Some real estate investors find themselves feeling nervous at the idea of buying a piece of property that they’ve never seen before. The Clothier family had to get over this same fear in the early 2000's when several family members were building portfolios sight unseen.
Kent Clothier, Sr. the CEO of Memphis Invest was the out-of-town real estate investors' early advocate by recognizing the risks investors would have and building a team and systems to address those risks. Investors' minds after-all and the horror stories of buying out-of-state were the biggest hurdle to work at over-coming.
It seems like risky business to buy blind—after all, you don’t know what kind of problems the property might have. If there’s a property at all! What if you’re being totally scammed!?
Truth be told, so many of the anxieties that surround buying out-of-state properties disappear once you learn how to do it right. In fact, most of our customers at Memphis Invest are out-of-state investors!
We’d wager that the same could be said for a lot of folks who end up investing in turnkey real estate. Sure, there are things that could go wrong, but so many of the fears investors have about buying properties outside of their local market are founded in horror stories and that simple fear of taking on risks that they don’t fully know.
Buying out-of-state properties doesn’t have to be any more risky than buying right in your own backyard: you just have to do your due diligence.
Top Considerations Before Investing in Out-of-State Real Estate
Are your market costs higher than the local area?
One of the most important things to consider about buying out-of-state is that it’s not about all of the glamorous markets you can tap into: it’s about the cost effectiveness of the markets. You have to play it smart here! One of the greatest advantages in investing in out-of-state real estate markets is tapping into affordable price points.
You can explore areas with more affordable properties, like emerging real estate markets, and save drastically in up-front costs. That said, you would do well to also look at price-to-rent ratios: they can vary widely across different markets, even affordable ones.
What’s the rent demand like? Things like median income can affect housing affordability (even if the prices seem low to you) and drive up rental demand. It’s worth investigating not just the price of properties, but these ratios, so that you can have the best ROI!
Are the local people you want to work with reputable?
Besides the market itself, you’re going to need some allies. Unlike your local real estate market, you absolutely can’t fly solo as an investor. Real estate investors have two options here: you can locate realtors, a contracting company, maintenance company, and property management company that all have a solid reputation. Then you can rely on your realtor to help you find and locate properties: being your eyes on the ground! They can handle the buying process for you and be your go-between.
Then, you can rely on contractors to do renovations before you turn things over to management and maintenance.
Or you can find a reputable turnkey investment provider, who already has identified properties in the market and likely has management and services in place to care for you property. There is usually a higher upfront cost, but the entire process is more streamlined: and it’s definitely more beginner friendly and far, far more hands-off for you.
Whatever path you choose, what’s important is ensuring that you like, trust, and can rely on the people you’re working with. Don’t neglect to look into their reputations and put them under a microscope.
Have you seen the property with your own eyes?
We mentioned that a realtor can be your eyes on the ground. But what if you don’t have one? Then you just might need to take a trip! You shouldn’t take the risk of buying a property totally blind. There are scammers out there and you can never totally trust photographs. You need to see a property, inspect a property, and make sure you know it’s right for your portfolio.
Know the economic and population growth projection for you market.
The market conditions now and in the future are so important for your investments. Know the key indicators for market health before you decide to invest in any out-of-state (or local, for that matter!) market. Has there been steady population growth, or has there been a decline? How is the outlook for jobs in the market? What is the average amount of time that properties stay on the market before they sell?
These are the types of questions to ask!
The key to investing in any market, no matter where you are, is information. You need to know the who, what, where, and whys of your investment strategy. If you are thorough in figuring out your market regardless of location, and you are diligent in your research, and dedicate yourself to finding good people to work with, you have absolutely nothing to fear.
I wrote an e-book on the steps that Memphis Invest has taught real estate investors to take for years when doing great due diligence. We recognize that not every investor is going to want to use our services so we had to have a way to reach out to those that were going to look in a different direction for a different investment. You can download the book here and get pointed in the right direction to build your portfolio!