Have you made the decision to start investing in real estate, but don’t know where to invest?
Thinking of making a local investment, but wondering if an out-of-state investment would be better?
This is one of the first of many choices you’ll have to make when deciding to invest in real estate: the simple question of where to invest your hard-earned money. While there are definite benefits to investing in your area, there are also some drawbacks that potentially limit returns.
That does not mean that investing in external areas does not have its pros and cons. Let’s take a look at both and see why investing in out-of-state real estate could be a profitable option you haven’t explored yet.
invest locally
This is the most obvious option for many real estate investors, but is it really right for you?
If you choose to buy a local property for yourself, you will rest easier about your investment as you know the market. First, know your competition. You may know the names of professionals you can trust and will have an intimate understanding of what the cost of living is in that area and how to make things more affordable.
Second, if you like to be practical, it will be much easier for you since you are right there. If you want to see the property, it’s only a short drive away. If you would like to speak with the property manager face-to-face, simply put it on your calendar for the end of the day.
Disadvantages of local investments
On the other hand, investing only locally can reduce your options. Not all markets have the inventory of good investment opportunities that you can take advantage of if you invest out of state. The local inventory of available properties may or may not be large enough or suitable for investment opportunities.
You also run into the problem of whether your local market is what you want. The recession had a huge impact on housing markets across the country, and some areas have recovered at different rates than others. It may be out of price in your current market, but even if it isn’t, you may not be able to see a favorable future where you are.
invest out of state
If you decide to invest out of state, you can greatly increase your options. You can literally pick any location, any market and invest in property there. Whether you want to invest in vacation homes and coastal villas in Florida or homes in suburban Detroit, the sky is the limit. You can make your investment fit your price and interests.
By investing out of state, you can put your money to work in high ROI markets. You pick and choose the markets that interest you and which ones are rising stars in the real estate investment scene, ignoring changes in your own market.
Investing out of state also allows you to scale based on your needs. For many potential investors, their local market is too extravagantly priced for real estate investing to be prudent. The cost of living in a different state, just a few borders to the east or west, could be considerably lower. That means you can acquire excellent properties at a much lower cost than in your own market.
Even better, you can snag those investment deals on great properties that would cost three or four times as much, if not more, in your own local market. Your purchasing power becomes much stronger in other markets, because everything is relative.
Out-of-State Investment Challenges
There are still some challenges to these remote investments. First, you need to know who you can trust and maintain the peace of mind that comes with easy local access to your investment. You also need to be able to trust that the property you are investing in is what is advertised.
The property is also more difficult to visit if you like to be practical. You may have to fly to visit the property, which some people enjoy but others seriously annoy. If you are the type of investor who prefers the more passive turnkey approach, this is an excellent opportunity.
Finally, the market will not be what you are used to. Nothing will be the same as being there and immersing yourself in the market, but you can learn and study. You just have to trust that someone else has knowledge of the nuances of the market.
Do the right thing out of state
There’s a solution to all the challenges of investing in out-of-state real estate. When you find a reputable and proven company to handle your turnkey real estate transaction, you have someone you can count on to know the market you’re investing in. Here are the top reasons why you should find a partner to work with you on your out-of-state investments.
- They can keep a more educated eye on the market as they know all the nuances of that area.
- They will serve as your presence near your investment, keeping everything in order, so you don’t have to make numerous trips to the property.
- If the turnkey real estate investment company is reputable, you want it to be successful. This means that they will do whatever they can to make sure you are successful.
The question is, who can you trust? You want to ensure that you are entering into a partnership with a company that is reputable, knowledgeable, and committed to its market. Referrals from other investors are key, so keep an eye out for like-minded people who have been there and done just that.
You should also find out what the turnkey operation offers you and what your fee or share of your profits is. Ideally, you’ll want a partner who can help you through the life cycle of your investment, from property acquisition to management.
Starting
We’ve gone over the benefits and drawbacks of investing out of state, so now the decision is yours. Do you still want to invest locally, or have you realized that the time has come to diversify your portfolio and invest in properties out of state? The benefits of out-of-state real estate investing are enormous, and the drawbacks can easily be mitigated by partnering with someone in the area you’re investing in.