THE FRIGHTENING FOUR:

The Four Biggest Roadblocks Out-of-State

Investors Face and How to Overcome Them!

By David Greene
Author of Long-Distance Real Estate Investing

Section 1: How Do I Buy Houses Sight-Unseen?

Section 2: How Do I Avoid Getting Taken Advantage of?

Section 3: How Do I Know I’m Finding a Good Deal?

Section 4: How Do I Work with Contractors from a Distance?

© 2017 BiggerPockets Inc. All Rights Reserved.

SECTION 1: HOW DO I BUY HOUSES
SIGHT-UNSEEN?

As a primarily out of state rental property investor, I routinely buy

homes I’ve never seen. I don’t have much choice. It wouldn’t make sense
to fly across the country every time I wanted to buy a house.
But, what I’ve found is that I really don’t need to be there to see it.
They say necessity is the mother of invention. Because I can’t buy
rentals in the San Francisco Bay Area, I’ve been forced to start buying
them in other markets. This has led to me not being able to see in person
most of the houses I buy. It’s also forced me to create systems to manage
the various aspects that go into real estate investing.
It turns out that this was a huge blessing in disguise! Now I can buy
properties anywhere, not just where I live. And I’m not talking about
turnkey properties. I’m talking about often nasty, ugly, gross, outcast,
funky, needs-a-complete-rehab-from-head-to-toe type properties. When
I tell people I do this, I pretty much universally encounter the same
response:
“I have no idea how you do that! I don’t know, I just need to see the
property with my own eyes. I need to drive by it and know it’s there.
That’s just me.”
When you really get down to it, most people don’t even know
themselves why they want to see a property. I’ve bought so many
properties sight unseen that it has become the norm for me. In Long-
Distance Real Estate Investing, I document my processes for why I do
things the way do them, what I do, and how you can replicate it.
 I’d like to share a little insight behind the details of the book and
introduce you to the idea that you may have been looking at real estate
all wrong for a long time. If you’ve been wanting to get into investing but
found there are too many barriers to entry, this could be exactly what
you’ve been waiting for.
And now, 7 reasons why you don’t need to see a house before you buy
it.

1. Most of us aren’t appraisers or inspectors anyway.

This one is obvious, but for some reason people have a really hard time
admitting it. Fact check, people. When the vast majority of us walk
through a house, we don’t really know what we’re looking at. Not much,
at least.
Now, of course some of us are more skilled or experienced than others.
And most of us can spot mold, loose carpeting, bad tile work, a leaky
faucet, etc. However, let me ask you—if you can see it, don’t you think
the expert can see it just as easily? In fact, do you really think you are
more likely to see it than the home inspector? And if you aren’t getting
your home inspected, why the heck are you thinking of buying it in the
first place!?
Hey, I know it is second nature to lift up the hood of the car and look at
the engine when you’re buying one. We all do it. But really, do you know
what you’re looking at when you do? I sure don’t. And if you do, do you
know enough to look at the deck or roof or bathroom and estimate the
rehab costs in your head? And if so, do you really need to be there
looking at it yourself to do that? I can do it just from looking at pictures,
and I’m not afraid to admit it.
The truth is, there are so many checks and balances to a real estate
transaction that you are going to get more information than you’re
realistically going to look at. How many people do you think read Natural
Hazard Disclosures from front to back? How many even know they are
getting one?
Leave the visual inspections to the experts. Instead, work on inspecting
their reports for you. You don’t need to leave your house to do that.
Walking through a home to “check it out” is pretty much a useless
practice and primarily done for emotional purposes. Your agent can walk
the home for you. So can your property manager or contractor. You
wanting to do it serves very little realistic benefit to your business.

2. Homes don’t get sucked up and carried away by

aliens.
“But, David, it just makes me feel better to see it and know the house is
really there!”
I know. It does. It’s a little weird committing this much money to
something you haven’t even seen. But so what? What in real estate
investing doesn’t feel scary when you first do it? Not knowing if your
tenants will pay rent, not knowing if you’ll ever find a tenant, not knowing
if a hurricane will suck your house up into the air, or if it will be used as
a meth lab are all really scary thoughts at first.
But you get over them pretty quick when none of that typically happens,
right? Soon enough, you realize there is a reason people are buying
houses all over the country, renting them out, and the world keeps
spinning anyway.
Of all the things I’m worried about when investing out of state, or
investing in general, the house not actually existing is not one of them.
Let me tell you why: The lender sends an appraiser who has to find the
actual house in order to appraise it.
If I’m not using a lender, an inspector still has to go by to find the actual
house to inspect it. What’s more, he or she takes pictures of said house
and includes them in the report. That would be tough to fake.
The title company does a lot of research to actually verify that the house
is indeed there, amongst other things.
Google Earth is now a thing and it is tough to fool Google Earth.
My real estate agent takes a video of the house and sends it to me. He
or she isn’t smart enough to Photoshop the entire thing just to get a
commission out of me when they could easily sell me some other house
that actually exists for much less work.
My contractor would have to be a part of this elaborate ruse to sell me a
home that doesn’t exist and it would be tough for him to make money
charging me to fix drywall when no drywall exits. It would also be foolish
of him to lose my next 10 deals to try and fool me on one.

3. Emotional investing is bad investing.

When you’re looking to buy the perfect house to raise your family, you
want to see it yourself. One hundred percent, of course. The floor plan,
the way the neighbors look, the color of the walls, where the TV will go.
You want to make sure the house will work for your very specific, very
unique, very custom needs. You want to feel in love with your house. I’m
an agent. I help people do this all the time.
When you are buying a rental property, it’s different. The very last thing
you want is to fall in love with it. Trust me.
Emotions make people do some weird, often dumb things. They can
skew our decision-making and lead us in ways we know we shouldn’t
have gone. When I talk to people about investments that went sideways
and how it happened, I can inevitably tie it to an emotional connection
they felt with the property. That connection served to connect them to
the anchor that took them down to the bottom of the sea. Their mind
could tell them to cut ties, but their heart just couldn’t bring them to use
the knife. It’s not a positive thing to have an emotional connection to a
rental property.
When I go look at a house, the odds of me really liking or really disliking
it increase. They increase a lot. I may hate a specific floorplan because it
reminds me of the house of an old friend whose mom was always mean
to me. Or I may love a certain floorplan because it reminds me of
Christmas at my grandparent’s house. Whatever my emotional response
is, it’s likely not going to be objective and therefore not likely to be
helpful.
I don’t want to feel an emotional connection to a rental property. I want
to sell that sucker ASAP if I feel things going bad, and I want to keep it
and ride that wave all the way to the top if I think prices are going to keep
rising. I don’t want my own emotional bias to influence my business
decisions. I know myself well enough to know that my emotions don’t
often serve me well in business, and I respect that.
By NOT seeing a house and instead relying on the opinions of others, I
decrease my odds of forming an unhealthy relationship to my business
interests.
My real estate agent knows what floor plans tenants/buyers like. Her
opinion matters much more to me than my own would.
My contractor knows what walls should come down, what the kitchen
should look like, and how much money I need to redo the backyard and
stay on budget. He knows the color of paint people like and the style of
showers that make sense.
My property manager knows if a second garage space would be worth
more than converting it into a fourth bedroom. He or she obviously know
the area better than I do.
See what I’m getting at? Forming an emotional connection is unhealthy,
foolish, and potentially dangerous. You need to know your numbers. You
don’t need to know what kind of drapes the master bedroom has.

4. You should be working on your business, not in

your business.
My, oh my. We investors always make this mistake. All. The. Time. While
it can be fun to go change doorknobs, cut grass, or relight pilot lights, is
it really the best use of your time?
Many people manage their own properties because they have no other
option. I commend them for that.
Many people manage their own properties because they paid too much
and have no choice. I sympathize with them over that.
Many people manage their own properties because they are too
emotionally weak to let go and let someone else trust them. I am
perplexed over that.
I invest in real estate to build wealth and make money. Not to give myself
something to do, not to feel “needed” because my phone rings and I am
so important I have to go save the day so my tenants don’t suffer, and
certainly not to learn how to swing a hammer better. I do it because it’s
an awesome wealth building vehicle. You know what else is an awesome
wealth building vehicle? My job! Collecting rent is cool. Collecting rent
while you also collect a paycheck is cooler.
Don’t forget why you’re doing this in the first place.
I seriously doubt the very best use of your time is putting the sliding glass
door back on the rails when the tenant knocks it off. If it is, why not learn
a way to make money yourself and hire a handyman for these things?
Handymen need work, too! Instead, go send some more direct mail
letters, network more, get a job, get a better job, or reread some of my
blog posts. But don’t keep stealing a handyman’s work as if you’re doing
something noble. Handymen all over the world are nodding in approval
as they read this.
Work on your business, from above. See the big picture and do what only
you can do. Don’t work in your business from below. There are other
people better suited for that.

5. You’re already not looking at your investments in

everything else.
So you just feel like you really need to see that house before you buy it,
right? Well, did you drive to Cupertino to check out the Apple
Headquarters before buying its stock? Did you meet the CEO of Ford
before buying your car? Nobody is driving to the eBay warehouse to
make sure that furniture exists before we order it. You are already not
seeing things before you buy them all the time. When it’s something as
expensive as a house, for some reason, we get all freaked out and weird.
Let me ask you, that bank that is lending you the money—do you think
they aren’t pretty dang confident a property exits before funding
hundreds of thousands of dollars into escrow?
You’re kidding yourself if you are going to prevent disaster by driving by
a house to see it before you buy it. Don’t worry, people are taking care of
it. It’s totally okay to buy a house without seeing it. You need to do your
due diligence, but seeing a house with your eyes does not need to be
part of that.

6. You aren’t buying a house. You’re buying an

income stream.
When buying investment property, it’s not the same as buying a home.
You are buying an income stream. In essence, you are buying an asset
(mostly with someone else’s money—the bank’s, probably) in order to
have the right to collect the income stream that asset produces (in this
instance, the rent). That income stream is produced by the house itself
sure, but the house isn’t what I care about. The rent is. I’m not going to
go take bricks for the chimney for my own house, so I don’t need to see
what they look like. I’m not going to take wood from the deck to rebuild
my shed so I don’t need to smell it myself.
I want to know that this property will produce $X amount of rent. I can
look into that and verify whatever I need to without actually seeing the
property. I buy almost everything I own without ever having seen it once.
How do I know it exists? Because that rent just keeps coming in, the title
company sends me a deed of trust, and because I keep getting pesky
property tax bills from the county.
I bought the property to collect the cash flow from it, period. I bought in
certain areas, certain neighborhoods, certain home styles, and certain
states because I thought I could get a stronger, more consistent income
stream. At its core, that’s what real estate investing is. It’s that simple.
Once you realize that’s what you’re doing with real estate, it gets much
easier to not care what the house looks like as much as what it’s worth,
where it’s at, and what it produces.

7. You should focus on making money, not looking at

stuff.
Looking at a home is not making you money! Sure, one way to do it is to
go check it out. If it’s nearby, why not? But if it’s not nearby, you don’t
need to see it. Other people can do that and can do it just as good or
better than you.
Focus on what you’re good at. Not what makes you feel more
comfortable. You’ll make more money, be more productive, and end up
happier if focus on the good.
The fact is, if you think about why you would like to see a house before
you buy it, it’s very hard to justify how you looking at it makes any
difference in whether or not the place was a good buy. As real estate
investors, we have all heard the stories of people too scared to invest in
real estate because they don’t want a bad tenant, don’t want to fix toilets,
or know someone who lost money in it. They use this fear as an excuse
not to get involved, and they prefer to hold onto this fear rather than
really question if their fears are legit and warranted.
You know why? Because they don’t want to find out that they are wrong.
They would have to question their assumptions and possibly look at
things differently.
Were they to ask you how you invest knowing what could go wrong, they
would likely find that all their fears have a solution that you’ve come up
with and the risk is really mitigated much more than they would have
thought.
Buying a house sight unseen works the same way. Don’t hold onto
baseless fears without challenging their validity. Technology has grown
leaps and bounds, and it now takes so much of the risk that out-of-state
investing once carried right out of the equation.
SECTION 2: HOW DO I AVOID GETTING
TAKEN ADVANTAGE OF?

The question most people want to know when they hear I buy houses
out of state (other than "You don't go see them?") is almost always "How
do you know you're not getting ripped off?"
This is a great question. It should be your number one concern when
dealing with people you don't know and trust yet. The answer is pretty
simple: I make sure each member of my team is looking over another
member’s work.
The best example I can give is when a contractor has claimed they
finished part of their work and is asking for the next draw (payment). If
you're working with someone you don't already know, it can be very easy
to be taken advantage of when the contractor knows you aren't from the
area and can't see what they've actually done.
My solution is to have someone else from my team making sure the work
was actually done. The trick is to find someone on your team whose
interests align with yours to do this.
For instance, if I am renovating a house to rent out, I have the property
manager stop by and make sure the contractor has done the work they
said they've done. My property manager isn't likely to mind this because
they don't want to have to track down the contractor and make him finish
the job once he's moved on. When my tenant moves in, this becomes the
property manager’s problem.
These guys don't get paid enough to deal with these kind of problems.
If the property manager can catch the leaky faucet, non-working outlets,
squeaky floors, or stuck windows, they can have the contractor fix it
before the tenant complains. This is the best way to ensure it gets done
quickly and efficiently (if you've ever tried to track down a contractor to
come fix some work who has already been paid and moved on to the
next job, you know how difficult that can be.)
The same goes for the real estate agent if I'm flipping a house. The agent
has to sell it. They don't want to try to sell a house that isn't finished and
ready to go. If they can catch errors and make sure the contractor did
their job right before the house goes on the market, you can bet they'll
be willing to help you out and make sure everything got done.
This principal doesn't just work for contractors. It works for every
member of the team.

Why This Works

Each member of your Core Four team is responsible for something that
at least one other member will have additional knowledge of. For
instance, your lender is giving you an interest rate, but your agent sells
houses every month and sees what rates the other investors are getting.
If something is grossly inaccurate, they are going to spot that.
I leverage each member of my team as much as possible, to get the very
most value out of them that I can. If I'm going to be paying them anyway
(and I will be, whether it be through a percentage of rental income, rehab
costs, commissions, or closing costs) I might as well get the most I can
for my money! Most investors have no clue how much more you can get
out of the members of your Core Four than just their basic job
descriptions.
For now, a few more examples of what I mean:
Your property manager is going to get paid by you to manage the
property. Since you have this fixed expense, why not get the most out of
it? Confirm with them before you buy anything that it's in a
neighborhood you want to own in. This is one of the most valuable things
a property manager can offer, and most investors never even bother to
include them.
Your property manager wants you to keep buying properties. They know
you need to rehab them. Guess what, they probably work with other
investors who have this same problem. Ask your property manager for
contractor referrals or skilled handymen because they are likely to knew
several.
Your agent wants you to continue to keep buying properties. The more
you buy, the more they make. This is what makes the relationship
mutually beneficial and those are always the best relationships.
So what can you do to make sure you're able to keep buying? Ask them
for help in the areas you need!
Ask your agent to ask everyone in their office what lenders they know
that will lend to investors or what handymen can perform specific tasks.
Your agent wants you to keep buying properties. Tell them what you
need in order to be able to do so.
Your lender wants you to keep buying properties because that's how
they get paid. Ask them which real estate agents sell the most. The more
an agent sells, the more experience they gather. The more experience
they have, the more experience is available to you. Why spend all of your
time looking for the pieces that someone has already gathered?
Your lender can connect you with the rock stars you need to know, who,
in turn, will know the people you need to know. Tell them that's
something you expect from them if you're going to continue to give them
business.
This goes for your contractor as well. They want you to keep buying
houses. Ask them who they know that can find you more properties. If
you can keep your contractor working, they'll be happy. Tell them what
you need to make them happy.

Rock Stars Know Rock Stars

When it comes down to it, this is just how life works. We all tend to be
drawn to those who we feel are most like us.
Successful people hang out with other successful people. So, if you want
to be around the people who are the absolute best at what they do in
real estate, you need to start hanging around them!
I'll take this one step further. If you want to start rubbing elbows with
rock stars, maybe you need to start living and acting like one too.
Rock stars got to where they are because they did something right. If you
start doing something right, there's a really good chance you'll find
yourself drawing these kind of people into your world. When you find
yourself around them, you know it's only a matter of time before you
start to meet more of them.
That's when your world will start to change.
Jim Rohn is credited with saying "You are the average of the five people
you spend the most time around." Based on who you have around you
now, what does that say about who you're becoming?
I have confidence I can invest anywhere I want because I've learned what
I need to find in order to start, and I've learned just how to make sure I
can find them. It's my desire to share that information with you, so you
can also.
But it starts with the person you are, and the kind of people you'll attract!
SECTION 3: HOW DO I KNOW I’M FINDING A
GOOD DEAL?
If you want to be a successful investor, you need to understand how to
analyze a property. If you don’t know how to do that well, you won’t do it
often. If you don’t do it often, you won’t have the confidence to buy much.
Additionally, the more properties you can analyze, the more deals you
can find. It’s not just about analyzing thoroughly, it’s also about analyzing
quickly and efficiently.
Think of analyzing deals like how a gold miner would look for gold. When
he digs his tray into the river bed, he comes up with a whole lot of junk
and a small possibility of actual gold. He sifts through tons of tons of dirt
to find that one nugget he was looking for.
This is what we do as investors.
It would be wise to copy the tactics of the gold miner. He doesn’t walk
around staring at the ground looking for gold to show up. He digs in and
filters through the dirt where gold will likely be found.
Then, he sets up smaller and smaller filters. As the dirt passes from the
larger, more broad filters to the smaller ones, it becomes easier and
easier to spot the gold. At the end of the filter funnel, he sees if he’s
struck pay dirt.
In real estate investing we use these same filters, but we call them “rules
of thumb.” The 1% rule, the 2% rule, cap rates, cash on cash returns, etc.
Successful investors have learned to use these rules as “filters” to quickly
analyze properties and see if there’s any gold in the bunch. If you want
to do this well, you would be wise to learn how to do so quickly. The more
you look through, the more likely you are to find and recognize gold in
your bucket.
I’ll share a case study of my own business where I recently bought a
property I analyzed in 5 minutes.
At an investing conference, I had met a husband and wife team from an
area I’ve never bought in. During a conversation with them, the wife
received a phone call that her loan was falling apart and she wasn’t going
to be able to buy the deal she had put under contract.
When I asked her what she was going to do, she shrugged her shoulders
and said there was nothing she could. She didn’t have the money and
couldn’t buy the house. Out of curiosity, I asked her what the numbers
were. She told me the house needed very little rehab (paint and cleaning
for about $5,000) and was likely worth $165,000, but she was running
her numbers based on a conservative $145,000. The rent was about
$1,050-1,200, the area was on the nicer side, and she was going to buy it
for $95,000. She showed me the pictures on Zillow and confirmed they
were accurate. (She had already seen the house.) Her mentor, a very
successful and knowledgeable investor who owns 25 (and counting)
properties in this same area, confirmed everything. He also gave me the
contact information for four banks he had used before that would lend
against the appraised value of a property up to 80% LTV. Everyone was
bummed they were going to miss out on this great deal.
Then I told her I would buy it from her for $101,000.
The entire conversation honestly lasted about five minutes, and most of
that was me scrolling through the pictures of the home on her phone
and looking for her mentor to verify what she’d told me. We could have
done it in three minutes if everyone had been there.

Why I’m Not Crazy

Now wait. Before the chorus of doubters spring into action and crucify
me for making a careless decision, let me explain myself.
Many new investors think it’s the time spent analyzing an investment that
makes it safe. To them, due diligence is based on the amount of time and
effort one puts into their research. It creates a false sense of security
when you spend hours looking at a computer or running your deal by
other investors. Now, I’m not saying any of that is a bad idea. Honestly, if
it takes hours, days, or even weeks to analyze a property correctly, that’s
what you need to do!
What I’m saying is that when you get good at knowing what you’re doing,
it doesn’t take that long.
And that is really, really good news for anyone who wants to be involved
in real estate investing for the long haul.
I want this to be encouraging! I want people to realize that investing can
actually be a lot of fun, full of excitement and victory, and it doesn’t have
to be a chore full of anxiety, doubt, and worry.

Six-Steps to Ensuring You Buy a Solid Deal

At its core, real estate investing is buying a business. Each property we
buy is its own business, with its own profit and loss columns. In our
world, we call those two columns “rent” and “expenses,” but they work
essentially the same way. A property produces income (usually through
rent) and has associated expenses (PITI, CapEx, vacancy, etc). Once you
learn these items well, you’ll find that most properties, no matter where
you buy them, operate very similarly. Once you know how to calculate
the numbers that go into these columns, you can very quickly and
efficiently analyze deals and make offers on them.
In this case, it took about five minutes.
Here’s how I did it:
1. I Knew My Standard.
When I buy a property, I am looking for four things:
I want to recover all—or the lion’s share—of my initial investment.
I want the property to cash flow positively.
I want the property to be in an area that won’t make my life miserable or
require much of my attention.
I want people in the area where I’m buying who are competent and
whose opinions and word I trust.
If I follow these four rules, I will likely end up with a property that requires
very little of my time or attention and that will build me wealth over the
long-term.
Because I analyze properties so often, it doesn’t take me long to mentally
plug in some numbers and quickly determine if a potential property is
likely to be a good fit. The faster I can analyze a property, the more
properties I can analyze. The more properties I can analyze, the more
deals I can offer on. The more deals I offer on, the more houses I close
on. The more houses I close on, the better the vendors and talent I can
surround myself with because I’m employing them more consistently.
This growth spiral upwards is what allows me to get better rehab prices,
work with better agents, and get better loans than the next guy.
It all starts with mastering the fundamentals of analyzing properties.
2. I Knew My Numbers.
The first reason I was able to make a decision on this property in five
minutes is because I knew the numbers associated with evaluating a
property. By knowing the rent, mortgage amount, property tax,
insurance, and by leaving myself a cushion for expenses like vacancy and
repairs, I was quickly able to determine the property would cash flow
positively.
Before I even ran these numbers, I ran the property through my first
analytical metric commonly referred to as the 1% Rule (the first “filter”).
By seeing that the expected rent ($1,050-1,200) was more than 1% of the
purchase price ($101,000), I knew that unless there were some hidden
surprises like HOAs, the property was going to cash flow. Knowing a
cheat as simple as this saved me a lot of time. If the purchase price had
been $125,000 or so I wouldn’t have even considered buying it as a
rental.
Once I knew the property met the 1% rule, I did some quick math on my
phone’s calculator to confirm it did actually cash flow well.
3. I Verified the Contract Would Work for Me.
Before I gave my word I would buy the house, I told the couple I was
buying it from I would need to see the contract. My friend Beau who was
also present explained to them that meant I would need standard
inspection contingency times, a standard real estate contract used in the
area, and a reasonable deposit. Pretty cool when I don’t have to even
open my mouth to say what I need, right?
Real estate contracts are written by real estate lawyers and used to
protect both parties in a transaction from unscrupulous activity. While
you should always read and understand anything you sign, I have a
strong sense of confidence in a contract used millions of times over the
years for the vast majority of all real estate transactions. By making sure
I was getting a standard contract—not one written up by a wholesaler in
his bedroom—I ensured I would have all the protection I could
reasonably expect.
With this in place, I felt confident to move forward knowing I could find
out anything I didn’t already know in a reasonable period of time.
4. I Ordered a Home Inspection.
By ensuring I had an inspection contingency, I gave myself time to get
the home inspected and ensured I could back out if I needed to. While I
had no reason not to trust the people I was going to be buying the
contract from, there is always the strong possibility that there are
problems with a home even the other party doesn’t know about. By
giving myself time to get the home professionally inspected, I helped
myself in several ways:
 I made sure that if there were bigger problems than $5,000 (my
expected expenses) would cover that I could back out.
I gave myself time to make sure the banks would underwrite me
for the loan after I closed on the house.
I gave myself time to confirm other potential issues like the actual
rent, the school systems in the area, the rental demand, the
property tax base rate, the insurance rate, etc.
Many people are afraid to buy a house they’ve never seen. I used to be,
but not anymore. What I want is a professional inspector to look at a
house! It is much more important that I look at an inspection report than
I look at the house itself. Once I realized that, I started making big strides
in my confidence and consequently my progress.
5. I Spoke to the Lender to Confirm.
During my inspection period, I called the four lenders I was given and
confirmed three of them would give me the loan. One even agreed to
give it to me with zero closing costs. Not too shabby, right? By making
sure I had financing in place to secure my loan, I had the “refinance”
portion of the BRRRR strategy covered, and I was better able to calculate
expenses (the mortgage).
6. I Created a Contingency Plan for Every Step of the Process.
While no one can make sure nothing will go ever go wrong, we can make
sure we have a plan in place for when anything does.
My inspection contingency covered me for just about every big surprise
that could happen. That helped a lot. In addition to that, I also:
• Confirmed the rents on Rentometer, Craigslist, and with a
professional property manager.
• Confirmed the assignment contract was solid.
• Had a contractor walk the house to confirm the rehab estimate was
accurate.
• Double checked my ARV with several sources.
 • Ensured the property was not on a flood plane.
• Ensured the property did not have termites.
• Ensured the roof was newer.
Once you know what can go wrong, it doesn’t take much time at all to
build in whatever protections you need to feel comfortable that if
anything goes wrong, you’ll know what to do. This makes it possible to
analyze and move on properties much, much more quickly.
And now, for the things I did not do that often ruin deals for well-
intentioned investors.

4 Things I Didn’t Do
1. I didn’t try to get wholesalers to lower their assignment fee.
I can pretty much ensure that when some of you read this, you’ll ask
yourself why I paid the couple who couldn’t buy the property anything at
all. Since they were going to lose it, I could have just bought the
assignment from the original wholesaler and saved myself some money.
At the very least, I could have paid them much less, right?
Well, yes, I could have. But that would have been stupid. Here’s why.
This couple just received the heartbreaking news that they lost the
house. For me to jump in and take advantage of their loss would have
been pretty classless. It also, at best, would have left them with a bad
taste in their mouth about me. Now, this deal was pretty sweet, leading
me to believe they are likely to come across more sweet deals in the
future. It didn’t seem very wise to save a couple thousand now to lose
tens of thousands in the future.
There is also the fact that the deal worked for me at $101,00, and that
means something.
If a deal works, it works. It doesn’t benefit anyone to go back and look for
how they could have ripped someone off to save a little money. Those
kinds of people develop really bad reputations in this business, and, in
my opinion, short themselves on their own success. I was more than
happy to pay an assignment fee to these people and turn their crappy
day into a great one. If they leave seeing me as a hero instead of a cheap
villain, who do you think gets the first phone call when the next deal
comes out? (For those of you wondering, since that day, I have already
lined up a second deal with their group.)
I know it’s tempting to go after someone for whatever you can get, but
you should first count the cost. I made this mistake in the beginning of
my career, and I lost a lot of powerful relationships that would have
made me a lot more money in the long-term. Winning battles to lose
wars is not a good long-term strategy. Building allies to win wars is much,
much better.
2. I didn’t waste people’s time.
I didn’t hem and haw at this deal. I didn’t tell them I would buy it, only to
change my mind. I didn’t analyze it for fun while making them wonder
what I would do. I asked the questions that were important, I weighed
the answers, and I quickly realized this was a deal that I would be stupid
to pass up. I took just enough time to make sure I had a solid contract
that gave me time to do my due diligence, and I moved forward.
Think about it—I’m buying a house for way under market value, that
needs virtually no work, and that will cash flow well. I’m also getting a
loan with no closing costs, and I’m making strong allies in a market where
I want to start buying. Why on earth would I take more time to think
about that than I needed and give someone else the chance to step in
and buy this house instead?
Time wasn’t going to make this deal any better or worse, I promise you.
Taking more time wouldn’t have helped me at all.
3. I didn’t ask irrelevant questions or get bogged down in
unimportant details.
I knew what I needed to ask, and I asked it. I knew who I needed to ask,
and I asked them. I knew where I needed to go to verify these answers,
and I verified them. I knew what the contract would afford me to do, and
I did it.
There was absolutely no reason to pour over census data from the last
20 years or to try to confirm whether the siding was aluminum or wood.
Many investors get caught up in unimportant details that becomes
excuses not to act. I didn’t waste the couple’s time and was therefore
able to get all the answers I needed to feel comfortable taking the next
step—all in five minutes.
4. I didn’t try to alter the contract.
It can be tempting to try and alter a contract to make it more beneficial
for you in times like these. When you sense weakness, it’s only natural to
go for more.
If the contract needed changing for me to feel comfortable, I would have
requested changes. But it didn’t. So why go through all that for nothing?
Making this couple call the guy who originally put it under contract and
request changes would have required him to go to the sellers and ask
the same questions. That would have raised an entire new set of
problems in the deal and possibly ruined it. Why risk all that just to
experience a sense of power in “winning”?
The contract was solid, so I developed my strategy based on the way the
deal was already written. It worked out fine, and there was no reason to
think I needed to change anything.
Before you jump to any conclusions about how irresponsible this all was,
please just take a moment to ask yourself why. Why does it matter if I
could put this together in five minutes if I did the same work that would
require someone else five days? Why take time to sleep on it if I know my
numbers, know my goals, and know my standard? Why would I give
someone else the opportunity to buy this deal if I didn’t need to?
What I hope you take from this is that you can analyze a rental property
in five minutes if you know what you’re doing. You can feel confident that
you can do all your due diligence in a short period of time if you have a
system in place to help you do this more effectively. Real estate investing
becomes a lot more fun when it doesn’t take days of anxiety and worry
over whether you should move forward or not!
If you find yourself dragging out the analytical process for days at a time,
ask yourself how efficient you really are. Ask yourself if you’re really
trying to master this craft or not.
SECTION 4: HOW DO I WORK WITH
CONTRACTORS FROM A DISTANCE?
Buying a property long-distance isn’t hard. Once you know what to look
for, your due diligence process is simple. Once you find people to help
do it for you, it becomes quick.
Renting out a property in another state is downright easy. If you bought
in the right area, listened to the advice of your property manager, and
hired a decent one, they’ll find you a tenant and start collecting the rent.
Getting a loan on an out of state property isn’t really any different than
doing it locally.
The ONLY thing that can be different about long-distance investing
compared to local investing is managing the rehab process.
This is one area you want to get right, and your contractor makes a big
difference.
Trust is an important part of this relationship, as your contractor will
often be quoting you prices you won’t always take the time to validate,
as well as doing work you yourself can’t always ensure is up to code.
More often than not, you’ll be trusting your contractor for design ideas,
product installation, hiring sub-contractors, coordinating with the city for
permits, ensuring the work is done correctly, staying on schedule, and
keeping your project within a reasonable budget. To be perfectly honest
with you, it’s a major component of the whole niche of real estate
investing.
Having a great contractor can fill you with an amazing level of confidence
that drives you to make moves. Not having a trustworthy contractor can
fill you with such apprehension that you may never pull the trigger at all.
If you haven’t been able to read between the lines by now, I’m planting
the seeds here to make the point that if you want to get off your keister
and actually start buying some houses, you need a system you can trust
to hire the right people.
Now, to be clear, I’ll often use the word “contractor” when what I really
mean is “person who builds, tears down, and installs stuff.” Not every job
calls for a licensed contractor. I just found out that in the county where
I’m doing my most recent flip, everything (and I do mean just about
everything—from installing new toilets to replacing bedroom doors,
ridiculous!) needs to have a permit pulled and be inspected by the city. If
you live in a county like this one, you’ll have to pull permits in order to be
in legal compliance. If that’s the case, a licensed contractor is necessary
unless you’re doing the work yourself (in which case, just stop reading
this now and go look up old Bob Vila YouTube videos).
Now, not every project is going to call for permits, and therefore not
every job will call for a licensed contractor. Sometimes a skilled
handyman is even better, as they can do the work just as well but will
usually charge much less. For the purposes of this system, it doesn’t
matter if they are licensed or not when deciding who to hire.
In order to execute this successfully, we are going to start by casting a
wide net, then narrow down our options until we find a good fit for our
budget and goals.
First, if you’re looking for someone to do a job who you’ve never used
before (especially if this project is out-of-state), we are going to start with
referrals. The most important requirements in managing a successful
rehab project are:
• The work is done well.
• The work is completed for a competitive price.
• The project is completed on time.
• The work you choose to pay for is worth the monetary value it
brings to the house.
Considering that the overall most important factor is the quality of the
work, we want to start by only accepting bids from people with a
reputation for good work. This is accomplished by asking for referrals
and doing some research of our own. Where do we get these referrals?

Sources for Referrals

My favorite place to start is with a good real estate agent. I’ve said it
before, and I’ll say it again: when getting started (or anytime you’re
buying somewhere that’s not your own backyard), the role of the real
estate agent is simply the most crucial. You are basically a blind man, and
the agent is your seeing eye dog. They’re that important. When I buy out-
of-state, there is a lot I don’t know. I don’t know the neighborhoods. I
don’t know fair market prices. I don’t know the school districts. I don’t
know where the freeways are. I don’t know where the jobs are. I don’t
know where the growth is moving to.
I could write books on everything I don’t know. This alone is enough to
keep most from ever investing out-of-state. Want to know the secret for
why I can pull the trigger and buy houses I have legitimately never seen
in areas I have never been? I have people who can fill me in on everything
I don’t know. THAT is why the real estate agent is so important.
Another role that a great agent can play is in networking with other
agents and investors and finding out who is doing good work.
I ask my agent every single time I go to a new area if he/she can
recommend me 4-5 contractors they know have done good work in the
past for other clients, and I push them to actually make some phone calls
and get me this info. This is the bread and butter of where my referrals
will come from.
I also can ask other investors.
“But David, I don’t know other investors in the state I’m buying in.”
That’s okay. I didn’t know anybody on BiggerPockets before I started
networking there. That’s the cool thing about the internet (which is what
makes all of this possible, by the way)—you can connect with anybody,
anywhere! Search the name of the city you’re looking at buying in and
see who else on BiggerPockets lives there who can recommend
someone. Ask a question in the forums about who is known for doing
work there. If I was going to be buying in any of those markets, I can
guarantee you I’d be sending locals a message to their inbox and asking
for any referrals they can give me. This doesn’t need to be so hard
because you’re not alone in this. There are so many BiggerPockets
members you can use as a resource if you ask the right way. Take
confidence in that!
Aside from BiggerPockets, there is also good, old fashioned Yelp. Yelp is
a great way to get reviews on contractors to see what others have to say
about them, and I use it all the time to start my initial search.
In addition to these resources, you can also Google real estate
investment groups in the area where you’re buying and email the leader.
Ask them if they can recommend anyone who does good work in the
area you’re buying who has worked with investors before. Contractors
who have worked with investors are much easier to work with, as they
know how important it is to us when it comes to getting the bang for our
buck.
If you use these four sources I’ve just given you, you should have more
recommendations than you will practically need to get started. Once
we’ve got our applicants down, we move on to the next phase.

Getting Bids
Call/email these contractors and ask them if they are available to do
some rehab work on a house you’re buying/have bought (they will almost
always say yes even if they don’t have the time). Give them the property
address, tell them what work you want bids on, and ask them to include
prices on any other work they think needs to be done. It’s easiest if you
have a lock box on the property so they can go by at a time that’s
convenient for them. Explain you are a real estate investor and you only
want repairs that make financial sense for a landlord who will be renting
the house out.
Now, the contractors will start emailing you back their bids. Nine times
out of 10, they will give you a very general quote that says some of the
big ticket items that will be done, then lists a price for the whole job.
Furthermore, most will not give you a timetable for when they will be
completed and will be planning on paying for the materials themselves.
This will be included in the price they gave you.
At about this point, you can expect to experience either heartbreak at
how much more they want than you expected, shock at the feeling of
being ripped off, or complete rage that they would try to rob you this
way.
Try to fight off those feelings. It gets better.
Once you’ve collected bids from each one, make a note of who got you
the bids back in the timeliest manner. This is a good sign in the sense
that it shows they value your time, actually want your business, and are
less likely to be so swamped they can never get to your project.
Once this is done, email them back thanking them for the bid. Tell them
you are interested in hiring them, but your “partners” (or yourself if you
prefer) need to see an itemized list of the work that will be done and the
price they will be charging for the work. This is very, very important.
Here’s why: The contractors want to be as general as they can so you
don’t know how much money they are actually spending. They may be
charging you $3,000 to pay for the tile, grout, and backer. In actuality, it
comes out to $2,600. They aren’t necessarily trying to rip you off, it’s just
in their best interest to be as general as possible and make a little extra
where they can.
It is in YOUR best interest to have things as specific as possible.

The Battle Over Specificity

I’ll say this again. The contractor is going to try to keep things general.
You need to fight to make them specific. This is your challenge. This is
your quest. This is where you must take up your Spartan shield and spear
and stand against the Persians. If you can find victory here, you can
control the relationship from this point forward.
Now, many of the contractors will lose interest at this point and stop
replying. That’s okay. These were the fakes, and you wanted to weed
them out anyway. They are losing interest because it’s becoming clear
they can’t control you, and they have to work for your business. Many
contractors get so busy, they adopt the attitude you are lucky to have
them show up to do the work at all. These are not the people you want
to hire, ever! These are the people nightmare stories come from and give
real estate investing a bad name.
The good contractors will reply with an itemized list of the work they plan
to do, and the price they will be charging for each job. If you’ve gotten
this far, you are doing really, really good.
Now, you can compare contractor against contractor and see exactly
how much each one is charging you versus the other. Score! If you have
two to three people still sending you itemized bids, the one who is
overcharging will quickly become apparent in comparison to the other
three. If two are charging you around $600 to tile the bathroom floor and
one is charging $1500, you can tell right away something is up.
You can much more easily see what work is worth spending your money
on. If you can replace the countertops with granite in your kitchen for
$2,000 (like a bid I recently got on a rental I’m upgrading) it will likely
make sense to do it. If the cheapest bid for those same countertops is
$15,000, you might want to skip this upgrade altogether.

The Final Step in Making Your Choice

Once you can see what you’re actually paying for, the last step is to send
them another email and tell them you will pay for the materials yourself
and they do not need to pay out of pocket for that. Ask them to remove
the cost of the materials from their bids and only include the price for
their labor.
I love this part. This is where you find out exactly who is honest and who
is full of you-know-what.
When they remove the price of the materials, you know EXACTLY what
they are going to be making. You can also see which one of them is
offering you the best price against the others because the scope of your
work is itemized and easy to compare. By this point, you should have a
really good idea who wants to earn your business and who was just
looking for a sucker to make money off of. The honest contractors will
still be in the game, with nothing to hide, showing full transparency. If
they are willing to do that, I am feeling much, much better about trusting
them with my project. Once I see who is giving me the best prices, I can
search out their reputation and see which one I feel most comfortable
with. It’s really that simple.

Closing the Deal

The last thing I recommend is to never pay your contractor for the job up
front because it allows them to take your money and run. It also de-
incentivizes them to complete the project on time.
I want the opposite. I want to actually incentivize them to complete the
project on time.
At this stage, you ask the contractor how long they believe it will take
them to do the job. Let’s say they tell you six weeks. I would then say,
“Okay, I will give you seven weeks, just to account for any unforeseen
circumstances.” If the contractor agrees he could get the job done in
seven weeks, we are almost in business.
The last step is to get a signed contract spelling out the terms of the work.
Lucky for you, you already have an itemized bid of everything they said
they’re going to do! Take this bid, add some more detail to it for clarity’s
sake, and include the timeline for the scope of work to be completed.
Mine say something like this:
“Contractor agrees to complete the work in 7 weeks from (start date). If
work is completed in less than 7 weeks, a 5 percent bonus will be paid to
the contractor. If work is not completed in 7 weeks, a 5 percent reduction
in agreed upon price will occur. If work is not completed after 8 weeks,
an additional 5 percent reduction in agreed upon price will occur.”
Send this to the contractor, have them print it and sign it, and you’ve got
yourself a contract!

Paying for Materials

When the rehab crew is ready to start, tell them to go to Home Depot (or
whatever store you agree upon) and pick out the materials they will
need. Have the representative at the store call you, pay for the materials
with your credit card, and boom, you’re in business.
As far as managing the project and making sure you don’t get taken
advantage of, the short answer is to find a trusted source (that blind
seeing eye dog of a real estate agent perhaps) to check in on the process
and make sure everything is being done that should be. The details for
how to do that will be the subject of another post, but this should be
plenty to get you started and eliminate much of the risk that comes with
hiring a contractor you don’t know for the first time.