5 Tips To Successfully Invest Out Of Market
By Paul Esajian on March 29, 2019
Real estate investing has changed quite a bit in recent years. It wasn’t that long ago that almost all investment purchases were done on the local level. Today, it is not uncommon for an investor to have properties in multiple states in their portfolio. Changes in technology have allowed us to know almost everything about a prospective property two thousand miles away.
Even with technology there is still plenty of apprehension in buying a property without ever stepping foot in it. If you can get past the initial fears and concerns you will open yourself up to a number of different markets that can completely change your portfolio. With increased competition, having an open mind to new markets can help separate you from the pack. Here are five tips to successfully navigate investing in out of market properties.
- Understand The Challenges: The core process of buying an out of market property is similar to any you would buy in your local market. However, there are several significant differences. For starters, there could be different verbiage on the purchase contract and different building guidelines. If you are not up to speed on these, you could be stuck with a property you can’t do much with. Aside from the contractual differences, there is also a different mindset. There is a difference in seeing a Facetime video of the property and actually seeing it yourself. You are also dealing with people that you don’t have the same relationship with as your local team. You are going to have to trust these people and understand you cannot drive to the property if there is an issue. Most investors are control freaks and have a tough time letting other people run the show. If you can get past the mental aspect of it, you can make a seamless transition.
- Define Goal/ Expected Return: Like any property, prior to getting too far you should define your goals and expectations. On your first few out of market deals there will be many more challenges and hurdles than you anticipate. As long as you understand your end goal, you will be fine. The first question you should ask is “what do I want to do with the property”? Do you want to add it to your rental portfolio or turn it over as quickly as possible? With each option there are a few differences that must be noted and accounted for. A rental property must have a dedicated property manager. Even if you have to pay a premium this is an absolute necessity. If you want a quick flip you need a team on the ground that can handle the project. Both scenarios will see a reduction in their bottom line. Like any property, the return should be in line with the work and capital outlay. It is a myth to think that there is more risk with an out of market property. The only risk is that you cannot always see everything going on.
- Strong Local Team: It cannot be understated just how important your local team will be. Think about your local team members and how you have built your relationship over the years. You need to form the same type of trust in a shorter period of time. You will lean heavily on your real estate agent, attorney, contractor, appraiser and property manager. These people will be your eyes and ears in the market and literally handle every issue for you. Prior to ever making an offer you should do some legwork on the market and reach out to as many of these people as possible. You may have to talk to a dozen contacts or more before you find someone who you share the same vision with. Only when you have a local team in place should you move forward with an offer.
- Take A Drive/ Flight: Just because the market is several states away doesn’t mean you can’t see it. There is a big difference in getting a video and seeing the area for yourself. If you still need to be put at ease you should take a drive or a flight to visit the market. There are always airline promotions or discounts that won’t break the bank. Seeing the area allows you to make your own assessment and meet the people on your team. A cup of coffee or lunch with someone on your team will do more than any lengthy phone conversation will ever do. They get to put a face with your name and see how much the business means to you. They will work harder and go the extra mile having actually met you. If you like an area why not take a road trip or a flight to see it.
- Don’t Be Deterred. There are many investors who don’t invest out of market based solely on perception. It seems like it can be difficult, so they stay away from it. They like to pass their perception on everyone around them. If you see an opportunity out of your primary investing market, do you own homework and trust your own opinion. You can certainly listen to advice and suggestions, but don’t be afraid to do something you are passionate in. If successful investors listened to everyone who told them no, they would never get to where they are. If you see an opportunity don’t be deterred by the negative people around you.
Investing out of market is not as intimidating as it is cracked up to be. Talk to as many seasoned investors as you can and follow these five important tips.