Is Investing Real Estate Out of State too Difficult?
If you’re a real estate investor living in an area that isn’t conducive to investing, it may seem like your plans are on hold for the time being. Whether there is a lack of inventory to choose from or the prices are so high that there is little room for profitability, every market goes through phases where investing isn’t a solid option. However, there are always areas in other states where investment makes sense. Many investors wonder if out of state real estate investing is too difficult. The answer to that question is a resounding “no.” While investing in property out of state does require some differences in your methodology, there are still ways to be profitable with a real estate investment in a state other than your own.
Knowing the Market
As a real estate investor, you already know the importance of obtaining an intricate knowledge of your market. Understanding the number of prospective buyers or tenants, their average income and more allows you to make decisions about whether or not your investment is a sound one. While you probably have a real estate agent that you work with in your local market, you will need to reach out to an agent in the out of state market that you’re considering.
This agent can help represent you remotely. Once you’ve selected an agent, he or she will be able to start gathering information about the market that you’re looking at and properties that are available. Once you arm yourself with this information, you can be better informed about how much to offer for an investment property if you even want to invest in that area at all.
Be Sure to Build Your Team
Investing in and managing an out of state real estate investment is a team effort. It is possible, but you are going to need to surround yourself with people you can trust. This is the biggest reason that investors typically avoid out of state investments is because they don’t want to relinquish the control of their investment to people they don’t have a personal relationship with. That’s understandable, but it can potentially cost you in the long-term.
In the age of social media that we live in, you can find exhaustive reviews for every real estate agent, general contractor and property manager that you’re going to consider for a spot on your team. Research these people and find out who you think can be a solid asset to your investment. Remember, the people that you’re considering working with only get paid based on meeting your expectations. Just because you won’t be walking the investment properties with them doesn’t mean that they aren’t just as motivated to do a good job.
Different states have different real estate laws. While the real estate agent that you choose to work with will know how to do his or her job within those laws, you should also employ the services of a real estate attorney in the state where you’re investing. This attorney can help ensure that your investment is handled within the framework of that state’s laws.
But What About Emergencies?
Investors who are hesitant to make the leap into out of state investments typically point to the possibility of emergencies as a reason to keep their investments local. Whether we’re talking about plumbing emergencies in the middle of the night or a tenant who decides to trash the property before running away in the middle of the night, fear often motivates investors to keep their investments in their own area.
Is that a good enough reason, though? Ask yourself this: are you going to be the one responding to the 2:00 AM plumbing emergency if the problem happens at an investment in your home state or will it be handled by your property manager? If the answer is that your property manager will be handling the situation, then nothing changes based on the location of the investment property.
Fear can talk you out of investing in a property anywhere. There is always a list of things that can go wrong with an investment. However, if you’ve done your due diligence on the property and built a team of professionals who can work with you on it, there is nothing to fear in an out of state property that you don’t fear in a local one.
Investors who are considering taking the leap to out of state real estate investments in their portfolio can also consider investing in a real estate syndicate. If you invest in a real estate syndication, you simply pool your money together with a group of other investors who then outsource the responsibilities of property management to other professionals. This method takes away some of the fear associated with out of state investing, primarily because your money isn’t the only money on the line. You can truly earn a passive income as an investor in a real estate syndicate, as the sponsor of the syndicate operates the business side of things while other contractors and professional handle the heavy lifting associate with managing and maintaining the property.
Overall, is investing in an out of state property too difficult? No. Is it more difficult? Probably. However, investing isn’t about ease. Instead, it’s about getting a positive return on your initial investment in an effort to increase your personal net worth while increasing your real estate portfolio.