My First Out of State Investment Property
I purchased my first property in Pensacola, Florida in October of 2016, and soon after buying it I became interested in learning more about real estate. I was consuming all of the BiggerPockets podcasts and purchased David Greene’s first book “Long-Distance Real Estate Investing”. This opened my eyes to the concept: live where you want to live – invest where the numbers make sense.
I listened to an episode of the BiggerPockets Money podcast with Stu Grazier, a fellow Navy officer and real estate enthusiast. He had just started a turnkey real estate company in Milwaukee, Wisconsin. Stu and his partner David Gutierrez (they were roommates at the Naval Academy) had a bad experience with a turnkey provider and were inspired to create their own company to help military members and veterans acquire cash-flowing properties. Storehouse 3:10 Ventures was born. I was immediately intrigued after hearing the story and contacted Stu via the BiggerPockets forums to learn more.
The Deal
Fast forward a few months, and I closed on my first out of state investment property in Milwaukee without setting foot in the state of Wisconsin. Here are the numbers:
- Purchase price: $89,000
- Financing: Conventional loan at 5.25%
- Capital invested: $33,422
Pro Forma (Projected Numbers by Storehouse):
- Monthly Cash Flow: $201.86
- Cash on Cash ROI: 10.09%
- Repairs and Maintenance: 5%
- Vacancy: 7%
Savvy investors will wonder why I put so much capital in. When Stu and David purchased the home, it was a 2 bedroom / 1 bath, and they planned to convert the basement to a third bedroom – which they did. However, the appraiser would not recognize that third bedroom, so he classified it as a 2/1 instead of a 3/1 and the appraisal came in at $78,000: $26,000 lower than the expected After Repair Value (ARV). This is the worst news a home flipper can hear! Stu proposed we split the difference and draw up a new purchase agreement for $89,000. This was all very new to me, but I trusted Stu and David and I liked how the home would still rent as a 3/1 (I cared more about the cash flow) so I agreed to the lower purchase price. The lender would only finance 80% of the appraised value (78k) so I had to come up with the difference between what they would cover and the updated purchase price (89k).
The Storehouse team was fantastic about helping me along through the process. They always answered my questions quickly and honestly (and still do!) – which I appreciate immensely and speaks to their integrity as business owners.
The First Year (2019)
First Year Performance Numbers (Pro Forma Estimates in Parentheses):
Monthly Cash Flow: $406.43 ($201.86)
Cash on Cash ROI: 14.59% (10.09%)
Repairs and Maintenance: 12.3% (5%)
Vacancy: 12% (7%)
I learned a lot in the first year! I especially learned how important the property management is once you close. I have since switched to a different property management company due to issues with communication and their accounting practices. I also think they could have done a much better job screening my first tenant. She ended up not paying the rent 4 months into the lease, but thankfully left the property and turned the keys in. I used her security deposit to cover that month’s rent, but then I was left with a vacant property for 6 weeks until the PM was able to find a new tenant, which was very frustrating.
You’ll notice the repairs and maintenance expense was much higher than expected. I don’t know the exact reason for this, but I suspect the previous property management company was not finding the best deals for work performed on the house. For example, there was a possum trapped in a window well, so the PM contacted an exterminator company who charged over $200 to remove a single possum. Time will tell if my R&M expense decreases for the 2020 tax year thanks to the new PM. More to follow on that.
I’ve been with the new property management company (Smart Asset Realty LLC) for a few months now, and it’s been fantastic so far. I set expectations from the beginning and made sure they knew how important communication is to me. I was also able to visit their office in Waukesha, Wisconsin, in person, only a few weeks ago. I was very impressed with their spaces, the team, and the excellent company culture they have.
Would I Do This Deal Again?
Absolutely I would. It cash flows more than Storehouse projected it would and the property has appreciated to about $100,000. I plan on holding this home for a long time, and I recommend the Milwaukee market for anyone looking for strong cash flow. I was so happy with the turnkey experience provided by Stu and David that I purchased another home from them only a few months later.
Turnkey is a great way to get into real estate investing, especially for military members. I actually wrote an article about this already so check it out!
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