Welcome to The Get Real Podcast, your high-octane boost and in the trenches tell-it-like-it-is reality therapy for personal, business and real estate investing success with your hosts, power-preneurs Angela and Ron. It’s time to get real!

Angela: Hey, welcome to The Get Real Podcast. This is Angela Thomas. I’m here with Ron Phillips. Hey Ron.

Ron: Hey. Hey.

Angela: Hey. So sorry. Go ahead

Ron: Another beautiful Day in South Carolina.

Angela: Yeah. And we’re just as beautiful out here in Utah, so that’s rare, that’s rare.

Ron: Things are becoming one. I like it.

Angela: Yeah. If we just stick that way next winter, that’d be great. So today we have a topic that we get pretty excited about. Our topic today is about investing out of state. We know most people out there, obviously it’s more comfortable to invest in your own backyard, but we want to kind of explore that a little bit today and talk about what the advantages are and disadvantages to looking beyond where you live.

Ron: Yeah. And especially for the people who live in marketplaces where it’s very difficult to not break the first rule, which is you got to have positive cashflow, right? I mean, I guess you could make anything cashflow if you put enough money down or just pay cash for it, but they kind of defeats the purpose of, of getting a really high return.

Angela: So Ron, actually just on that note, I had somebody call in yesterday asking for information and I usually don’t get these kind of calls, but I answered it for some reason. Somebody was calling in asking for Info on investing in real estate and I kind of told them what we did a little bit and she was like, well, I don’t need help finding investment properties I know how to find them out here in California. And then that was the end of the conversation. She didn’t give me a chance to explain and I was like, all right, well, you know, if you’re confident with that, I hope that’s working for you. So we got to laugh.

Ron: You didn’t laugh at her?

Angela: I did laugh, but she kind of ended it abruptly. Like, Oh, if that’s what you guys do, I’m out. Like obviously I didn’t explain it too great.

Ron: Well no offense to you West Coast folks, I find that many people who live in California, they actually don’t realize that millions of people live outside of the state of California. And so…

Angela: And there are houses other places.

Ron: Yeah, just public service announcement to the West Coast folks. There are other places to live and people, millions of them actually do live in other places.

Angela: And since I’m from California, I can say that right.

Ron: Since I basically live there for seven years on the road, I can say that too, lovingly to all of your California folks.

Angela: Yeah. Not that you can’t make money out there with real estate if you buy at the correct time. But yeah…

Ron: Actually it’s really difficult out there that’s the reality the situation. And, and especially right now, that’s, it’s kind of funny that she was calling you yesterday in the market is, has gone up insane out there. It’s actually starting to flatten out a little bit. And rents haven’t kept pace with that not even close. And so, you know, you kind of put tons and tons and tons of money down to not break the first rule and then your returns are going to be really pretty pathetic unless you get some of that awesome appreciation, which, you know, been appreciating now for a little over a decade. So I mean, your guess is as good as mine about how long that’s going to continue. But I would assume that not, not too much longer before we have some kind of a correction.

Angela: Yeah. And that’s not just the case for California. There’s so many markets that are like that right now. So I mean, you really, you know, got to do your research before you know, considering an investment just because it’s a property. So, yeah. Anyway, that was just a quick example.

Ron: Yeah. So investing out of state, I really believe that people should live where they want to and invest where it makes sense. And then…

Angela: I love that.

Ron: You know, forever. That’s just what you and I guess to codify what I believe. I’ve lived in a lot of places and Angela, you know, I lived in Utah for 10 years and the only place I owned in Utah was the house I lived in. And…

Angela: And you got to do that.

Ron: And it’s the same reason, this is California we’re just talking about yesterday, the economy, there like, if you look at all the other rules that we talked about in previous episodes about what you’re supposed to look for with respect to real estate man, you can check the boxes off. I mean, the economy in Utah is crazy strong, tons of job growth. I mean economic…

Angela: Super low unemployment.

Ron: Yeah, I mean the economic factors, there’s off the charts. Problem is, that’s silly pesky number one rule the unbreakable rule gets just really hard to meet that out there really hard. And even if you can meet it, the returns aren’t very good. And so you are banking on appreciation, which not very many episodes ago we talked about the four returns in real estate and appreciation was the one that we do not count on. And so it’s a market gift when you get it, but you can’t buy based on that.

Angela: Okay. And I know people out there are going to be like, well that’s not true. I’ve made money in Utah. So I just want to say, I mean, I’ve talked about it before, but you know, my mom invested in Utah and she did all right it’s what she did. She had five or six houses, I can’t remember, but in order to cash flow, she had to put down, you know, like half.

Ron: I think she was 50% down.

Angela: She put like 50% down and then she had my dad manage them and make all the repairs and everything. So, so yeah, if you are willing to do that, you can make it cashflow, but you’re not going to get anywhere near the returns that you would get somewhere that already cashflows on it’s own after all expenses, right. So, you know, so after we helped her move her or sell those properties and buy new ones out in Kansas City, Missouri, she tripled her cashflow just with that move and no longer has to manage them herself. I think she would agree that her marriage has improved quite a bit. So, yeah…

Ron: I would think so. I mean, God bless all the property managers out there that really enjoy it, but it’s got to be one of the worst jobs on the planet is one of the most thinkless, maybe TSA if you work for the TSA or any airline behind the counter after a storm, maybe those are worse, but not by much maybe on the same plane. It’s the most thinkless job on the planet. Tons and tons of work, almost no margin to make any money. So there’s also no margin for error there either. The tenants are always pissed at you, the owners are always pissed at you. There’s just, really it’s pretty hard to win that game. And so if you’ve wrote you, you raise your hand and you volunteer for that particular job, just because you want to go and be able to hug your properties, there is a 12 step program for you and we can refer you out.

Angela: And we made need to start one. There’s a lot of people that think that

Ron: There’s, I mean the first step is admitting that you have a problem.

Angela: Right. And it’s just, you know, if you want to build real wealth for yourself, it’s about getting outside of your comfort zone. Obviously it’s more comfy and more secure to know that you can just drive to your properties anytime you want. Do a little drive by, look at it.

Ron: You know, I think in one way, Angela, but in another way that is so not true. And let me tell you why, because it feels comfy at first, but then when the calls start coming in, you got to step back and you got to think to yourself, is this really comfy? Because it isn’t comfy to me to have to take phone calls. It isn’t comfy to me to have to listen to somebody who’s excuse is why they didn’t pay your rent this month and ect, ect, ect, right? So yes, I think that, I think initially the thought process that it will be way more comfortable and that you’ll have, you know, you’ll have control over it and that will make it better. And I think even in a lot of case it could make it better. You know, because I hear this all the time, Angela, nobody can manage the properties better than I can manage the properties.

Angela: Oh yeah. Oh yeah.

Ron: That may actually be true.

Angela: You also hear that from business owners, like I do everything in my business better than anyone else and I can’t delegate any of it all right.

Ron: Well since we went there…

Angela: Okay sorry I went there.

Ron: You’re right. And one of the things when I go to mastermind groups and business meetings and things, when I’m talking to owners, the one thing that they really wish they had more of is guess what time, time. And yet in the very next sentence they’ll say something just like what you said. They’ll say, yeah, but man, I try hiring people they just can’t do it the same as I do. And to that, I almost always say, who cares? I mean, if you can find somebody who can do it 80% as good as you, and you can buy yourself a whole bunch of time when I can just figure that into your numbers, right? 

Ron: Why not just figure that into your numbers and have all of that time back to yourself. And then it’s funny what happens if you just get out of your own way the business grows, or in this case, what we’re talking about today with respect to real estate, your real estate holdings can grow because you’re not the constraint anymore.

Angela: Yeah. Even if you’re managing them really, really well and you know it’s, even if you have the right personality for that, if you’re trying to build wealth and you’re trying to, you know, get to the point where you replace your income or you can retire, you know, managing them all yourself, you’re creating a job that’s, that’s not, that’s not how I want to do it anyway.

Ron: Yeah you’re creating a job from which you’re going to have to retire. And then I would, my next question would be, how do you do that? Exactly how is it that you retire if the only thing that you do ultimately when you quit your current job is manage your real estate? How do you retire?

Angela: Right. How do you?

Ron: Well, the only way to do that is to hire somebody to do that job, which is called a property manager. This is going to be, this is going to sound really crazy, I know to all of those people out there who still have an admitted that they have a problem if you’re managing your own properties, and the ultimate idea here is that you can exit the rat race and that you can, you know, live semiretired, retired, whatever your definition of living a wealthy life is. How the hell do you do that if you’re strapped to all of the properties that you purchased in your backyard and you’re not willing to allow anyone else to ever manage them?

Angela: You don’t, you just, I mean, yeah. Cool.

Ron: So those of you out there who are doing that, just stop for a second and ask yourselves those questions and then try to come up with the real answer for yourself because the real answer is going to slap you in the face. And if you’ve been, if you’ve done what we just talked about, which is if you’ve bought properties and you’ve leveraged them 50%, and in order to make them cashly you have to manage them yourself, I would suggest to you that you are probably in the wrong market for a high cash flowing property.

Angela: And then think about also why you chose that area. Why did you invest there? I mean, is it just because it’s comfortable? Because you know, comfort can be a success killer in many different areas. So that’s a good thing to, you know, look at as well. Are you doing it just because, you know, it’s harder to, you know, to actually get outside of that comfort zone and look at what a real investment looks like, what and how to free up your time like Ron said.

Ron: You got to get out of your own way.

Angela: I mean, like Ron said, it’s all about the cash flow all right? It’s about the numbers. If you’re really trying to invest to build wealth and to free up your time, spend more time doing what you love, it’s about the cashflow. So on that note, like some, obviously some markets we talked about that do not work for investment real estate, unless you, you know, take drastic measures and do it yourself. So Ron, let’s talk about like how do you, how do I go find a good market? Say I live out in, you know, I don’t know where else has appreciated, Arizona. I live in Arizona I have a bunch of investments in Arizona. But you know, I want to improve my returns. How do I go about finding a good market?

Ron: Well, so we talked about, I think we talked about some of that in a previous episode, but it’s really simple. You look, if you look at a city, and I’ll just, I’ll give you a really easy thing to do first. The first is both coasts in a market conditions like we have right now are going to be expensive. So from there it’s pretty easy to determine that you need to look in the middle of the country, Midwest, South, those places in almost any market condition, you can find really solid cash flow properties in those marketplaces. Now you’re not going to have the opportunity, most likely for crazy appreciation. But when you’re leveraged in, like we talked about on the, on the episode with the four returns, when you’re leveraged into a property and you’re getting three to 5%, you’re still getting, you know, somewhere between a 15% or 20% return on your money with respect to just appreciation anyway.

Ron: So you still get a phenomenal return from some small appreciation when you’re leveraging to the property but that’s where I would look. And then you look at each one of those cities and you can look at them. And you just look up their economic data, make sure that the economy is going the right way.

Angela: Good old Google.

Ron: It’s so easy nowadays. I mean, anybody can do research it’s very simple. And then you can even go micro inside of the city and you can even find the places in the city that are growing, which ones are shrinking because even in a city that it has a strong economics. There’s part of it that have stronger economics, right? I mean that’s just in every single marketplace, that’s the case. And then you just look for the properties in those areas that cash flow that makes sense.

Angela: So I know it’s really basic, but you know, okay, so I find a good market out there and then how do you determine which property actually works? Like, can you give us a little bit a your criteria that you look for and how you kind of calculate if it’s a good investment or not?

Ron: Yeah, so I tell people too, and we did a whole episode on that to you on return, on investment. And you can go back and you can study that in addition, I think, even on our page, I think we have a video about how to calculate return on investment too, which is very simple, it’s short, it’s really easy. But basically you just take all of your expenses, you subtract them from your income and then you, you do that on an annual basis and then divide that by what your invested capital is. So not the full purchase price is…

Angela: Down payment right.

Ron: Whatever you invested, you know, and it’s really easy if you compare a local, you know, Salt Lake City or California property at 50% down to a 20% down in the Midwest, the Midwest is still going to kick its butt and then you can buy three more houses, right? For the same amount of money maybe even more than that depending on whether you’re in Salt Lake or California. And that’s how you do it from a numbers perspective, it’s really not that hard.

Ron: Now, the hard part is combing through all of this and trying to figure out which properties are in good condition and what you really have to do with them. You know, because you’d have to have them inspected from out of state if you’re not there. But finding a good team on the ground it’s pretty easy way to make that work. So if you find a marketplace that you like, then try to find a local team that’s already doing all of that work for you and can provide you with a solid property management company in the area. Because the next thing obviously is trying to find a property manager in those areas and that’s really difficult as well.

Angela: Yeah. And you don’t want to be rehabbing your own properties, so obviously you want to find a turnkey provider because you’re not in that state. So, and that might be…

Ron: I’ve actually had people try to do that from out of state it’s very difficult.

Angela: Yeah, good luck trying to manage a construction crew from a different state.

Ron: Managing one in your own market is hard.

Angela: It’s super difficult. Yeah. We know people. Sorry to get off topic here, but you know, rehabbers that we know, business owners, you know, have to have, even when they are in their market, they have like live cameras in every room to keep these guys on track, right. So it’s no joke if you think managing a construction team is easy, it’s like managing programmers. It’s not exactly fun.

Ron: Yeah. We could do a whole show on that.

Angela: I know sorry for my rant. Okay.

Ron: I’m not going to get, you’re not going to bait me into that one, Angela. I’m not going there.

Angela: All right. But yeah, finding a management company, do you have any tips on vetting and finding a management company that you can trust?

Ron: Yeah, that’s really tricky because if you don’t know how to smell the BS that they spew, because every company, well not everyone, but most of the companies that you’re going to interview when you ask them the questions, even if I gave you the questions to ask, they all know how to answer those question the way that you want to hear them. And you have to be able to kind of hear between the lines, I guess and then be able to ask the secondary and tertiary questions that they probably can’t answer based on what you hear in between the lines. And then you really got to thoroughly check them out after that. You got to talk to people who have used them.

Angela: Google them.

Ron: Yeah, Google I mean, you Google a property management company and you’re going to find that every one of them sucks, every tenant is a miss, they all go on there when they can’t pay their rent and light them up and tell everybody they are the most horrible…

Angela: You could start with the one that sucks the least.

Ron: You could, absolutely. There are a few out there that have good reviews. But very few, man it’s easy to have a really good company that gets hammered by their tenants. And as an owner, I would prefer that the tenants are pissed off that we won’t let them skate on rent.

Angela: Right, right. If their too happy what’s going on there.

Ron: Yeah, I mean, you know, and then it’s also dependent upon what they, what kind of properties that they manage. Because you know, if you’re only manage a properties, you’re going to get less complaints and if you’re managing B and C properties, that’s just the, unfortunately that’s just the way it is. So you got to, you got to kind of go through all of those things. In addition to that, since I stated that you, you have to also know what area you’re in and then you got to figure out which management companies will even manage there, because if you’re in a C class here, an area and you go and approach a management company that only manages A class properties, they’re not going to want to help you.

Angela: Their not going to take it.

Ron: Yeah. And if you’re buying a D class property, there’s even fewer management companies that will even do it, which of course we don’t recommend.

Angela: No, no, definitely not. I think another important thing, well two more actually make sure that you study the contract when you sign it. Because I know we are very careful to make sure that we have an outs if the relationship goes terribly wrong, you want to be able to get out without losing your shirt or at least…

Ron: Yeah without paying a full year.

Angela: Now some of them have crazy crazy penalties if you switch companies so you have to check for that.

Ron: Some of them will even go as far as to lock you up on listing the property that it’s already pre listed with them and if you sell it to anybody else, you have to pay them a fee.

Angela: And they automatically get your fee, yeah.

Ron: Which is insane.

Angela: Yeah so have to read that with a fine tooth comb.

Ron: There’s some pretty crazy stuff written in property management contracts, little clauses in there that, that catch people. So yeah, you really do need to read through that and you need to make sure you vet and ask the questions. And just because it’s written in there doesn’t mean you have to accept it that way.

Angela: No, no. Actually you can…

Ron: I’m cool with everything except for this piece, right. You need to just strike that out.

Angela: Yeah. Make it work for you. I mean, they’re not going to accept you if you know, line out the whole thing. But if you’re reasonable, they do work with you so. And the last one on that note, I want to say, I mean I’ve, you know, worked with so many different investors and seen how they’ve treated property managers and I know we stressed it a little bit earlier, but little kindness and relationship building with your property manager can make the difference between having a good property manager and having a sucky property manager. And it’s because they like you. It’s not because the company’s better or worse, it’s because you’re building relationships with the people in there and they want to help you, right.

Ron: I think that’s pretty much fundamental. But for some reason people forget it when it’s a property manager, which is a sad state really. But it’s really true. And we have said it before on the show, but I’ll, I mean, it’s good to say it again to remind people. You can be as frustrated as you want with something that’s happening with your property, but yelling or being rude to your property manager is not going to help you get it fixed, whatever it is. Well, whoever’s fault it is, being a jerk to your property manager is only going to exacerbate the problem. It’s not going to help you at all to do that.

Angela: And I know for a fact that, actually trying to build a good relationship with the people you’re working with at that property management place, the assistants, the people answer the phone, the people who are filling out the properties, they do put you as a higher priority if they like you and have a relationship with you. I mean, yeah, they still do their job with everyone, but you can’t help it, if you like somebody, you want to help them out.

Ron: Every company does that. We do that, we do that.

Angela: Yeah. Maybe we do that too.

Ron: Absolutely we do that and we do the opposite of that too. Call my office and be a jerk to anyone of the people on my team and we will not do business anymore. You can’t buy our properties if you do that. I don’t need your business that bad. You just don’t get to treat anybody on my team like that.

Angela: I’m sure everyone listening to this would never do that and you’re all super nice, but I just had to throw it out there in case it helps.

Ron: Occasionally we have somebody who does that and man, you just can’t do that. You just can’t do that in business. You can’t do that in life and…

Angela: And yeah, owning investment properties and having property management, it’s like you’re running your own little business, you know, those are your employees and you got to treat them awesome.

Ron: Yeah, you can’t take your team and rip them a new one and expect them to perform better that’s not the way it works. People make mistakes in every single business that there is known to man, but treating someone like they’re less of a human than you are just because they made a mistake does not work. So just don’t do it. Property management companies though, they can save you so much money and so much heartache. I can’t, I wouldn’t be in this business if I had to manage my own properties.

Angela: Hell no, hell no. No way. So, I mean, we’ve talked about before, we don’t have the right personality for that so. Anyway, rant over. Let’s get back to, I think we went on enough about that real quick. I just want to recap. Again, like why you don’t just invest in your backyard and we like to kind of, we, I mean, everyone uses Warren Buffett as an example. He’s a super, he’s a nice guy he’s obviously wealthy. He knows what he’s doing. And you know, if he only invested in his backyard out in Nebraska.

Ron: This is the big thriving metropolis of Omaha.

Angela: Omaha, Nebraska would he be where he is today? Dumb question, obviously not.

Ron: I think it’s funny too because the people who call in, a lot of these people that call in and they say, well, I’m just, I want to invest in my backyard. A because they heard that from somebody else that told them that that’s what they should do, right. B they own stock and it’s the most ironic thing possible, right. Because I guarantee you the stock isn’t in their backyard. They didn’t choose it because it’s down the street and they can go talk to the CEO anytime they want. I mean they don’t go by and hug all the employees and give them a high five when the stock goes up.

Angela: Definitely not.

Ron: It doesn’t make any sense.

Angela: The go by the company and are like, hey, how’s it going?

Ron: This isn’t any different, I mean it’s an investment and I think I’ve just find it really, really funny that people feel like they need to, it needs to be close enough that they can go visit like it’s a grandkid. It’s not your grandkid, you don’t have to go hug it, buy it, cool things. You don’t have to do that, it sits there and it cranks out money. It doesn’t matter what part of the country it’s in.

Angela: Yup. Yeah. And with stocks when something goes wrong in the company, you don’t have any kind of a chance to fix it or do anything about it. You don’t even hear about it, you just lose money, right.

Ron: It would be really cool if we had a management company where you could actually call and say, hey Mr. CEO guy do it this way, next time and then we all won’t lose so much money.

Angela: Yeah, that’d be awesome. I think would like stocks more if that was the case.

Ron: Right. We could do, man, that’s a great business idea. Like a suggestion box for CEOs failing stocks where we can call in and give them pointers.

Angela: I’m sure they would love that, yeah.

Ron: But you can do that with your property manager. You can call him, you can call them up and say, hey, the property hasn’t leased for three weeks. What could we do to make this thing go a little better? You can even give them a couple of suggestions and ask them if they think it’ll work and then allow them to come and have them, use their creativity to come up with something that would work. Because you know, you want that thing leased you don’t want it vacant, but you can do that, you can actually control that stuff.

Angela: So real quick, one last example, we recently set up our company to be remote. And the reason we did that is because we want access to talent all around the country. And Ron, of course, you know, moved up to South Carolina so he could brag about how nice it is.

Ron: Which I do a lot by the way.

Angela: Everyday it’s not annoying at all. Yeah so our company being, I mean, our company being all in one, it would be more comfortable, I guess to all be in the same office and see what everyone’s doing every second of every day, right. But that’s micromanaging. That doesn’t allow people to be in their genius zone and to work at their own pace and to show you what they can really do when you’re micromanaging like that.

Ron: Just like you said, Angela, sometimes the best talent isn’t the talent that walks through your door with a resume.

Angela: Yeah. So true.

Ron: There are hidden gems and you know, where are the gems hidden there? They may not be in your backyard, right? I mean, we…

Angela: In our case, they’re not, some of them.

Ron: In our case they’re not. So some of them were, but that doesn’t mean that they all are. And being remote, we’re able to grow because we, it’s almost exactly the exact same thing and increases our cashflow doing it that way as we’re not tied down to one office that we have to pay for. And you know, with the way communication is like what we’re doing right now, we’re reaching, you know, however many people are going to listen to this and we’re doing it one time and it’s kind of the same internally.

Ron: You can do that and you could do that with your property management companies. There’s so many ways that you can be effective in communicating, doing it in a very short amount of time and getting a ton of things done. Efficiency is really, really key and that allows you to go seek out the best opportunities instead of be relegated to whatever’s in just in your backyard. And in Utah, for instance, right now, man, all the talent is employed. I mean the unemployment rate in Utah is almost nonexistent. Basically everyone except for the people who don’t want a job are employed.

Angela: It’s slim pickings, man.

Ron: So it’s kind of the same thing with the real estate market, unfortunately there, so.

Angela: Yup. So true. So sorry, I didn’t mean to interrupt you, but um, yeah, I just wanted to recap real quick. That was awesome. So investing at a state is not a big deal to us. You know, just looking in your own backyard is not the way to think like a millionaire, right? We talked about that. It’s all about getting out of your comfort zone, including geographically. And then it’s all about the cashflow like Ron said, that’s the number one rule, it rules, it’s all, so that’s it. You guy’s it…

Ron: I think we said it before, but I’ll just throw it out there again. Be kind to everybody.

Angela: Be kind. Hey, I’m sorry. I’m going to let this end, but I watched Ellen’s little standup thing on Netflix and she said that she said be kind on one of her shows and now she’s known as the be kind lady and she said people like people expect her to be kind like driving around in her car, she can’t have road rage. She said it’s a bad thing to say. So now people are going to be watching us.

Ron: She can have it then because when your on the road and you’re in front of me, by the way, just a public service announcement, which has nothing to do with real estate. If you are driving in the left lane slower than people in the right lane, there’s a 12 step program for you as well and if you don’t get out of my way, I may run you over. How’s that for being kind?

Angela: Be kind in business and your property but not on the road. Gotcha. All right, well sorry, we’ll let everyone go, thanks for listening. Check out our website, GetRealEstateSuccess.com you can watch all our podcast. Subscribe and leave us feedback. Let us know how we’re doing. Let us know if there’s anything else you want to hear about or if you disagree with anything we say. So thanks for listening. See you next time.

 

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