Investing in real estate is often done in areas that people know best. They take the plunge when they see a property around the corner listed for sale or the word travels through the grapevine of a home that’s potentially going on the market. Going local is a tried and true way of real estate investing, yet it severely limits options.
Long-distance real estate investing allows people to find potential deals all over the country. It takes a lot of work and comes with its own additional set of challenges, but it can pay off in big profits if done correctly.
Buying property locally and taking the long-distance route both have their benefits and risks. Here are some things to consider when deciding how you want to invest in real estate.
Even if you find a property with a lot of potential elsewhere in the country, you’re going to need someone local to look after the property, collect rents and be there in case anything unexpected happens. Hiring a property manager is essential for most long-distance investors. The downside is that you’ll be losing about 10 percent in any rental revenues to pay for the property manager.
That fee is more than worth it if the property manager proves trustworthy. If the manager fails to deliver, you’ll find yourself with a mess to clean up and the need to quickly hire someone adequate. Renting out a property might be called “passive income,” yet the work, the calls and the stress it can potentially cause are far from passive.
Doing the Research
You’ll be in awe of the many options when you’re looking for properties outside of your area. You can look at things with a clear mind and take all the necessary factors into consideration. Is the area desirable? Is it economically strong due to large businesses in the vicinity? Is it safe?
You can find out a lot of these things through phones calls, Skype calls, and online research. Still, you might not discover some underlying issues with an area or a property until it’s too late. To make sure everything’s in order, you’ll likely find yourself conducted far more research and calls than expected. Brace yourself for it, as it’s a necessary part of the long-distance investing process.
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The saying “write what you know” is often attributed to Mark Twain, but a version tailored to real estate would be “invest in what you know.” Investing in an area that we’re closely familiar with fills us with confidence that we’re making a good decision. Considering all the knowledge that local real-estate investors can acquire, that’s often true. The benefits of being able to conduct an on-site inspection can’t be understated.
The downside is that there’s such thing as a hometown bias when it comes to real estate. Sometimes we’re too close to an issue to accurately gauge the potential of a property. We might love the life we have in the town, but fail to see whether the area is worth investing in from a financial standpoint.
In a sense, long-distance investing can provide us with too much information, while local real estate provides us with information that can be misleading.
Play to Your Strengths
When deciding whether to stay local with your real estate investments or look beyond your area of expertise, it’s best to play to your strengths.
If you’ve found lucrative opportunities elsewhere and know the risks, consider going long-distance. If you’re more comfortable with what you know and like having hands-on control, look for local opportunities. Regardless of what route you take, engage in comprehensive research to ensure you’re making a wise investment.
Author Bio: Anum Yoon is the founder and editor of Current on Currency. You can find her work on personal finance, entrepreneurship, and investing on a variety of money sites across the web.
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