Remote real estate investing is one of the best ways to leverage your unique circumstances to build wealth. While some consider out-of-state investing too risky, we know better. When investors are intentional and targeted, they can benefit from the difference in costs between markets, increased demand, and better overall market stability than their local market.
That said, when SFR investors invest in remote real estate markets, they often face unique challenges. We want you to avoid some of the common mistakes that can undermine your efforts!
5 Pitfalls Remote SFR Investors MUST Avoid
Pitfall #1 – Treating every market the same way.
Mistake #1: Not thoroughly understanding the dynamics of the local market, including demand drivers (job growth, population trends, local regulations), neighborhood specifics, and rent appreciation potential.
Solution: Conduct in-depth research or work with local experts (agents, property managers, or consultants) to gain insights into the market’s viability and long-term potential. Every real estate market is different, and they must be treated as such. Don’t make assumptions!
Mistake #2: Neglecting risks such as extreme weather, natural disasters, or regional economic downturns that could impact the property and rental income.
Solution: Consider potential geographic and environmental risks. Review storm and natural disaster data, pay attention to temperature trends, and include insurance that protects against these factors. Factor these added insurance costs into your cash flow calculations.
Pitfall #2 – Bungling your cash flow projections.
Mistake #1: Buying properties based on inflated assumptions of future growth, ignoring current market conditions, or trusting overly optimistic projections from local agents.
Solution: Perform a comprehensive financial analysis, including comparable property sales, historical price trends, and potential for long-term appreciation. Avoid relying on unverified or overly optimistic forecasts. Hype leads a lot of investors into markets they never should’ve pursued. Let the numbers lead.
Mistake #2: Not factoring in the additional costs and logistical challenges of remote repairs and maintenance.
Solution: Charges for goods and services vary between markets. A $60 repair in one suburb might be $200 somewhere else. Know the local rates and budget for higher-than-expected maintenance and repair costs. Whenever you can, work with local contractors or maintenance services that can be trusted to handle issues promptly. Develop a running list of your go-to pros!
Mistake: Overestimating rental income potential while underestimating operational costs, such as taxes, insurance, management fees, and vacancies.
Solution: Use conservative estimates when projecting cash flow. Account for all ongoing costs and be prepared for vacancies or lower-than-expected rent. Remember, these costs can vary wildly between markets! Be sure you’re getting accurate and specific numbers to go off of.
Pitfall #3 – Blindly trusting property management.
Mistake: Assuming that property management can be easily handled remotely without considering communication, maintenance, and resident relations challenges.
Solution: Partner with reputable, experienced property management companies specializing in managing properties from a distance. Ensure they have a good track record and can effectively handle issues like screening, repairs, and leasing. Investors want to stick with the same property management company as much as possible.
Why? A single reputable provider has its system standardized and streamlined. You know what to expect from them and can more accurately anticipate portfolio performance.
Pitfall #4 – Sticking to the same market.
Mistake: Putting all funds into a single property or market, leading to a lack of diversification and higher exposure to local risks.
Solution: Diversify investments across multiple properties and locations to spread out risk. This reduces the impact of any single market’s volatility. This, of course, means investors must do the legwork! Expanding into multiple investment markets means doing that same level of research – of due diligence – each time.
If you want to make that load lighter, consider a turnkey partner active in multiple investment markets.
Pitfall #5 – Failing to plan for the future.
Mistake: Failing to plan for an exit strategy if the investment doesn’t perform as expected, such as difficulty selling or the property becoming too costly to maintain.
Solution: Have a clear exit strategy that includes plans for selling, refinancing, or transitioning the property to another use if necessary. This is true of every rental property, regardless of its current performance and projections. Investors must be ready to act if required. Exit strategies can be more challenging to execute from a distance, so prepare well beforehand.
We've done the hard work of vetting options you can trust.
Ask us how to put them to work for you!
