Investing In Real Estate Outside Your Local Market - What Investors Need To Know

Sometimes investors ask me if they should invest outside of their local markets. I personally own property in three different states, but I don't necessarily recommend this for everyone. For those in markets where positive cash flow is nearly impossible to achieve - like California - I strongly encourage investigating new markets that are friendlier to investors. On the other hand, investing out of state can present some significant challenges.

You can overcome most challenges if you choose your market wisely and have realistic expectations about the time that it will take to build a strong team there.

My basic criteria for picking a new market to invest in are as follows. First, look at the economics. The market has to be capable of providing rental properties that cash flow. Also, you want to acquire properties that will appreciate over time. Find out what the long-term trend has been: slow and steady growth (3-4%) over the past twenty years is preferable to rapid growth (10-15%) in the past five years.

Second, take stock of what resources you already have available to you in your chosen market. Do you have family or friends that could help you in a pinch or that could recommend a great real estate agent to get you started?

Third, is this a place that you would like to visit anyway? While it is possible to purchase and manage properties remotely, your chances for long-term success are much greater if you are willing to put in the time necessary to get to know the market first hand. Also, meeting and building relationships with your "dream team" will flow more smoothly if you put in some face time with these very important people.

Perhaps the most important factor to successful investing in a non-local market is having a knowledgeable, investor-oriented real estate agent. A good real estate will do far more for you than simply point out which houses would be good additions to your investment portfolio. They will put you into contact with all the other professionals that you need: mortgage brokers, title companies, maintenance/repairmen, and property managers. The last of these being perhaps the most crucial to long-term success - without a reliable property manager, it is extremely difficult to deal with the regular tenant and maintenance issues of rental properties.

Overall, I do recommend investing in non-local markets. But the investor must be ready to put in the time necessary to find the right market and to grow a strong team there.

Until my next post,

James