Lux Investing

Is it really possible for me to start real estate investing from outside the state you want to invest in?

I am currently deployed to Iraq and I have been wanting to start investing in real estate for sometime now, and I would like to get started from out here if at all possible. When I go back to the states in December, I still won't be going back to that state that I want to buy property in for about 4 months after I get back. With the foreclosure market being kind of nice right now, should I wait?

Public Comments

1. I think you should wait until you are able to be more aware of what is happening in that state you want to invest in. It's kind of like being blind to what's going on if you can't be there for a while. I think you should wait. The market will always have a favorable time again to buy if it changes.
2. There is no physical or legal problem to buying property anywhere in the US, even if you are not in the US. However, making a good investment is almost impossible without physically seeing the property and doing the research. Let me explain. I am a realtor in Las Vegas and I had to develop software to consistently find properties that are below market value and with sellers sufficiently motivated that I can negotiate a deal where the seller pays my client’s closing costs. Such bargains, even in the buyer’s market we have in Las Vegas, are not easy to locate. Here is the basic process I go through on finding properties below market value. How I find properties that also have motivated sellers is too complex to explain here so I will skip that part in the following. Note that while I will describe how I would find properties in Las Vegas the process should not be too different no matter where you are considering. Also, I will explain how you can do it through public information sources. First, and most important, just because a property is in foreclosure does not make it a good deal! I recommend that you ignore the financial state of the property (foreclosure, short sale, forced sale, etc.) and start from the other end of the equation. Is the property priced at or below the market value based on location, price and condition? To determine the market value, here is the basic process. Note: the websites I have seen that claim to provide market value are EXTREMELY inaccurate. For example, here is just one of the suits against Zillow for gross inaccuracies: http://www.ncrc.org/bestpractices/NCRC_Zillow_Complaint1026.pdf . To calculate the market value of a home you need to know: 1)What comparable homes sold for in the recent past (less than 6 months) 2)What comparable homes are listed for now Use Zillow, or any other source, to look for similar (same number of bedrooms, same square feet ± 5%, similar age, pool, within about a 1/2 mile, etc.) homes sold. Calculate the average $/SqFt (sale price / square feet) for the properties. Multiply this by the home’s square feet and you have a reasonable estimate based on comparable sales. For example, if the home is 1,500 SqFt and the average you calculate is $180/SqFt, the calculation will be: 1,500 x $180 = $270,000. Note: this is all CMAs do and why I do not use CMAs; they are too inaccurate in a market with even mildly changing property values. The next step is to use a site like www.remax.net or www.realtor.com to look at what comparable homes are selling for. Perform a similar calculation to determine the home’s price based on for-sales. Remember that this is based on the asking price for these homes; they will actually sell for less. Next, calculate what homes are typically selling for vs. asking price. This number may be something like 95% or 92%; it is very specific to your local area. You can usually estimate this by averaging what several comparable homes sold for in your area vs. what they were listed for. Multiply this times the price based on the for-sale. For example, if you calculate that the price per square foot based on for-sales is $175 and homes are, on average, selling for 95% of the list price, here is the calculation: 1,500 x $175 x .95 = $249,000. If this price is lower that the comps estimate, then home prices have fallen. Do not rely on zip code averages or city averages; calculate for the specific area in which you are considering buying. Once you have performed the above calculation on several properties, you will begin to get a feel for what is a good price based on size. For the calculations to narrow the set of potential homes, you did not need to visit the home. Now you need to visit each potential home to see each home’s suitability for your needs and its condition. If it is in poor condition and you will have to put money in immediately after purchase before it can be habitable (as many foreclosures require), you need to take that into account. Note also that this will be cash out of your pocket, not financed. With the market value and condition considered, you will have a very small set of potential homes to consider. It now becomes relatively easy to choose the best deal of the set. Notice that I have not considered whether the property is in foreclosure, short sale or anything else because these factors do not define a good deal. A good deal is buying property that matches your personal needs at the best price. Let me give you a real example. I have an out of state client who is looking for a specific property. Searching the MLS, about 550 homes met his requirements. Using software I developed, I reduced the number of homes to less than 50 based on the asking price vs. comps and for-sales and seller motivation. Looking at aerial views and such I was able to further reduce the number to 18 due to the property backing up on busy roads, high power lines, freeway access, etc. Later this week my client will be in town and we will visit each of these homes to determine whether he likes the property and the condition vs. the price. I expect that we will narrow the number to less than 5. Based on more analytics, I will make a recommendation on the price we should offer on each property. I will then personally present the offer to the property owner and their agent for my client’s top pick. By personally presenting the offer I can take the owner through the process of how the offer price was calculated and explain the benefits of selling to my client. If I can’t negotiate a deal that meet’s my client’s goals, next home. If it’s a foreclosure or a short sale, you have to just fax the offer and wait. The response can take 10 to 20 days on either foreclosures or short sales. Bottom line, if you can’t personally do the research and see the properties yourself it’s extremely unlikely you will get a good deal. Sadly, I would not worry about foreclosures drying up; I expect the number of foreclosures to significant increase over the next few months. Hope this helps. Eric Fernwood Eric@ISellLVHomes.com http://www.iselllvhomes.com/