I know many investors who are terrified by the thought of making out-of-state investments. A couple of the many questions I hear are “How do I get started in out-of-state real estate deals?" And, "I hear the returns are good, but what if something goes wrong?"
If this sounds familiar, you are right about the returns unless you live anywhere other than in a handful of cities. You also realize that someone (not necessarily you) needs to routinely check on your investments. Consider this: Many people invest in the stock market with little firsthand knowledge of a company's market share, product lines, and management team. But, making an out-of-state real estate investment is much better than that. It is highly likely you will have more visibility to it than investing blindfolded in the stock market. There are a few simple steps you can take to get started and increase your chances of success.
RESEARCH & IDENTIFY YOUR TARGET MARKET
- Target Markets With Existing & Projected Housing Shortages - There are plenty of online resources for researching this. I find the most recent Census data and Wikipedia to be great tools. But, a simple Google search often reveals that someone else has done the number crunching for you.
- Consider the Local Laws - When someone doesn't pay their rent, does the market's law favor the Landlord or the Tenant? When it comes to this, there are definitely states you want to avoid. I target states where an eviction can be carried out in less than 30 days. Believe it or not, there are places where it can take several months.
Once you've identified your target market, it's most important you pull together the right team to begin investing.
ASSEMBLING YOUR TEAM
- Find a Stellar Property Manager - This is PRIORITY #1! I have previously posted with helpful tips about property management and choosing the right one. But, understand this is the first and most important step to getting started on out-of-state real estate investments. A solid property manager knows the area, and they can validate your research and assumptions. Most importantly, they can give you great insight on up-and-coming areas, local trends, where to invest, and a black book full of contacts who can help.
- Establish a Relationship With a Local Lender - The best, time-saving advice I can give you here is to look for a portfolio lender. Portfolio lenders keep loans on their books, and they can be more flexible than banks who sell their loans on the secondary market. Always be alert about what the lender expects from you and a potential acquisition.
- Engage a Real Estate Broker - Once you have done the first two steps, hire a real estate broker. Be prepared to tell them exactly what you are looking for (size, location, class, vintage, etc.). Countless investors make the mistake of looking for a broker first. Do your research first, then get the ideal person that will find what matches your investment goals and strategy. And, I'm just going to be blunt here: The best broker for finding you an investment property is one who is an active investor too.
If you take the above steps, you will be off to a great start to investing in real estate out-of-state. Nonetheless, even with your team in place, NEVER buy a property unseen. Know the property may not be what you think it is. Also, online information on properties can be out of date. A property owner or local real estate agent who isn't looking out for your best interests might not tell you the truth to close a sale. So, if you unwittingly purchase a nuisance property that violates health and safety laws, you may get yourself on the hook for numerous code violations that will be time expensive and time consuming to fix.
STILL NOT CONVINCED IT'S FOR YOU?
If the thought of taking on an out-of-state investment still stresses you out, you can work with a reputable deal sponsor and participate in one of their deals as a passive investor. You can still earn attractive returns, be hands-off and realize all the benefits of owning real estate. Expect me to write on that topic in the near future.
ABOUT THE AUTHOR
Mark Walker has been an active real estate investor since 2004, so he brought a wealth of knowledge with him when he founded Luxmana Investments in 2011. Though he started out as a part-time investor—holding a full-time job in high tech—he fully transitioned into his passion of real estate investing in 2015.
Mark now dedicates most of his time helping new and experienced investors build wealth through residential, multifamily and commercial real estate.
Learn more about Mark and Luxmana Investments at www.luxmana.com.