Long distance real estate investing isn’t all that different from traditional, local real estate investing. The concept remains the same: purchase a property with the intent of making a profit.
That said, there’s a significant caveat: the proximity in which the property is located to the investor. Not surprisingly, long distance real estate investing requires the investor to invest in a property that is relatively far away, oftentimes in another city or state. As a result, preparing to invest in a home that is far away requires a slightly different approach than those that are a short car ride away. If you are considering investing in long distance real estate, be sure to consider the following.
Long distance real estate investing is the act of purchasing, owning, managing, renting or selling physical properties (for a profit) that are not within close proximity to an investor. Just as its name suggests, long distance real estate investing will witness an investor procure a property, either in another city or state, typically for more favorable market conditions (and profits).
It is worth noting, however, that long distance real estate investing isn’t relegated to a single exit strategy. Entrepreneurs interested in investing elsewhere may practice any of today’s most popular strategies: rehabbing, wholesaling and renting.
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If you are interested in investing in a property that isn’t within your area of expertise, you’ll want to make sure you at least complete these steps before anything else:
Above all else, mind due diligence before even considering becoming a long distance landlord or simply owning a property in another state. While many of the same concepts apply to long distance real estate investing as local real estate investing, it is in your best interest to conduct the appropriate research. As with any investment, the more you know, the better; but that same sentiment is more pronounced in the acquisition of a property that is far away. To make sure you are investing in the right home, be sure to complete the following steps:
The golden rule of real estate applies to both local and long distance investing: location, location, location. The market in which an asset is located is of the utmost importance, and can very easily dictate its future performance. One of the primary reasons investors opt to invest outside of their market is for better market conditions and investment opportunities. Therefore, choosing the right market can be seen as the most important step when it comes to long distance investing.
When deciding on a location to invest, it is in the best interest of today’s investors to carefully vet any market that they are even considering investing in. Take the time to delve into a market’s key performance indicators and get a feel for how they will impact any future assets you intend to purchase. Most notably, take a look at the current state of the market. Ask yourself several questions: How strong is the local economy? How low is the unemployment rate? How long are homes sitting on the market? How many months of inventory are available?
Answering these questions, and many more just like them, will give long distance real estate investors insight into an area’s profitability. There’s perhaps no better way to judge a neighborhood’s potential than to keep up with its most important trends: laws and regulations, property prices, interest rates, taxes, etc.
In addition to studying past and current trends, mind due diligence and get a better idea of the area’s future prospects. Identify whether or not there are plans to break ground on any new developments such as schools, malls or business centers. The influx of new money into a given area typically suggests there’s at least some potential to tap into, which bodes well for investment properties.
When considering whether or not to invest over long distances, you must acquaint yourself with every detail of the property to determine its potential profitability. In doing so, pull the property card, which should tell you everything the city knows about the home, not the least of which includes:
Once you have a better idea of the property’s details, the next step is to uncover its potential. More specifically, now is the time to determine the home’s after repair value (ARV), or what it will be worth once it is remodeled and in pristine condition. To determine the ARV, look at comparable properties. Search criteria should include:
Once you are comfortable you know how much the home is worth or how much it would rent for, compare its profit potential with its acquisition costs. Is the current price of the home worth how much it could potentially retune in profits? Remember, the numbers don’t lie. The numbers need to make sense for a deal to work, and long distance investments are no exception.
The advent of technology has certainly made things easier for long distance real estate investors. However, few long distance real estate investing tools are more useful to today’s investors than the following:
In the event you aren’t entirely comfortable investing in a property that’s not in your local market, consider the idea of partnering up. The right partner can make investing in a distant property a lot easier for some. Try finding a partner with connections in the area you hope to invest in. If that’s not possible, consider teaming up with someone that has experience investing in out-of-state homes. Remember, long distance real estate investing isn’t exactly the same as local investing, so it could help considerably to invest with someone who has the right experience.
As perhaps the single greatest move long distance passive income investors can make, hiring a property manager can make all the difference. A well-vetted, properly equipped third-part property manager can simultaneously reduce the stress associated with the average rental portfolio, minimize risk exposure, and increase profit margins. More importantly, a good property management company will see to it that you don’t need to be present. The management company will take care of everything from filling vacancies and collecting rent to calling repairmen and renewing leases.
The prospect of long distance property investing gives more opportunities to investors that are willing to look elsewhere than those who are confined to a single market. More importantly, using a long distance strategy simultaneously allows investors to take advantage of different marketplaces while increasing their odds of finding the perfect deal. However, investing in long distance real estate isn’t the same as investing in your local market. There are several differences that warrant your attention; namely, the amount of effort that goes into research and management. Utilize the steps outlined above to help make your long distance investment a seamless and profitable one.