accounting advice. All forms of financial investment pose some inherent risks. The authors are not engaged in rendering professional services, and you should consult a professional where appropriate. Neither the publisher nor author shall be liable in any way for any profit or loss or any other commercial damages, including, but not limited to special, incidental, consequential, or other damages you may incur as a result of reading this publication. The publisher wants to stress that the information contained herein may be subject to varying state and/or local laws or regulations. All users are advised to retain competent counsel to determine what state and/or local laws or regulations may apply to the user’s particular business.
The experiences indicated in this publication are unique. Your results may vary. The purchaser or reader of this publication assumes responsibility for the use of these materials and information. Adherence
to all applicable laws and regulations, both federal and state and local, governing professional licensing, business practices, advertising, and all other aspects of doing business in the United States or any other jurisdiction is the sole responsibility of the purchaser or reader. The Author and Publisher assume no responsibility or liability whatsoever on the behalf of any purchaser or reader of these materials.
Mention of specific companies, organizations, or authorities in this publication does not necessarily imply endorsement by the publisher and/or the author, nor does mention of specific companies, organizations, or authorities necessarily imply that they endorse this publication, the author, or the publisher.
All of Adventurous Real Estate Investors materials are protected under federal and state copyright laws. You may not make copies of any of the books, forms, CDs, audio files, e-books, legal forms, video or audio CDs, except for your own personal use. All materials you buy or received are licensed to End Users and not sold, notwithstanding use of the terms “sell,” “purchase,” “order,” or “buy” in any promotional materials, written or spoken. Your license is nonexclusive, nontransferable, nonsublicensable, limited and for use only for you, the end user, and you ONLY. That means YOU CANNOT SELL, TRADE, COPY, ASSIGN, LEASE or LICENSE YOUR RIGHTS IN THESE MATERIALS.
Any perceived slight of specific people or organizations is unintentional. Internet addresses and other contact information given in this publication were deemed accurate at the time it went to press.