Investing In Real Estate Remotely
If you were to purchase an investment property tomorrow what would be things needed to close the deal? If you’re like me you’d probably say that you would need to do some research on the area the property is in, maybe drive the neighborhood, hire an inspector, and walk the property to make sure you like the property? Fairly simple if the property is in your town or city but what if the property was two thousand miles away in another state? At that point it would be impossible right? How can you drive the neighborhood and walk the property if you don’t live nearby? It doesn’t matter if the property is a great deal, there is no way to properly analyze the property. Oh well too bad. Maybe if you lived in that city, but since you don’t there’s no hope. Unfortunately your job is located where you live now and you can’t just up and move. To make things worse, the real estate market in your city has gone crazy these last ten years and you can’t afford to buy rental properties at these prices! There’s no way they would cashflow! Oh well, best to give up on real estate and just throw your investing dollars into an index fund right? Well that’s it for today, see you all next week!
……. But in all seriousness, is it really possible to successfully invest in real estate remotely? The answer is OF COURSE.
Investing in real estate remotely allows you to take advantage of different markets around the country and around the world. This can be beneficial if you can’t afford your local market, if you don’t have a local market (I’m talking to you traveling workers and chronic vacationers!), or if your investment style or goals can’t be achieved in your current market. Perhaps you’re looking to passively invest in a syndication for cashflow but your market isn’t considered a cashflow market. Or maybe you’re looking to simply park some funds into a property and wait for appreciation, but you don’t live in a market with strong appreciation, or maybe you believe that there is going to be more sustained growth in a different city somewhere else in the country. Whatever your reasoning, in this age of the internet, investing long distance is easier than ever and more and more people are beginning to try it as housing prices spike in major cities across the country.
But don’t take it just from me. According to housingwire.com, a 2019 analysis of auction.com shows that 16% of all REO buyers were purchasing properties from out of state and that number has increased for the last four years straight. Many people simply can’t afford to purchase real estate in their local markets and are therefore looking to historically cheaper markets. Investors in states like New York and California are purchasing properties in states like Indiana, Missouri, Georgia, and Tennessee where the entry point for properties is much lower and the cashflow is much higher, both essential must haves for those just beginning their real estate investing careers.
By now I’m sure remote real estate investing is sounding pretty great, but unfortunately it’s not all rainbows and unicorns (Michael!). Like anything else, there are pros and cons to investing remotely. As someone who has invested both locally and long distance, I’ve outlined a few below
No geographic limitations - You can invest remotely in multiple markets around the country and the world. This allows for different opportunities and the potential for tapping into high growth or stable markets
Lower entry price - If you live and work in a high priced market but can’t afford to buy in, you may be able to buy property elsewhere in a cheaper market. When I first started investing in real estate I lived in San Jose, California. As a recent college graduate I couldn’t afford to purchase a home there. Instead I was able to purchase several homes in Kansas City, MO for a fraction of the price. Investing remotely allowed me an opportunity to begin investing in real estate that I wouldn’t have otherwise had if I had been restricted to my local market.
Diversification across markets leaves you less vulnerable to localized economic instability and natural disasters.
Market analysis - While it’s important to analyze any market, even if you live there, analyzing an out of state market can be more difficult and expensive. Google maps is a great tool but it’s hard to get a feel for a market without putting your feet on the ground there. Market analysis on a remote market often requires several trips out to the market to scope out neighborhoods and meet potential team members.
Less direct control - Investing remotely may not be right for everyone as it requires an investor to give up a degree of control. You simply cannot control everything from out of state and must learn to be comfortable with other people handling tasks for you.
Team Building - Your team can make or break you, especially when investing remotely. This is why it’s imperative to spend the time needed up front to properly vet your potential team members.
Now I can’t tell you where you should invest but I can provide some first hand experience as someone who has invested both locally and remotely. I’ve had success in both arenas and continue to invest wherever I find opportunity. You’ll have to weigh the pros and cons and decide what the best method is for you. As always, If you ever want to talk about how to reach your investment goals feel free to reach out!