1. It takes a special kind of courage to pour your money into investments in an economically depressed area. Most people, including me, aren’t that brave. So if you live in a part of the country where people aren’t doing that well, you’ll probably find better properties elsewhere. On the other hand, there are special risks involved in real estate investments far from your home.

2. If you decide to look for investments elsewhere, your first problem is finding the right area. Your second task is to learn the area well enough to make a smart buying decision. Finally, you have to pick the right property or properties for you. You only have so much money to spend, and you want to maximize your return on investment. Of course, the worst possibility is that you could lose all your money, or more (which would mean filing bankruptcy).

3. There seem to be two ways to do long-distance real estate investing. The first way, which I don’t recommend, is by talking to a salesman marketing investments in what he says are a hot area. It’s possible that some of these are good deals. I guarantee that many of them are terrible. In any case, it makes a lot more sense to be methodical; pick your area first, your city next, your property last.

4. There are also a couple of different ways to pick your area, and as usual, the harder way will give better results. The easy way is to find a newspaper story: “Hottest Real Estate Markets in America.” The problem with these areas is that they are usually at the halfway point, at least, of their growth trend. They may be near the peak of their growth trend; the next few years will bring a stable real estate market at best, or a declining market at worst.

5. The harder way is to look for job growth, which is a leading indicator of real estate investment growth. Put another way, when a lot of people in any area begin working, they all need housing, and as the local economy snowballs, the price of that housing goes up. If you are invested in that area, your rents will go up, and when you sell, you’ll get a much higher price for your property.

6. In addition, job growth trends take years to develop. An area that starts booming in, say, 2007, will almost certainly be booming through 2011. That means that if you buy in 2008, you can count on rents, and the value of your properties, going up at a faster rate than usual for at least three more years.

7. You can start with newspaper web sites, but I really like the site for the US government’s Bureau of Labor Statistics. Every month they publish information on how the economy is doing in every metro area, and unlike other government studies, this information is current; no more than a couple of months old. Check their press releases for eye-catching numbers and their Economy at a Glance area for a complete picture.

8. While you’re on the BLS web site, don’t pay too much attention to the changes from one particular month to the next. The economy is too volatile for those month-to-month changes to be useful. You’re looking at trends for three months, six months, or a year.

9. The key numbers are the total number of people employed, the overall unemployment rate, and the wage growth. Clearly you want the first and third numbers to be increasing (or at least be better than the national average), and the second number to be decreasing (or be lower than the national average). These are all signs of a healthy regional economy.

10. Use your time on the BLS web site to identify 25 of the most promising metropolitan areas (there are more than 300). Then, continue your research with the following methods: • Do Google searches to find stories about employment changes and trends in those areas, as well as housing changes and trends in those areas. For example, if you are interested in the area around Anniston, Alabama, you could Google “Anniston employment”, “Anniston housing”, “Anniston layoffs”, “Anniston population” and so on. You’re looking for big stories here. Suppose Anniston’s unemployment rate is just 3%, but you find a recent story that a big employer is laying off 10,000 workers. You should then move Anniston, if not off your list, down it.

• Get in touch with the local Chamber of Commerce and find out what they think is happening. Use your BS detector here, because Chamber staffers are paid to be optimistic. Identify yourself as an investor from wherever you live, interested in learning more about the area.

• Do some cursory web searches for real estate in the area. Realtor.com is a great place to start here; even if you don’t eventually buy through a Realtor®, you can still get an idea as to what kinds of properties are available and for how much. For larger properties, Google for a local real estate broker specializing in commercial property.

11. Having done all this, you should be able to group your preferred areas into the top eight or nine, the next group, and the worst group. At this point, it’s perfectly okay to bring in some other considerations. Is one of the preferred areas closer to your home? A place you might think about retiring to someday? A place that seems nice to visit? Go ahead and move it up the list.

12. Now you want to take your top eight or nine areas and do a lot of research on them. The Internet, again, is great for this, because there is so much information available. At this point, you’re still looking for a major red flag that would turn you off the region. You’re also looking for specific towns and cities, and parts of those cities, that look like the most appealing for investment. One major positive would be a town where real estate values are already growing. (Since you started by looking at job growth, you know the overall area will be booming for a while.)

13. This next step is the last major hurdle before you actually travel (and you will be traveling). You want to talk to two or more real estate brokers in your preferred area. You’ll find them the same way you find any professional; look for referrals and reviews, get a list of interview questions together, and start calling. Here are some good questions: • How long have you been a broker? • How long have you been a broker in this area? • How many properties do you have listed right now? • How many properties did you broker in the last year? • Do you personally invest in real estate in this area? • What do you consider the most promising towns and parts of the area for investment? • What towns and parts of the area have the best governmental climate? • What towns and parts of the area have the best business climate? • What’s available?

14. Depending on the answer to that last question, your very next move might be to book a flight to the city where a hot property is waiting. Regardless, now is the time when you will start planning visits. Plan to spend about four days in each area, and don’t book all your flights right away; you really might find the best opportunities on the first trip. Make appointments with one or both of the brokers you contacted.

15. If you haven’t already done so, this is also a good time to get all your financial information together. Like you, your brokers value their time, and they don’t want to waste it with someone who can’t really afford to buy real estate. They’ll want some confirmation of your status as a serious buyer; if not before the trip, then when you’re sitting with them.

16. You should also make appointments with several property managers. Since this city is a long way from your home, you can’t manage the properties yourself. It’s possible that the broker is also a property manager, which is great. If not, he can certainly recommend one. Here are some good questions for a property manager (to be asked before you buy a building): • How long have you been a property manager? • How long have you been a manager in this area? • How many vacancies do you have right now? • What is the average length of time it takes to fill a vacancy? • What does your lease look like? • What is your late rent policy? • What percentage of tenants do you have to evict? • How does the eviction process work here? • Can I see some of the other properties you manage? • How do you market your apartments? • How do you screen prospects? • How do your tenants contact you? • How do I get reports? Can I get them off the computer myself? • How does your web site look? • Do you personally invest in real estate in this area? • What do you consider the most promising towns and parts of the area for investment? • What towns and parts of the area have the best governmental climate? • What towns and parts of the area have the best business climate? • What is your monthly commission? Your fee for each new tenant? • Do you require an exclusive arrangement? • What is the complete list of services you provide?

17. You should make a number of appointments to view properties with your preferred brokers while in town. You’ll plan your four-day trip in this way: • One day just simply walking and driving around, checking out the people, companies, stores, and neighborhoods. • One half day in the biggest local library reading up on (among other things) recent real estate transactions, apartments available, and news. • One day with brokers looking at properties. • One half day or more talking to property managers, city officials and other interesting parties. • One emergency day to be used if you are negotiating for hot properties, or for relaxation (or more research) if not. 18. While you’re on your trip, watch out for subjective impressions that might discourage you from investing, but aren’t really fair to the town. For example, suppose you live in a town with a lot of historic buildings, museums and so on. But the town you’re interested in is mostly factories and retail. You might think, “I’d never want to live here.” You’re not going to live here. Other people do want to, and they’re going to be your tenants.

19. By the end of the trip, you’ll be in one of three situations. You may have decided you don’t want anything to do with this town. You may want to keep the town in mind, but not have any hot properties in mind at the moment. Or, you may have one or more deals you’re definitely interested in pursuing.

20. If you do have hot deals on the table, do as much as you can to make them happen before leaving town. Schedule another trip if necessary, although it’s almost always better (and more convenient) to just extend the trip you’re on by another day or so.

21. When you do make a deal, you must have your property manager in place ahead of time. I cannot emphasize this enough. Remember, at the moment of closing, you take responsibility of the building. Tenants are going to be looking to you or your representative to stay on top of the property – right now. So have your representative squared away.

22. Now here are some things to watch out for (these apply to any deal, not just those that you do out of town). You have a lot of options – remember, you’re considering 25 different areas! – so there’s no point in getting into a bidding war. Watch out for the hard sell and for the intimidating sell, in which the broker, property manager or seller implies that since he knows much more than you, you should just do what he says.

23. On the other hand, if you reach an early decision that you don’t want to invest here, let the brokers, property managers, and anyone else you’re dealing with know. It’s really not fair to waste their time.

24. Here are some general rules for picking a town, as opposed to an area. Look into the city government. How are you going to do this? Spend some time at City Hall and on the city’s web site. Go to the library and scan the papers for major stories about city government over the last few years. The local paper might even let you visit and search their archives, or talk to a reporter. Do a Google search for major developments concerning the town. Here are a few things you’re looking for:

25. How does the city deal with landlords, and VERY particularly, how does it deal with the current owner? Call the building inspector and the housing authority to see if there are major claims or complaints about the property. (And find out what they think of the property manager you have in mind.) It’s also wise to know these people so that if a problem comes up when you own the building, they will recognize you as a responsible landlord.

26. What’s the history of property tax increases over the last few years? I got burned really badly on a deal where property taxes went from $4,000 to $6,000 over four years. Generally if property taxes have risen 50% in the last four years, they’ll increase another 50% in the next four years. Such increases usually indicate a clueless city government that doesn’t understand or care about maintaining the local housing market.

27. What’s planned for future development? Suppose the city has a West Side and an East Side. You find out the East Side is set for a major makeover: five new restaurants and a big office park. Meanwhile drug gangs have taken over the West Side. Clearly you want to own property where the action is.

28. What local agencies may be willing to give you extra help? There may be a local Main Street program or a redevelopment authority. Most cities and towns want to have good landlords and good buildings and may offer to help you: for example, by granting money to make facade improvements.

29. What kinds of properties will work best for you? In a fast-growing area, your best bet may be retail spaces on or by the commercial strip. It won’t be long before major national chains are swooping in to get prime spots. One of them will want to be your tenant.

30. Another alternative is a house or small business operation on a large plot of land, or next to a number of similar properties. Maybe a fast food chain will want to buy your location. Or a large retailer may try to package your property along with the neighboring ones to build a big store. In any of these cases, of course, you want to make sure your property has a good tenant now, or can find a good tenant fast, just in case you don’t hit the jackpot with Home Depot or McDonalds.

31. If you are looking at residential space, the best bets for long-distance landlords are multi- unit buildings. Why? One reason is that they tend to get better service from property managers.

32. Knowing that you will make money if you can hold the building long enough, you must also plan to avoid a cash crisis that could see you taking out loans at higher rates to stay afloat during the first lean years, or even having to sell the building before it becomes a money-maker.

33. Particularly in an older building, you need a reserve to pay for unexpected repairs that may eat several months’ rent. You also need to have money in case you have vacant units for a long period of time. This is one reason not to buy such a big property that it will keep you on the financial edge for a long time.

34. Except in luxury properties, you want the minimum in outdoor maintenance necessary. Most tenants don’t care about a yard. If you don’t have one, you don’t have to mow, trim, fertilize or plant.

35. What about a parking lot? I have a building that does not have a lot, which means I don’t ever pay for plowing (good) and that some prospective tenants won’t consider apartments in it (bad). This sort of building works great if most of the surrounding buildings also don’t have lots. It’s usually found in a city’s downtown area, so you also need to consider the level of prosperity of the downtown. In a city with a very prosperous downtown, downtown apartments are in demand and people put up with the parking hassles (think Manhattan).

36. Brick and vinyl-sided properties are always cheaper to maintain than equivalent wood- sided properties. City water and sewer is always better than private unless the city’s charges are exorbitant.

37. Anything that gives you the opportunity to add value to a property is a positive, but don’t pay extra for this opportunity unless you know you can take advantage of it. Is there an overly large apartment that could be converted to two apartments? The two will probably bring in more rent than the original one. Better yet, there may be an old building on the property that could hold more apartments or be replaced by a new building. Can you add washer/dryers, either in a central room (coin-operated) or, better yet, into apartments? These are also good revenue generators. Washer/dryers in apartments will enable you to add $25 or more per month in rent for each unit, when the existing leases expire, of course.

38. Also, once you get above four units, some of your financing options disappear and you may have to get a commercial loan with a bigger down payment, higher interest rate, and shorter loan period (perhaps 20 years instead of 30).

39. There’s an unusual situation that may work out really well for you. Let’s suppose there are two buildings on one single lot (and sold together). The price per unit will probably be lower because the seller knows you will have to pay higher finance charges and so on. You might, no guarantees, convince the city to let you subdivide the lot into two lots. Now, instead of one property with six units, you have two properties with three units each. You could sell either one of those to someone with a HUD loan. Chances are you will make money on the deal.

40. If you’re interested in a deal like this, look for deals where the buildings are completely separate, to the point of having separate lots, separate utility connections, and different street addresses. You may be able to make the deal work if some of these items are shared, but your chances are lower.

41. You will often hear from the broker that a property has great potential for rent increases. Check the local rental market first. I don’t know a lot of landlords who deliberately under price their rental units.

42. If your building is older than about 1980, you will want to have a lead test performed. If there is exposed lead, especially in residential units, you may need to have lead abatement performed. Abatement is the act of removing or safely sealing lead paint. You need to hire professionals to do this, and can find them in the Yellow Pages.

43. Here are some negatives that might make you decide not to buy, or help you negotiate a lower price: • A major property tax increase on the horizon. Check with the town to see if one’s coming. • A bad street or neighborhood. You want other buildings on the street to be at least as decent as the one you are considering. Generally you don’t want to have the most expensive apartments in town, unless you’re Donald Trump. Avoid classy buildings in scummy towns. • Shaky or creepy tenants. Look for trash in the yard, beat up cars, low-class tenant behavior. Remember, you own these people until their leases run out, or maybe longer. • Excessive city interference in landlord-tenant affairs. Rent-controlled properties in particular are usually bad investments. • A vacant unit, particularly a vacant commercial unit. The landlord does not have to disclose the entire rental history of each unit. Try your best to find out how long the commercial unit has been unrented. Don’t listen to the seller’s happy talk. • Excessive moisture in areas like the attic and basement, and/or presence of mold. Some forms of mold are highly toxic and can make your tenants very sick. They can then sue you. • Absurdly complex, thrown-together appearing plumbing, heating or electrical systems. Sometimes these are not a problem and simply reflect the complexities of updating an older building through generations of building codes and new tenants. They may also indicate shoddily done amateur work which can cost you big time. • Signs of recent flooding in the basement. • Any sign of misalignment or bowing in building beams, foundation, or brickwork. These problems occur in older buildings as the ground shifts and can be very expensive to fix. • Tons of vacancies in the area. Look for “For Rent” signs everywhere.

44. On the other hand, there are some things that look bad in a property but can be easily and cheaply fixed or upgraded. These include decaying parking lots and driveways, decks and stairs, doors, windows, paint and trim. Property Master™ includes ways to calculate initial repair expense for a property.

45. Some rental properties are sold as being appropriate for a condo conversion. On a purely monetary basis, these deals work great. You can almost certainly sell, say, two two- bedroom condos for more than the price you paid for the building with two two-bedroom apartments. If you are looking at one of these, remember: • The less the units have in common, the easier a conversion will be. If there are common utilities and systems (a single furnace, etc.), they may have to be replaced with separate units. And if there are common areas, how will their maintenance be handled? • Is the building in a town where people like living and might want to set down roots? If not, people may not want to buy condos in it. • In a condo conversion, the condos are usually sold to the tenants who occupy the pre- converted apartments. Are the tenants in a position to, and are they interested in, buying their units? • Some cities are putting the brakes on condo conversions because they reduce the amount of rented housing. How is your own city responding to condo conversions? Are many being allowed? How many hoops will you have to jump through?

46. Now that you own your property (and have your property manager in place), you still need to spend some time managing it. Start with your first meetings by working out a list of projects for the property. Get a sense as to what the budget should be and make sure you will have the funs available.

47. On an ongoing basis, you want a relationship with the property manager that includes ground rules and regular conversation. Determine how frequently you will receive reports, and what they will contain. Establish a maximum dollar limit for any repairs or renovations that the property manager can undertake without consulting you. Design a budget that includes reserves for maintenance and vacancies.

48. No matter how far away the property is, you should plan to visit it at least once or preferably twice a year. While visiting, you can check on the overall condition of the building and consult with the property manager.

49. You should also spend some time looking at the overall real estate market and, if you are ready to make more investments, looking into other deals. As you can imagine, there are many advantages to having more than one long-distance property in the same city. Doing so will save you a lot of money and hassle.

50. Finally, keep up with your ongoing research and observations about the local job market and real estate investment climate. You want to be alert for the right time to sell. As with purchase decisions, the local job market is a leading indicator, so if that starts to slip, consider selling.

Article provide by National Tenant Network

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