It will seem as though you should only invest in your backyard. Besides, that’s where your strategy seems to make the most sense: you’ve probably lived in your hometown since you were born, or if not, several decades; you know the streets like the back of your hand; you know exactly what the market looks like, where the best neighborhoods are, where all the best schools are, and so on.
The United States is not just one market. Rather, it is a mosaic of thousands of real estate markets. During the same time that a city like Detroit could be hurting, a city like San Francisco could be flourishing.
If you only invest in your hometown, you could be forfeiting many potential investment opportunities in other markets all over the country.
Now, what exactly do I mean by the remote investor?
Some investors I know do not invest outside of their city, let alone their state. Some have a rule not to buy a rental property that is more than an hour’s drive from their primary residence. And others invest all over the country. They have condos in Ohio, a primary residence in New York, and vacation rentals in Florida.
What is the benefit of investing out of state? When does it make sense? And is it the right thing for you?
In fact, my first ever real estate purchase was a remote purchase. I was based in New York City at the time, and I had identified a single-family residence in Saint Petersburg, FL that I eventually purchased as an investment property. I had visited Saint Petersburg only once for a weekend several months prior. Having researched the city, and the Tampa Bay area, I decided that it was full of great opportunities for a real estate investor.
The second deal I completed was also a remote kind of transaction. Even though by this time I had been established in Saint Petersburg, where the second property is, I used equity from a property in New York to purchase it. This meant I was able to pull out a substantial amount of cash, put a large downpayment on the property to ensure a low mortgage payment, and put a significant amount towards remodeling the property to force appreciation on the home.
Some markets are more developed than others and some markets are developing faster than others. A stagnant market like New York is not growing as fast as an emerging market like Florida. In that respect, if your home is appreciating at 1% in New York while homes in Florida are appreciating at 3%, it would make perfect sense that you should use the equity in your New York property to purchase a property in a faster appreciating market like Florida, capitalizing on investment opportunities out of state.
This is true even if you do not have any properties that you can use to cash out refinance. If you are based in a state with a real estate market that is stagnant (or declining), it is best that you put your money in a market that is appreciating, or will appreciate in the future. Some areas appreciate faster than others.
Investing out of state allows you to do just that: take resources from a market that is already developed and therefore no longer growing as quickly and put those resources in a market where they can grow exponentially.
In order to do this, you must first research various markets across the United States. Look at which markets are seeing fast growth. Look for markets that aren’t growing but have the potential for growth, all these “hidden secret” places. These can include less well-known towns and cities near large metropolitan areas. Usually, when larger cities become too expensive, people tend to migrate to the more affordable options nearby.
Find out where people are migrating, and see where businesses are moving. Are companies that were once solely based in one location now opening up satellite offices in another? Which small cities are experiencing a large amount of growth, and why? Follow the trends. Read up on news. Which cities are companies now opening up offices where there was never any activity before?
Once you’ve found the area you want to invest in, what should you do? Here are some suggestions:
- Visit the city/county—Some people will recommend it, but I won’t: investing someplace you have never seen in person. There is just a feeling you get visiting places. This, to me, is part of the research. Sure, all the numbers can look good now. But I’m just not someone who invests in something I don’t believe in. I advise visiting the area. This is good both so that you can get a better idea of what you’re getting into, and so that you can network and meet agents and contractors and see them face-to-face.
- Network—It will greatly help your chances of being successful in a market if you know the key players in that market. Spend a week or weekend in the city you are considering investing in. You don’t need to do this every week or weekend. But every once in a while helps. It helps keep your relationships fresh. Meeting your agent and contractor (contractor especially) will ensure that they are working to their best potential.
- Identify properties and areas—Go to as many open houses as you can, check out the properties, and note what sets them apart. The pros and cons of each compared to one another. Which neighborhoods did you like best? Which areas appear to be the fastest growing, most popular, most up-and-coming, younger, and more energetic?
- Take notes—If you don’t write it down, you’re going to forget it. Write down street names and property addresses. Take a bunch of photos. Try to really write down exactly what you felt in the area. If you don’t like the area after you’ve visited it, why would you even want to invest in it? “Because money, duh,” you might say. But there are lots of markets out there. Go with your gut, invest where you would live yourself, and you will be successful.
- Make the move—Once you’ve identified where you want to invest, the next step is to utilize the network of agents (or the one agent) to start making offers on properties in the areas you’ve identified to be the most desirable through research and your own experience.
Investing in itself can seem like a daunting task. Add out-of-state investing, and you put a whole new element into the equation. However, investing out of state is not as bad as it seems, and it doesn’t need to be as complicated as many make it out to be.
Your first task is to make sure that you have faith in the market that you are investing in. It will be a lot more nerve-racking if you don’t believe in the market in the first place. How will you keep up with the work when times get hard? If you believe in the city, and truly believe it will grow, then it gets much easier to get through difficult times.
Your second task is to have a good team. A good agent, a good contractor, a good title company, and a good lender. Generally, a good agent will have access to all the other team members, especially diligent agents who have a lot of experience.
Your third task is to do whatever it takes to close the deal. Make as many trips as you need to. Luckily for us, everything can be done online now. The title company will mail the closing documents to you and even bring an agent to see you sign them. The lender will have you digitalize all the documents you will need to secure the loan. And your agent can video chat with you to show you all the homes and possibilities that you might invest in.
It is the easiest time in history to be a remote investor. It makes sense from a financial viewpoint. It will broaden your business and diversify your portfolio. And best of all, it will increase your cash flow.
Consider other markets besides your own when you are investing in real estate. Your future self will thank you.
