Offsetting the Risks of Investing Long Distance

New Construction
Fix & Flip
Full name
11 Jan 2022
5 min read
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If you’re thinking about stretching your investor wings to explore opportunities outside your area, you’re not alone. With technology making it easier to scour other states’ markets, it might make sense to expand your portfolio to include other zip codes. But is it a wise move?

While the logistics of managing properties across state lines may be more of a challenge, there are ways to offset the risks using strategic methods to stay one step ahead of the investment game.

Risk: Lack of familiarity with the market

It’s true that there’s no place like home, especially when thinking about putting your money to work in your area. You know the market, know which neighborhoods are up-and-coming, and you have local resources readily available to get your next investment project off the ground.

These are difficult things to come by in a new city or state you’ve never lived in, but it’s not impossible.

Different locations across the country will have different dynamics from those prevalent in your market. One way to mitigate any missteps is to hire trustworthy, capable real estate professionals. Hire Realtors that can educate you on the market and present you with viable investment options. Once the investment has been made, hire reliable contractors and property managers that can see to all the onsite issues you can’t deal with from miles away.

The onus to do the majority of the work will still be on you, however. Research the market to learn about population growth trends, renters vs. homeowners numbers, price to rent ratio, job trends, and anything else that would impact your decision on whether to invest in any given city. Make sure you also factor in the expense of a property manager when analyzing your anticipated return on investment.

Risk: You can’t physically see the property and might make the wrong choice

Seeing a property yourself is always ideal, but that doesn’t mean it’s impossible to make sound decisions without being onsite yourself. After all, traveling repeatedly just to check out a property can become expensive.

Technology – especially in the time of COVID-19 – has made strides to ensure people have access to a property’s features. Virtual tours are a great way to get a good sense of layout and what renovations may need to be made. This is also useful when hiring inspectors who may be able to do walkthroughs virtually with you on the line. Video calls are a useful tool when you can’t be there.

Technology aside, it can’t be stressed enough the importance of working with local real estate agents. Partnering with someone trusted who can be your eyes and ears and give you honest insight can be an invaluable resource when you can’t physically visit a place.

Risk: Being unfamiliar with local laws and regulations

Let’s say you’re ready to invest in a fix-and-hold project meant to become an Airbnb. However, Airbnbs are not legal everywhere and the last mistake you’d want to make is take on a loan for a project that went south before it even began. Research the market’s regulations to learn if opening anAirbnb is a) legal and b) a profitable path to take.

Risk: Investing in the right market at the wrong time

Sometimes it’s all about timing. We love to hear real estate buzz terms like “seller’s market” and “buyer’s market” but taking a deep dive into what is a market’s reality can actually spare you wasted time, effort, and money investing at a time when you are investing at a peak or trough in a given local market cycle

Doing the research and creating a local team of experts and service providers can either help you pivot from your original plan or pull back altogether.

If you’re ready to discuss expanding your investment portfolio, contact Temple View today.