How can real estate entrepreneurs increase deal flow and profits with out of area investing?
A growing number of both new and experienced real estate investors are finding out of area real estate investing to be more attractive than ever before. So what are the real benefits of looking further afield? When does it make sense? What are the potential challenges to overcome? How can investors profitably and safely tackle more deals from a distance?
The Need for Out of Area Real Estate Investing
It always makes sense to diversify. It pays to diversify for safety and consistency in results in all market phases. However, right now, the rolling real estate rebound and disparity between U.S. markets means there are very noticeable differences between different places on the map. Some New York and San Francisco investors are definitely feeling priced out. The data shows that there are still millions of distressed properties across the U.S., and there are certainly opportunities for value add flipping, wholesaling, and rentals in every city. Yet, some investors want better spreads. For some, out of area investing is simply about safety and wealth preservation. For others, it is about doing more deals, finding deeper discounts and cheaper properties.
The Challenges of Out of Area Investing
While out of area investing is important, it’s no secret that there are challenges:
- Accurately understanding new property markets
- Travel costs
- Property management from a distance
- Property inspections and due diligence
- Keeping properties secured
- Maintaining a smooth and expedited end to end process
- Finding people to trust
Decisions & Formulating a Game Plan
You’ve got to have a game plan. You’ve got to plan to optimize your out of area investing strategy to keep up profit margins, and not allow the additional discounts to be vaporized.
There is one obvious decision to be made: where to invest out of your area. Avoid being too emotional in this choice. The math has to work. Before choosing, identify the market factors and features you are looking for. Is it a certain price range? Job and population growth? Crime rates? Spreads?
Create a timeline for expansion. Ultimately, investors can benefit from a diverse portfolio of properties in different markets. However, trying to tackle too many new markets all at once may prove to be too daunting of a task. So where will you focus first? How many properties will you acquire there before moving onto a new destination? Over what period of time will that be?
Out of Area Real Estate Investment Strategies
There are 5 main strategies for tackling out of area investment:
- Fixing and flipping houses (‘remote rehabbing’)
- Virtual wholesaling
- Acquiring rentals
- Private lending
- Turnkey property investing
Turnkey property investing will make the most sense for a lot of investors. However, it is absolutely critical for out of area investors to carefully vet turnkey operators before getting in. Turnkey investing has been around for decades internationally, but is much newer in the U.S. There has been an explosion of turnkey companies in America since 2008. Few have the experience, business model, and track record that can keep individual investors safe and deliver sustainable results. You have to ask who has really developed a system and model that will last, and ask what they’ve put in place to ensure sustainability for the long run.
If you’ll be taking the D.I.Y. approach, there are three critical components you’ll need:
1. Market Research: Every moment spent on market research will save you money. When going into a new area, it is vital to have a wide understanding of the market. How do different neighborhoods compare? What direction is the market headed? Is this a stable stronghold market for the long term? Is this a boom and bust market that sees dramatic changes? Is it a seasonal market? What is really a deal in this market? How much demand is there for rentals, and what rental rates are really achievable?
2. Boots on the Ground: They don’t have to be your boots on the ground, but you need some boots on the ground you can trust. How can you find reliable inspectors, contractors, agents, and title companies in this destination?
3. Exit Leads: Never go into an investment until you’ve got an exit. Testing the waters for demand or even having pre-sales lined up can be smart. So how will you generate buyer and renter leads in this destination?
