Investing in real estate outside your local market, in an area you may never visit, and where you have no trustworthy friends on whom to call can seem absolutely terrifying, especially for new investors.
However, this leap into seemingly scary territory may be the key to real estate investing success.
Most real estate investors begin with local deals, and while some get lucky, others do not. The truth remains: There are more opportunities “out there” than you could ever imagine, and you’ll never see or know about them without the courage and wisdom to explore outside your local market.
For me - I was forced to start out of state. I began investing in multifamily while living in Denver. At the time, Denver was wildly overpriced and unless you ran a pension fund or a REIT, you'd have a hard to finding a property that matched your investing requirements. So I invested out of state, and as your're about to see...it has far more upside than down.
Investing Out of State, and Why Everyone Should Do It
Investing across state lines allows you to align your real estate portfolio to your long term investing goals through:
Building Your Team
Diversifying Your Portfolio
Focusing Your Intentions
#1 – Take the Emotion Out
Personal biases, convenience, and emotions are highly likely to cloud your vision when in search of a local investment opportunity. For example, you’re more likely to give an investment a chance (even though the numbers are low and it needs a ton of work) because it’s in between your home and your favorite coffee shop.
Investing elsewhere forces you to rely on the property-specific data and removes the emotional component from the process, resulting in a higher likelihood that you’ll invest based on preset criteria and goals.
#2 – Increase Your Flexibility
It’s highly likely that your local real estate market can provide only a narrow slice of the attributes you’d need for your overall investment portfolio.
By constraining yourself to invest locally, you’re barred from options in other markets representing the ideal mix of investing criteria - population and job growth trends, geography, real estate prices, and government and state laws - that would help you, personally, to meet your investing goals.
Further, because real estate is hyperlocal, investing in a variety of different markets allows you to adapt your investing strategy to where we are in the market cycle.
Simply being open to the possibility of investing in real estate outside your local market expands your options and removes potential limitations.
#3 – Learn to Build a Great Team
Investing outside of your local market FORCES you to rely on others. There’s just no way you can do everything from thousands of miles away, no matter how diligent and capable you think you are.
Building a great team is a skill. So is learning to leverage and rely on that team.
Once you properly execute this in one market, you can replicate that anywhere, ever-furthering your reach and the investment opportunities available to you.
#4 – Diversify Your Portfolio
Similar to the way your local market has limited attributes (population/job growth, demographics, geography, etc.) when compared across the states, by only investing locally, all of your proverbial real estate eggs are in a single basket.
A local-only strategy leaves room for little-to-no diversification and could be devastating to your real estate investments if any type of natural disaster, local economic/government issue, or market recession were to occur.
By investing in multiple markets, both locally and out of state, you’re actually creating diversification within your real estate portfolio and protecting yourself from the ever-changing market cycles.
#5 – Focus Your Intentions
When you invest outside of your local area, you’re automatically protected from “stumbling upon” an investment. You can’t get a “great feeling” during a tour or buy into some real estate out of convenience.
Since you’d be throwing money in “sight unseen,” investing across state lines requires a process, intentional communication, and, possibly, more research and analysis on the property to ensure its qualities align with your investment goals.
To Wrap It All Up Nicely
Every real estate investor should explore options outside their local area, either exclusively, or in addition to local real estate deals.
Investing money is already an emotional endeavor, but by investing out of state, you can be more deliberate and intentional about meeting your personal finance goals.
The opportunity to cherry-pick the markets with the highest job and population growth and to build a strong team sounds exciting and challenging all at once… and completely worth it.
Bonus Tip: Investing Passively in Real Estate Syndications
One of the best ways to invest quickly and easily out of state, and not have to worry as much about the team-building part, is to invest passively in real estate syndications.
The sponsor team leads the project and allows the investors to enjoy passive income and diversification of multiple markets and asset classes.
If you’re interested in learning more about becoming a passive real estate investor, consider joining the Main Street Investors.