The idea of remote investing scares a lot of people away. Little do they know that investing out-of-state can be one of the most advantageous ways to invest in real estate.
Sure, investing in distant markets comes with its fair share of risks. So does any investment, no matter how close or far you are.
What’s important is that you cultivate the right tools and resources to ensure your success.
Why Invest Out-of-State?
Diversification
Portfolio diversification hedges against risk. You can own many properties within your local market, but every one of them remains exposed to local risk factors such as economic conditions and weather hazards. Diversification across multiple properties in multiple markets continues to spread out your risk.
This ensures that when one market slumps or experiences a disaster, your portfolio is sustained by investments in other places. You can take the time to recover without the pressure of losing or reducing your only streams of passive income.
Cost Management
Some of us live in very expensive markets. Part of what makes investing out-of-state so attractive is that you can get more for your money. Your local market might not be suitable for the kind of investing you want to do. You can have everything right, but if the market is struggling, your investments will struggle, too.
Investing out-of-state allows investors to target stable, more affordable real estate markets. That means that you can more quickly scale (and diversify) your portfolio. The cost difference also helps keep your debt-to-income ratio in check! Other costs can be reduced in different markets, too. If you live in the North, investing in southern markets helps you avoid winter storm damages and maintenance costs. You’ll also see a difference in insurance costs, tax liabilities, renovation costs, and interest rates depending on your market.
Remote real estate investing isn’t as difficult as it seems on the surface...especially if you have the right tools at your disposal.
4 Key Factors in Remote Investing Success
Comparable Demographics
Investing outside of the local market can make a first-time investor nervous. Ease your nerves by investigating and strategically selecting the markets you want to invest in. Crunching the numbers is a given, but we’re also talking demographics.
It’s more comfortable to invest in areas with similar climates, demographics, and property types to your local market. It will make adapting that much easier because you will have a more concrete frame of reference to go on.
While you certainly can invest in markets that wildly differ from your own, it’s best to pick something more familiar as you start. For example, it’s unwise to make your first foray into remote investing an international affair.
Stick with something a little more familiar, where you can more clearly assess and understand the market and its risk factors.
Low-Risk Properties
The types of properties that you invest in make a huge difference. When you’re remote investing, you want to mitigate risk as much as possible.
Your best bet is to invest in neighborhoods that are primarily made up of owner-occupied homes.
This attracts more financially stable, less transient residents. These neighborhoods tend to have higher-quality properties, too — meaning fewer ongoing maintenance issues and neighborhood risks.
The age of the property makes a difference, too. While you might be incredibly attracted to historic homes, you want to opt for more modern options that are up to today’s code standards and hold fewer surprises — and thus, fewer risks!
Due Diligence
We harp on diligence for good reason. When it comes to investing out-of-state, due diligence is non-negotiable. This diligence encompasses an overwhelming list of tasks, but we can start with the essentials:
- Get a proper property inspection & appraisal
- Run the numbers
- Investigate the market, economy, and neighborhood
- Get an idea of ongoing costs
- Network with the right people
Great Partners
Networking might be the biggest challenge facing out-of-state investors. While you can do plenty of research online, nothing beats human connections and experience. Because you can’t physically be there to tend to your property, you’ll have to rely on great professionals to get the job done.
It’s good to develop connections to other area investors — they can help recommend partners. Your property management team is the most crucial. Their service, attention to detail, and diligence protect your investment.
It is highly beneficial to find a turnkey partner as well. Turnkey investment companies (such as ourselves) are established in their markets and what will and will not be a solid investment within them.
Before you commit to any partnership, vet the company. Get opinions from other clients, ask for documentation, and ask tough questions.
Invest in out-of-state real estate with the best of the best. Your REI Nation advisor is waiting for your call...
