Summary: Regional Investing Groups is a term we’ve coined to describe the way investors can help each other to build systems and connections for out-of-state rental properties. Here we explore how to use team investing to help grow your real estate investment portfolio.
If you want to start or grow your real estate investment portfolio but can’t find any deals in your local market, you’ve probably considered out-of-state investing. This is where most new investors get stuck and never move to action because the prospect of finding and managing out-of-state properties feels too daunting.
You hear many of the same concerns:
How do you find rental properties when you don’t know the area?
How do you find good property managers and contractors?
How do you deal with major tenant or property-related issues from long distance?
It’s important to point out that these challenges aren’t unique to new investors. They are a constant challenge for experienced investors as well.
So what are some strategies for successfully owning and managing out-of-state properties?
In our experience, there isn’t any one perfect solution. However, we have found one idea that we’ve been implementing that works better than most. We call it Regional Investing Groups.
What is Regional Investing Groups?
Regional investing groups is working in tandem with group of like-minded investors with the goal of helping each individual in the group or “team member” to be as successful as possible.
With regional investing groups, there is no sharing of finances. No formal partnerships.
Regional investing groups is more about sharing information and resources wherever possible.
For example, you could lean on the group to help you find a new contractor or property manager.
Your group might also have resources like LLC agreements that they could share with you. Why re-invent the wheel if someone has done it already?
The idea is to work together with other investors to improve your odds of success and gain efficiencies wherever possible.
Investing comes with risk, but you can mitigate some of that risk with information. The more information you obtain about a property, a market, a contractor, the better. This is why local investing groups, while helpful in your home market, is particularly important if you are investing out-of-state.
How do regional investing groups work?
Forming a team is relatively straightforward. You just need to network to find other individuals who are investing in the same market.
Some ideas for networking are to search out individuals in Facebook groups like our Semi-Retired Facebook Community or ask your real estate agent and property manager to connect you to other investors.
Keep in mind that the members of your team don’t all need to be out-of-state investors. One of our teams has a local investor who has been extremely invaluable in helping us vet neighborhoods and make local connections. He has even driven by one of our team member’s property to lay eyes on it for her!
We’ve also found that it’s best to make your team up of people who have an abundance mentality. This means that they are willing to share information and connections rather than keep it only to themselves. What you don’t want are investing group members who are constantly asking for help but give back little in return.
Once you’ve built your investing group, you need a way to communicate with the group. This could be done with a group email or group text. We’ve found group texting to be particularly effective because emails often get lost or forgotten more so than texts. Moreover, sometimes you need help with a problem in real time. This is when a quick text to the group can immediately resolve a pressing issue.
What are the benefits of regional investing groups?
There are numerous benefits of team investing. Here are a few:
Make better purchasing decisions
When you are out-of-state, one of the main disadvantages is that you often know little about neighborhoods and sometimes you are purchasing these properties sight unseen.
As mentioned above, one of our teams has a local investor who knows many of the neighborhoods. Recently, we touched base with him about what he thought about potential rents on a larger apartment complex we had under contract. He was able to weigh in on whether rents could be increased as well as the quality of the area. He even advised us about what type of cap rate to expect for the neighborhood. This was invaluable information to add to the insights we already had received from our real estate agents and our property managers. In the end, his advice was instrumental in helping us decide to walk away from the deal.
Find vendors more efficiently
In any market, you need a real estate agent, property manager and a contractor.
Finding these resources is not always easy. You can interview them, but you still don’t know if they will do a good job.
The best case scenario is when one of your team members has a contractor or property manager who they’ve used before and endorse their work. The second best scenario is when you can have multiple members of your investing team interview a range of vendors and find the best fit. You could even group interview a vendor, as Leti recently did with a fellow investor!
Get a volume discount
When you approach new vendors as a team, you may be able to get benefits usually reserved for larger clients.
For example, we’ve been able to negotiate a lower monthly property management fee based on how many units our group owns as opposed to the number of units we own individually. In one market, this saves us approximately 1% per month.
As a group, we’ve also been able to push back against sweeping changes that are a disadvantage to us as property owners.
Hold vendors accountable
This one should probably be reserved for major issues, but the idea is that as a group, you have more leverage over your vendors. And sometimes you can wield that leverage to your advantage.
For example, one regional investing group member had an unfortunate situation where the property manager mistakenly rented her unit at sub-market rent. The property manager initially resisted any requests for compensation, but eventually relented when multiple members of the investor group team intervened. The risk of all of the team members leaving that property manager was just too great of a loss.
Real estate investing comes with numerous costs.
Many are unique to the property, but there are certain items that could easily be shared.
For example, when we started renting out free standing garages to third party tenants, our property manager didn’t have a garage/storage lease. Because we didn’t have a team at the time, we went ahead and paid a lawyer to create one. Since then, we’ve shared that garage/storage lease with numerous other investors.
Other examples of items that could be shared are LLC agreements and lease addendums (e.g., yard maintenance, rules around use of marijuana, pet addendums, early lease termination documents).
Let’s say that you’ve locked up a property but for various personal reasons, you don’t want to move forward with the deal. At this point, you could either drop out of the deal or you could assign it to someone else.
By having a team of investors, you might be able to simply assign it to one of the team members and recover the cost of inspection. [Author’s note: This is the reason you want to make all contracts assignable – click here to read more about assigning contracts].
We recently had a situation where a friend locked up a property, but the inspection turned up several issues that would require a major renovation. Our friend didn’t want to tackle such a big project but the numbers were still good, so we suggested they assign the contract to someone else for the cost of the inspection.
Just because a deal doesn’t work for you, it could work for someone else. Dealing with people you know makes it that much easier for both sides.
What are the downsides of regional investing groups?
The main downside of regional investing groups is that sharing resources or information may be detrimental to your investments.
For example contractors are a finite resources. Many investors say that if you find a good contractor, hold onto them, keep them busy and don’t share them with anyone. We had this happen to us recently. One of our best contractors got so busy with all of the referrals we sent his way, he didn’t have the capacity to help us out when we needed him. This was definitely a loss for us since we were stuck scrambling to find a handyman to deal with an emergency repair.
Deals are also finite. If you share your sources of deals, it’s likely that fewer will come around to you.
While these are legitimate concerns, we feel this is short-sighted. In the long-term, we feel that whatever help we give to others will eventually come back to us in some form.
Remember, at the core of successful real estate investing is relationships. These are more important than any single deal you may miss out on.
We were alone in many markets when we first started investing. But since we’ve helped others join us in remote markets, we’ve reaped the benefits of regional investing groups. Nowadays we couldn’t imagine entering a new market without the help and support of our team!