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The Pros And Cons Of Investing In An Out Of State Market


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There are real estate opportunities in every corner of the country. One of the things that makes real estate investing so great is that you are not confined to your local market. If there is opportunity sixty miles from where you live there is nothing stopping you from pursuing it. Across the country there are investors who are quite successful investing in out of market properties. These properties come with their own unique set of challenges but for the right property can make a ton of sense. However, before you consider this option there are a few things you need to understand. While the concept is the same there are a handful of significant differences that can’t be ignored. Here are a few pros and cons with out of area investing.

PROS:

  • Opportunity. If there isn’t enough opportunity in your local market you need to see what else is out there. This requires a bit of a leap of faith but with a little due diligence you can find other markets. Some of these markets mesh perfectly with your vision and how you invest. The price points are lower and the competition is not nearly as fierce. You can have everything else lined up in your business but if you do not have opportunity for deals it doesn’t make a difference. Sometimes all it takes is simply exploring other markets and seeing what else is out there.
  • Higher ROI. The goal for any investor is to make the highest possible return on their investment. In markets with high competition there may not be a high ceiling on the deals you pursue. There is nothing wrong with making a profit and moving on but there should be an opportunity for one home run deal every year. If your market doesn’t offer much upside you can entertain other markets with a higher return on your investment. There are other factors you need to consider but out of area markets can give you more bang for your buck.
  • Diversity. There is an old adage in real estate about putting all your eggs in one basket. Even if your local market is soaring anyone that was in real estate last decade knows just how quickly things can change. All it takes is a few changes in demographics to turn a hot market into a declining one. A large employer can announce layoffs that impact demand which pushes prices lower. The best way to protect yourself is by diversifying your portfolio. No two real estate markets are exactly the same. By investing in a few different locations, you will be as protected as you can for any changes in the market.

 

CONS:

  • Unknown market. There is a good chance you know almost everything about your local market. You have probably worked or lived in the market for years. You know the sales trends and which areas inside the market are better than others. When exploring out of area markets you are starting from scratch. All it takes is one bad deal in a weak market to set your business back. Fortunately, it is easier than ever to learn about a new market. Instead of driving to town hall you can find almost any information you need online. However, this doesn’t always tell the whole story. Unless you are in the market on a daily basis there is always a bit of speculation investing in a new area.
  • Reliance on team. As much as you may like to it is impossible to be in two places at once. With your property some seventy miles away you need to lean on your team for help. Not only does this require a leap of faith from you it also impacts your bottom line. Finding out of market properties usually starts with your real estate agent. Even if you found the property on your own your real estate agent will put the deal together. If you are shopping blind they will recommend the best areas to look for and which you should avoid. Once you take ownership you need a quality property manager to run the daily operations. This comes at a 10% cost but more importantly, you need to be able to trust them. They will be your eyes and ears with everything in the property. If you have trust issues or don’t like giving up control an out of market property may not be for you.
  • Local rules & regulations.  In any market, there are specific local rules and regulations that need to be followed. Some of the rules may seem outrageous at first glance but they still need to be adhered to. When you take ownership it is too late to find out that the town won’t let you do what you anticipated with the property. You need to do your homework and know exactly what you can do prior to even making an offer. At first glance, a town that appears to be a home run can turn out to be a nightmare.

Like most things in the world of real estate you won’t really know until you do it for yourself. A few well-placed out of market properties can completely change your portfolio for the better. However, if you don’t know the market or have a team in place even the best deals can turn into ones you regret.

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