4 Tips For Getting Started In A New Market
By Paul Esajian on July 22, 2016
There are many investors who have successfully planted their flag in their current market. However, with the popularity of real estate increasing every day they have found it more difficult to maintain their current level of success. This has caused them to look for alternative areas to find new deals. Regardless if the area is 30 or 300 miles away the process is similar. You can’t just close your eyes and point your finger at a map. You need to put the work in finding an area that checks all the boxes you are looking for. There are plenty of properties and deals out there regardless of the market you choose. Here are four tips for getting started in any market.
- Build Your Team. In some respects investing in a new market is very similar to investing in your backyard. On the other hand it can be completely different. One of the areas that are the same is the importance of team building. Think about when you get started in your local market. You probably reached out to a local real estate agent, attorney, mortgage broker and contractor. From you core of close contacts you developed your network and took off from there. The process is similar with out of area investing. In fact there is even more reliance on your team when you are starting in a new market. You should take the time reaching out to every potential team member. With all of the increased technology available you should be able to text, email, facetime or skype with someone and really get a good feel of who they are. Without a good team that you can rely on and trust you be left scrambling around most likely doing more work than you anticipated. On the flip side if you have a good team in place you can be confident that things will run smoothly without micromanagement. The importance of team building for an out of area investor cannot be understated.
- Make A Plan. As you are putting your team together you need to develop an investing plan. What worked for you in your local market may not have the same results somewhere else. With a new area you need to have a plan A, B, C and even D. You need to have multiple contingencies and multiple exit strategies. It is a good idea to add an additional 10-15% on top of what you project to your budget. The worst thing you can do is enter a new market without ample funds to do what you want to get done. Try reaching out to as many local investors as you can in the market. They may not give you their secret sauce but they can help you stay clear of certain markets that may be on the decline. If you never make a true business plan for investing locally you have to when investing in a new area. The more prepared you are the less likely you will be thrown off guard for whatever comes your way.
- Market Demographics. There should be a clearly defined reason why you pick one market over the other. Your decision can’t be based on whether or not you personally like visiting the area or if you like the weather. The market you pursue should be solely based on numbers and demographics. There is no point investing in a new market if the numbers aren’t better than what you can generate locally. In fact they should be considerably stronger to make it worth all of the time and effort associated. Once you determine that the numbers make sense you need to narrow your focus on a specific area. Here is where you need to study the demographics. Start by looking at annual sales price averages, foreclosure numbers, unemployment, new housing permits, tax fluctuations and more. Most of this information can be found on the local town website but you need to dig a little deeper. Track down any local newspapers or publications and find out what the buzz is on the area. An article about the local school system or a big corporation coming to town can sway your opinion on the market. The numbers and demographics of the area will often determine just how successful the market will be.
- Don’t Leap Blindly. Just because you want to invest in a new market doesn’t mean you have to. As simple as it sounds if you are not completely comfortable you should hold off until you resolve any lingering issues. You should also examine exactly why you are running from your current market in the first place. Markets with heavy competition can be conquered if you think of a different approach. There many ways to tweak your business without changing where you invest. You can look for alternative niches or property types you may have never previously thought of. You can explore the option of adding a partner or working with additional contacts. Investing in a new market takes a substantial time and financial commitment. It isn’t something you should do just to shake things up in your business. There is nothing wrong with staying patient in your current market. By leaping to a new market you run the risk of taking on a bad deal. There is opportunity in any market but you cannot leap blindly without knowing everything about it.
Getting started in a new area is very much like starting a completely new business. It takes a good team and a good plan to be successful but it can be done.