Buying Your First Long-Distance SFH Rental: My Story
Going from THINKING of purchasing a rental property to actually doing it can be tough, so I want to share my story to help anyone thinking of making the jump. Also, I did it (almost completely) from a distance, so I’m positive you can as well.
My foray started like most; I heard about someone making millions of dollars in real estate and that led me to absorb as much knowledge as possible from different books (Long-Distance Real Estate Investing by David Greene, and The Book on Rental Property Investing by Brandon Turner are good starts), Reddit, and YouTuber’s like Graham Stephan and Meet Kevin. After about 3 months of this, I started with the first action towards acquiring my first rental.
That first step was research.
STEP 1: RESEARCH
Everyone has their own criteria for finding the right rental in the right neighborhood. These develop over time, but I started with the “1% Rule” as my foundation, which is the rule that a property should rent for 1% of its purchase price plus the cost of repairs. So if a property costs $150,000 plus $10,000 worth of repairs, you should aim to rent that property out for $1,600 per month. Maybe you can rent the whole thing out for that amount, room by room, or break it up into two, smaller suites — there’s a lot of flexibilty depending on your market, and home layout.
The market I ended up settling on was a city called Lethbridge, in Alberta, Canada. Lethbridge is a 12- hour drive from where I live, and is the fourth largest city in Alberta, with a population of just under 100,000 and a strong municipal economy focused on agriculture. I searched Craigslist, Facebook Marketplace, and Rentfaster.ca for rental vacancies to determine that there was a demand for single-family rentals. I also emailed a few property managers to figure out which areas of the city were good, which were bad, and which neighborhoods people were renting. I also found local online news articles and Reddit very helpful in this process.
I learned that the city was divided into three quadrants of sorts: West, North, and South (The newer developments were in the South, and there’s a University in the West. Unfortunately, my maximum budget was $150,000, so I ended up settling on North. Through my research, I learned that Lethbridge has a significant drug problem, with the epicenter being located near the central, downtown area. Westminster ended up being the neighborhood I settled on, as it was in my budget range, pretty central, but far enough away from crime hubs of the city.
STEP 2: BUILDING A TEAM
I now knew where I was going to invest and needed to assemble four key people: A Lender, Realtor, Property Manager, and Contractor.
Your Realtor should be someone that specializes in representing buyers rather than sellers, ideally someone who is from the area and is adept at working with investors — if they’re an investor themselves, that’s fantastic. You should reach out to a few in the area and communicate what your goals are for your property, and what you’re looking for out of a Realtor.
I hit the jackpot with the second Realtor I contacted. The found a listing and emailed the selling Realtor, stating who I was, exactly what I was looking for, and asked if he could do a face-time walk-through with me. After a few days he replied with a 2 minute video running through the property as quickly as possible. In his email he asked if I wanted to put in an offer and said I had to use him if I wanted him to do anything else.
He didn’t provide any answers to questions I asked and I didn’t appreciate his tone, so I continued my search. Luckily, the second Realtor I got was FANTASTIC. I’ve used 3 Realtor’s to purchase different primary residences and she was the best by a country mile. She was from Lethbridge, was an investor herself, and primarily only represented buyers, which was a bonus in my case.
I found my mortgage broker by simply searching for some in my local area. I sent him an email and got approved for an 80/20 loan up to $350,000. This was great, but I intend on purchasing a few properties, so I set that $150,000 budget for myself at that time. I would have loved to put down less, but because the property I was looking to purchase wasn’t a primary residence, the bank required me to put down a down payment of 20%. There are ways around this if you secure funding from other sources, but this is what I went with for our first deal. The experience with this broker was painless, I just brought in my T4 and two pay-stubs and I was approved.
Our property manager came from a scenario that usually doesn’t bode well for people; he was the boyfriend of our Realtor. Initially, this raised some red flags but I interviewed a few management companies around Lethbridge, and he ended up being the best. For each of them, I’d typically ask the following questions:
- What are the full capabilities of your service?
- How big is your team and how many units are you managing currently?
- How long have you been managing properties for?
- What is your current average time to fill a property?
- What’s the best and worst areas of the city?
- What are most renters looking for?
- What’s your monthly fee?
- What happens if we begin working together and then want to want out of the partnership and we want to manage ourselves?
The average fee for property management in Lethbridge is around 10%, so I ended up making my decisions based on the answers to the above questions. This gentleman had tons of experience in property management and wasn’t overloaded, so we signed him up and we were off to the races.
The last piece was supposed to be a handyman or general contractor. However, since this was my wife and I’s first investment property, we decided to schedule the subcontractors ourselves, and drive the 12 hours to Lethbridge to meet with them. This was great, because we could learn from them and save some cash fixing up the more cosmetic items ourselves.
STEP 3: PURCHASE
After looking at three properties, I stumbled across Real-Estate Owned property being sold by a big bank. This home was on the MLS for about 80 days, originally listed at $139,900, but had dropped to $129,900 by the time I put in our first offer. REO properties are great because the negotiation process is generally super straightforward— a banks goal is to not lose a ton of money and get rid of the property as fast as possible.
Our Realtor pulled comparable listings and the average sale price of a 2 bedroom/1 bathroom home in the immediate area was $135,000, but this house needed some work so we put in our first offer at $105,000. They countered at $128,000, we countered at $110,000, and we settled on $115,000 pending a home inspection.
I searched Google to find the highest rated home inspector in town and ended up paying about $400 to have him come in and inspect the place. There were a lot of things I expected and only one thing I didn’t; a broken window in the kitchen that wasn’t reflected in the original listing.
This wasn’t a major surprise since I was aware the property had been vacant for about 8 months prior to submitting my offer, but it wasn’t noted to me prior to us submitting our offer so I used it to go back to the seller and try to get a bit more off. Unfortunately, I got greedy and asked them to discount us another $1,000 — they declined. Their reasoning was that it only cost about $250 to fix the window so they felt the ask was too much. I felt like an idiot but bit the bullet and accepted the offer with 30 days to close.
I then created a spreadsheet to track everything I wanted repaired — I also made sure our down payment and mortgage financing was available and ready to go. I secured a bank draft the week prior to possession and met with a Notary to hand it over and sign all the documents. I called utilities (City/Water/Electrical & Gas/Heating) to create accounts in my name, while also securing home insurance to begin the day I took over. I believe my insurance payments were $134 per month while the home remained empty, which was higher than I thought it would be. To be honest, I only got quotes from two insurance brokers, so that’s something I want to spend more time on next time around. I took ownership on Feb 12th and my wife and I immediately began the rehab process.
STEP 4: REHAB
I signed an agreement for our Realtor to hand the keys over to our property manager, who put a lock-box on the front door and provided the code to hand out to contractors where needed. This helped a TON, I would highly advise having your property manager do this if you’re managing a property remotely. I understand if you have concerns about people seeing the lock-box and trying to break in, but you can put it in a discreet location. If you do that, get your property manager to snap a picture so you can provide simple directions to your subcontractors.
My rehab plan involved my wife and I driving 12 hours to the property to fix cosmetic items, as well as meet and manage all the subcontractors. We don’t plan on doing this again, but since this was our first deal I wanted to get the full experience. I vetted subcontractors via email and phone prior to our trek, setting times for us to meet on-site where needed. Our goal was to drive, meet who we needed to meet, and get everything fixed up in 5 days.
Here’s a break down of things we needed to get done:
- Get roofer to replace roof on one side of the house and add a chimney cap
- Get plumber to redo all plumbing under the sinks, replace faucets, add sump pump, fix washer/dryer hookup, and fix the drainage
- Get electrician to fix outlets in the kitchen (the boxes were in but there was no outlets present), dryer plug, and add an extra switch to our breaker
- Get new counter-tops
- Get the furnace cleaned
- Get bathroom and kitchen tiles re-glazed
- Get appliances and have them delivered
- Get a bathroom and kitchen faucet for plumber
- Get two windows fixed
- Hang curtains in the master bedroom
- Hang a curtain on the window in the shower
- Install new shower rod and curtain
- Paint the interior walls
- Paint cabinets and cabinet hardware
- Clean up the property
- Replace the mailbox
- Replace door hardware and handles
Most of the subcontractors I talked to were super friendly; we sourced two to three quotes from each of them to ensure we weren’t being overcharged. For example, we had two quotes for the plumbing work we needed: one for $1,600, and the other for $575. Generally, this kind of price discrepancy is a red flag for the type of work a contractor will provide, but in my instance we called references for the gentleman behind the cheaper quote, and everything checked out so we moved forward.
Some of these items like the roof were taken care of while we weren’t at the property, but aside from someone trying to break in twice, and both the tile re-glazing and counter replacement quotes coming in WAY too high everything went really well.
As useful as going to the property and fixing up things ourselves was, I won’t ever do it again. I’ll get into details on the full rehab in a later post, so follow and stay tuned for that.
STEP 5: FINDING A RENTER
As soon as our rehab was complete, my property manager inspected the property and said aside from a bit of cleaning, we were ready to rent! He said we could likely rent the place out for $1,300 per month, but I let the personal side of me and told him to start at $1,200 because I thought that was high.
I’m not sure if it helped or not but after about 6 showings we had a renter who paid their deposit and moved in on April 1st. Aside from one small plumbing fix (error on our part not communicating to our plumber clearly), we haven’t had any issues since.
If you’ve gotten this far, thanks a million for reading. I’ve learned a lot from this experience, and hope you can too.
If you’re new and thinking of getting into real-estate, what are you waiting for? Even if you don’t have the money, start educating yourself. Read more articles like this, reach out to your local real estate investing communities, check out BiggerPockets.com. Absorb as much as you can now, set your big goal and then break the path towards it down into small, bite size pieces. Then, when the opportunity presents itself, you’ll be ready.
This article is for informational purposes only; it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
