If your market is becoming saturated or quality property leads are drying up due to scarcity or high middleman costs, it could be time to consider out-of-state real estate investing. By moving into new markets you not only diversify your portfolio of assets but could also diversify your investing strategies. This post will help you to learn how to move into a new market, and how to evaluate the pros and cons. Let’s start by looking at how to pick your next market and then move into the pros and cons of real estate investing out of state.
Choosing an Out-of-State Real Estate Investing Market
The first step is to look at cities and states within an easy drive or quick flight from your home base and make sure the property types are in your area of expertise (or within the wheelhouse of a highly-trusted general contractor in that area). For example, if you are used to investing in NYC or Washington DC, you may already have experience with rowhouse renovations and condo conversions. That makes a city like Philadelphia a great option to look into since many of the properties and structural dynamics are similar. Plus its an easy drive or quick train ride from both cities.
If your primary market is Richmond, Virginia, your next move could be Raleigh, North Carolina or Baltimore, Maryland. This would allow you to stay at a similar price point for your fix and flip projects and also try your hand in rental property investing in these markets. By diversifying your investing strategies, you could make big profits in the short term and create passive income properties for the long term.
First Steps for Out-of-State Real Estate Investing
Once you have selected a new market that you’d like to move into, you need to apply the same level of due diligence to your market analysis and neighborhood research. The new market may have unique aspects, but any unfamiliar area that you’re looking to invest in should have proven comps and an active pool of buyers to keep you from making a costly mistake.
Next visit the area you’re looking to expand into and start building relationships. You’ll want to meet experienced agents, contractors, and hard money lenders to keep your projects running smoothly and at maximum profitability. Pick out several real estate investing meetups to hit while you are there, or simply arrange meetings with individuals that you might meet through investing Facebook groups or through BiggerPockets. Make the most of networking while you visit the area, but of course, leave some time to drive through neighborhoods and get an understanding of where other renovation projects are (since they can serve as comps for you later).
The Pros and Cons of Out-of-State Real Estate Investing
The pros of real estate investing in out-of-state markets:
- There are untapped and less competitive markets with similar properties which can make sourcing new projects easier.
- Diversifying your investments across multiple markets means that market fluctuations and new restrictions in one may not affect another. This allows you to quickly switch your focus to another market that you already understand and have experience in.
The cons of out-of-state real estate investing:
- You have to travel a larger distance every time you need to check on a project.
- Your project management fees can increase if you need to hire someone to be on-site on a regular basis, versus leaving the job to a contractor that needs your supervision.
If you’re ready to start expanding your portfolio into out-of-state real estate investing, use the steps above as a guide or contact us and one of our investing experts will be happy to help you navigate the process.