How to Invest in Real Estate on Vacation with Adventure Flipping

 

If you want to invest in out-of-state real estate, your main options are 1) have a boots-on-the-ground team in the market, 2) buy real estate from a turnkey investment company, or 3) enroll in a credit card that offers great travel rewards because you’ll be traveling to the market a lot.

 

However, Doug Larson, who has been a full-time investor for 11 years buying rentals, fix and flips, land, and lease-options, found a fourth option for investing out-of-state. It’s a strategy he refers to as “adventure flipping.”

 

In our recent conversation, Doug what adventure flipping is and why it’s one of the best real estate strategies for lifestyle investors.

 

What is Adventure Flipping?

 

Adventure flipping is when you perform an out-of-state fix-and-flip by actually moving into the investment property for the duration of the project. For example, Doug currently lives in Utah, but performs two to three “adventure flips” a year in California.

 

Doug said, “I live in Utah, so to do something out of state, you either have to have a lot of boots on the ground and organize things by phone, or you can go down there. This last summer, [my family] went down and picked [a property] up about five miles from the beach in North San Diego County, ocean-side. The whole family came down and we lived in the property… We went to amusement parks and the beach and all that kind of stuff. We lived there for almost three months while I was managing contractors and things. It really was a lot of fun. It was an adventure.”

 

Since you would be living in the property during renovations, you don’t want to take on a project that needs a ton of work. For Doug’s first adventure flip, he said, “[it was] in good condition, just dated. All cosmetics. I think we spent about $45,000 and probably two-thirds of that was labor with subcontractors.”

 

Why Adventure Flipping?

 

Doug said he chose to do the adventure flipping for three main reasons:

 

High knowledge of an out-of-state location

 

“We did three fix and flips in the San Diego area while still technically living in Utah. It’s just the market that I grew up in, I know it, I understand it.” Consider doing an adventure flip if you grew up in an area or lived in an area for an extended period of time, but you no longer live there now.

 

High demand for turnkey properties in the out-of-state location

 

“In some of those nicer areas there’s a little more upside. There are people who really appreciate the turnkey, and maybe living there. The doctors and lawyers … don’t get their hands dirty. They see something turnkey and they’re like, ‘Hey, you know what? I don’t know. It’s $50 -$70k more than this nasty fixer-upper down the street, but I’m willing to pay for that because I just want turnkey. I want to move in and not have to worry about stuff.’ I really appreciate that in those kinds of markets.”

 

Justification to visit an interesting, fun area

 

“I just love it and it was an excuse to go and visit… I did three [adventure flips] in 2010-2011. The last one I sold in 2012, and then we just decided we want to do it again. My wife wants to do it in Florida now. I’m like, ‘Okay, honey. Maybe we will, but maybe not this summer. We’ll see.’”

 

 

Which of the three criteria hold the most weight really depends on your investment philosophy. Doug’s overall real estate philosophy is not about collecting a certain number of doors. It’s about financial independence. In other words, he is a lifestyle investor.

 

Doug said, “If you’ve read The Four-Hour Workweek, or the E-Myth, or books like that … they talk about ‘your business works for you, and not the other way around.’ Make sure that it fits your lifestyle and the things that you really want to do in life, instead of your business owning you.”

 

Doug’s ideal lifestyle involves traveling, so adventure flipping allowed him to work that into his investment strategy. Brilliant!

 

Conclusion

 

Adventure flipping is when you move into an out-of-state investment property while you rehab it and then selling it to a turnkey investor or primary residence buyer.

 

The three main criteria for selecting a location to perform the adventure flip are 1) you know the area well, 2) there is high demand for turnkey properties, and/or 3) you want to have an adventure in that location.

 

While this strategy is obviously not for everyone, for those adventurous or lifestyle investors that love to travel, this is a great creative investment strategy that will fit right into your lifestyle.

 

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Guide to House Hacking Your First Investment Property

 

One of my favorite Tony Robbins’ quotes, among many, is “success leaves clues.” This applies to a wide-range of things, and real estate investing is one of them. If we want to learn how to get started, we don’t need to reinvent the wheel, because there are “clues” we can leverage to shorten the learning curve.

 

For those who are on the outside looking in, what you must do is quite simple: find someone who has successfully entered the real estate gauntlet and follow the breadcrumbs they’ve left behind.

 

Sunny Burns, a 26-year old real estate investor, purchased a fourplex for his first deal, and in our recent conversation, he outlined exactly what he did to successfully enter the real estate arena, which a newbie can use as a guide to purchasing their first investment property.

 

The Real Estate Strategy

 

Sunny’s first real estate investment was a fourplex, which he purchased using the house hacking real estate strategy. House hacking is when an investor purchases a two, three, or four-unit property, lives in one unit, and rents out the others. “I definitely recommend the house hack,” Sunny said. “If you buy a single-family house, depending on how much you make, half your income could be going straight into that house (mortgage, taxes, repair costs).”

 

“Buy at least a duplex,” Sunny continued. “You don’t want to become a slave to your house. You don’t want half of your paychecks to go there because it’s hard to get out of that and grow from there. But if you can buy something like a duplex, a triplex, or a quad, you can really start to almost live for free.”

 

By following this house hacking strategy, Sunny says, “we actually live for free, and then make a couple hundred dollars after that.” He gets the benefits of both an investment property (cash flow, appreciation, etc.) and essentially a free primary residence.

 

Sunny’s House Hacking Deal

 

Sunny found the fourplex deal on the MLS. “We were just looking at Realtor.com, and I got regular emails from them. One day, I got an email for this 12-bedroom, 4-bath quadplex, and I look at my email and was like ‘wow, this is the property we’ve been looking for.’”

 

When searching for properties, Sunny’s criteria was simple: $1,000 per month in cash flow after moving out of the rental and fully renting it out. It took a while to find the property, but the patience paid off when they found the fourplex.

 

Related: How to Find the BEST Deals with the LEAST Amount of Marketing

 

Most investors who purchase a property via house hacking use a FHA loan, which is an owner-occupied loan that requires 3.5% down. However, the drawback of the FHA loan is PMI, which is an additional monthly fee for mortgage insurance. Sunny, understanding that the PMI cost would decrease his monthly cash flow, elected to pursue conventional financing instead. “We actually did conventional financing through a smaller bank,” he explained. “We put 10% down. We went to the smaller bank because they don’t charge you borrower-paid PMI – they take care of the PMI – and we got a great rate at 4%, which I’ve since financed to 3.5%.” The down payment was higher, but since the bank covered the PMI, Sunny was able to save a couple hundred dollars each month. That being said, for the first-time investor, make sure you shop around for a loan to ensure you’re getting the best loan that fits your investment strategy.

 

Related: A Millennial’s Guide to Buying Your First Home

 

Sunny purchased the fourplex for $430,000. He put down 10%, which is $43,000, and put in and additional $20,000 in repairs, so $63,000 all-in. Once they completed the renovation, Sunny and his family moved into one unit, rented unit two for $1,000 per month to his in-laws, and rented out the other two units for $1,700 and $1,710. He said, “we can definitely get $1,500 for our unit easy, and then another $500 for my in-laws unit easy once they move out.”

 

As for the renovations, Sunny was able to cut costs by doing the renovations himself. Besides the fact that he and his wife already had some handyman skills (his wife grew up in an old Victorian with her family that constantly required repairs and he had experience working on cars), they learned how to do the majority of the repairs using YouTube. “YouTube really helped a lot in a lot of things,” Sunny explained. “Learning house repair, that was definitely a learning curve, but YouTube, and [my wife] having a lot of knowledge [was key].”

 

10 months after purchasing the property and after completing all the renovations, Sunny was able to refinance the property and pull out all of the money he put in, both the down payment and the renovation costs. He said, “It worked out great. We purchased it for $430,000, we put that $20,000 into it in repairs, and I think it was under market when we bought it, so it appraised for $550,000, so that was $120,000 over what we purchased it for. We did a cash-out refinance, so we pulled out $67,000, and that was pretty much the $43,000 that we put into it and the $20,000 repair costs, and some closing costs wrapped in.” Not only were they able to pull out all of their initial out-of-pocket costs, which they will use for their next investment, but they also have 20% equity, which is double what they initially put down.

 

Additional Factor When It Comes to House Hacking

 

Besides the tactics behind house hacking, there is one additional factor in play that applies to those who are looking to get into investing via house hacking, but have a family: convincing your significant other! Sunny said he had some issues convincing his wife in the beginning. “She was really hesitant about working with tenants. She was really scared about tenants – they’re going to sue you, they’re going to cause all these headaches.”

 

Rather than go another investment route, Sunny implemented policies and procedures to mitigate the risk of tenant issues. “We did credit score checks on every single tenant. We did background checks on every single tenant. We made sure that they had a least two times the rental income coming in.” As a result, he was able to lower his wife’s fears and now, he says, “she’s a huge fan and tries to tell all our friends to do the same thing.”

 

Conclusion

 

One of the best ways to get your start in real estate investing is house hacking – live in one unit and rent out the others.

 

Sunny followed this strategy by finding a property on the MLS that fit his criteria, performing the renovations himself, refinancing and cashing out his initial investment, moving into one of the units and renting out the others, and implementing policies and procedures to mitigate his wife’s fears of owning and living in a rental property.

 

Newer investors can use Sunny’s story (either in its entirety or pick out useful clues) to guide them through their first investment property purchase.

 

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