Real Estate Investing Out of State

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I have written about the need to adapt your real estate investing plan in response to a changing market.  To summarize, I pointed out you need to do 1 of 2 things or both in order to survive as a real estate investor today.

1. Change your investment strategy
2. Change where you employ your current investment strategy

The first point is simple to grasp.  If your current strategy is no longer working in this market, you need to change your plan.  I am going to go into greater detail on the second point and how to implement it.  I prefer to change where I invest rather than my investment technique because it is easier to find a new location than to find and learn a new strategy.  I am already familiar with the strategy and I know it works.  It just may not work in this area any more.  So, let’s look at other areas which most often for me is out of state.

Investing out of state goes against the conventional real estate advice of investing within 30 miles of your home, because you have the advantage of local knowledge, and are able to “see” your investment easily.  I believe this is outdated advice, and will severely limit your options and opportunities for real estate investing success if you just stick to your local area.  While it may be true in the past that it is difficult to gain information outside your local market, it is no longer the case.  The equalizer of information access is the Internet.  In this information age, any information can be found on the Net, from area information, MLS listings, and general real estate information such as this blog.  Their is a wealth of information, and the finding of quality, dependable information can be a problem, but lack of information of new markets is no longer a legitimate barrier.  The inconveniences of transacting real estate from a distance are also greatly reduced.  We live in an age of fairly cheap and accessible air travel.  Fax, overnight delivery, and long distance phone calls are all marginal costs compared to decades ago.  There is no real barriers to investing out of state to maximize our options and opportunities.  However, there are still some guidelines I have found to make the most of our out of state investing.

Distance:I have pointed out that distance from our real estate investments can be overcome by modern technology.  However, with that said, I still prefer real estate markets at a reasonable distance from me.  I live on the west coast, and prefer markets no longer than a 3 hour flight or no more than 1 time zone away.  The reason is time.  I can go to many markets in most of the western states to conduct business and return the same day if I catch an early morning flight.  With the Midwest states and the time zone difference, it takes a whole travel day to get there and return, so we are looking at a minimum of three days.  However, at this time there are more attractive investment opportunities in the Midwest states, so I do invest mainly in those states.  The added time necessary to do the due diligence is a small price to pay for cash flowing investments.

Information:  As noted information is easy to get in this age of technology.  You will get an overload of information, however getting good, reliable information that you need to make a good informed decision is a challenge.  A good way to get a feel of the local market is to read the local papers online and the real estate section in those papers.  After doing some preliminary research on the market you are interested in, contact other investors who are investing in the area, and ask for referrals.  Local investment clubs are a good source of information.  Attend a local meeting and ask around for other investors who are investing in the area.  Gather a list of referrals including Realtors, loan agents, and property managers.  Start calling and emailing people to get more information.  Get them to send you listings of possible investments, and start running the numbers.  If they look good, and you are comfortable with the people you have been talking to, it is time to plan an actual visit.  It may take you a few weeks to a few months before you get to this point.  Don’t rush and don’t feel pressured to act.  Researching a new market takes time.

Strategy: It is very possible to invest out of state with good results, but certain investment strategies work better from a distance.  The best strategy is buy and hold rental properties.  There is a great deal of work to find buy and hold rental properties out of state initially, but after the purchase there is less management.  You only need to manage and keep track of your property managers to make sure they are doing their jobs.  Other strategies such as flip properties or foreclosures are much more difficult to manage from a distance, because they are so labor intensive, and require daily attention.

Property Management: Holding investment properties in other states require the use of property managers.  You need to be able to manage your manager, and hold them accountable.  Since you are not there, I call or email every few weeks even if there are no pressing issues just to let the property manager know you are watching them.  Go over each monthly statement carefully, and ask questions.  If your calls are not returned promptly, it may be a sign that you need to change management.  Communications is very important.  Plan to meet personally with the property manager at least a few times a year.  This lets the property manager know that even though you are far away, you are hands on.

Investing outside of your local area will present more issues than investing locally, but it will also present many more opportunities if you do not limit yourselves.  If you follow the basic guidelines to investing out of state, each obstacle can be managed.  If you find it  difficult to find investments that fit your criteria, than instead of trying to find a needle in a haystack, expand your search.  You may find that the investments you are looking for that is so elusive in your local area is commonplace elsewhere.  In my search for cash-flowing properties, it would have been very difficult to find in California unless it is a very unique situation, or putting a very large amount of money down.  By expanding my search into several other states, I was able to build my real estate investment portfolio much faster.  Take advantage modern technology to access investment markets in the thousands of local markets across the nation.  Rather than focus on the issues and trouble of investing out of state, look at endless amount of new possibilities.  Possibilities that you would not be able to access without stepping out of your local comfort zone.