Updated May 4, 2022
Gone are the days when real estate investors had to limit themselves to their home markets for the best real estate investment deals. Today, those looking to build wealth aren’t afraid to venture beyond their hometowns. A recent report by Harris Interactive found that 55% of millennials are interested in real estate investing—and this generation is leading the charge in terms of long-distance real estate investing.
What exactly does it mean to invest in a real estate property from a distance? Why should you consider it? Do you know how to get started in real estate investing outside your current area? We’ll answer those questions in today’s post.
Long-Distance Real Estate Investing Defined
The premise of long-distance real estate investing is relatively simple. As the name suggests, a real estate investor purchases properties in a market that isn’t their local area. Typically, these properties are located in different cities or even different states from where an investor lives.
In most circumstances, the main focus is on investment properties (instead of primary residences)—namely, short-term rentals (like those you can find on Airbnb) or residential properties meant for long-term rental tenants. However, some long-distance real estate investors will opt to take on a fix-and-flip home, provided they have the team and the skills necessary to complete the project.
The Benefits of a Long-Distance Real Estate Investment
You may understand the concept of long-distance real estate investing—but why might an investor pursue this option?
For one thing, this type of investment property offers real estate investors an opportunity to diversify their portfolios. In addition, investing in a property outside your local area allows you to take advantage of a great deal without being tethered to your local community. What’s more, you can protect yourself from the impact of unexpected losses in a given market if you can invest in multiple real estate markets at once, rather than putting all of your investment “eggs” in one market basket.
This type of investing is particularly common for those living in highly competitive markets. For example, if you live somewhere like San Francisco, where Zillow reports the average home price tops $1.48 million, you’ll have a much harder time finding affordable property investment opportunities. The demand in these markets is high, but so are the costs of living. In addition, even if you manage to purchase a property in these areas, you’ll be restricted by how much the rental market will bear—thus limiting your potential return on investment.
However, by buying and renting out investment properties in more favorable markets, investors can get more for their money. Additionally, you can break into a market that’s become trendy, particularly among Airbnb users, without having to relocate.
Long-distance real estate investments are also well-aligned with how we live in the digital age. Years ago, it was much harder to obtain the necessary information to make a sound investment in a non-local property. However, now investors can take advantage of software platforms (like Privy, for example) to find the best deals from afar.
How to Get Started in Real Estate Investing In Another Market
With all that in mind, it makes sense that you’d want to know more about available long-distance real estate market investment opportunities. However, before you dive in, you need to have a clear plan.
Whether you read all of the best books for real estate investing or work with a trusted mentor who can guide you through, you’ll want to acquire as much knowledge as you can. Along with that knowledge, you’ll also want to keep these steps to success in mind when beginning your journey.
Research and Choose Your Market
As with any real estate investment in your hometown, you’ll want to start by thoroughly analyzing locations of interest. Investors should focus on growing markets with a healthy demand for rental properties (either long-term or short-term, depending on your goals) or fix-and-flip homes. You should also consider amenities like school districts, crime rates, and overall cost of living.
Of course, investors should also research any markets they have in mind by tracking available properties. Privy helps investors find the best deals in markets all across the country, which means it’s easier than ever to research properties in a given location and develop a successful strategy.
It’s also wise to get familiar with the area first-hand. While you can absolutely invest from a distance, you’ll want to investigate in person if you can. Even if you don’t have an opportunity to see the property in person, working with local real estate experts and making virtual visits to an area can give you a feel for the community and potential returns. You’ll also want to learn about any local laws that might impact your investment, such as short-term rental ordinances or landlord-tenant legislation.
With all this information in mind, you’ll be able to narrow down the list of potential investments and choose the market that makes the most sense for your long-distance investment.
Crunch the Numbers
To make a smart investment, you need to have hard data to back up your decision. First, you’ll need to zero in on your average monthly expenses as a property owner and calculate the average monthly rent tenants pay in that area or average home prices for a flip-and-sell.
A property investor also needs to determine how much they might need to pay in repairs, upgrades, and overall maintenance. (This is where your choice to buy a fixer-upper versus a turnkey property will become imperative.)
Finally, you’ll need to figure out your expected cash flow and ROI. This requires a bit more mathematical work than what a tenant’s monthly rent payment or a guest’s stay might be. There are many different equations you can use to calculate your return on investment, so you may want to look at some of the best books for real estate investing to determine which method is preferred for your situation.
Partner With Local Experts
With long-distance investing, you simply can’t do it all by yourself. Instead, you’ll want to partner with others who have the necessary skills and experience to help you succeed.
When rental property investing, it’s recommended that you work with a property management company in the area that maintains good working relationships with local vendors and contractors. Not only can they manage the day-to-day operations of your property, but they can also provide you with market insights you might not otherwise find in the best books for real estate investing or through online sources.
If you haven’t already assembled a team of legal and financial professionals, now’s the time. This can ensure your tenant contracts are sound and that you’re prepared for tax season. Since buying property outside your home state will typically mean additional tax returns and different tax laws, you’ll want to make sure you comply from the start.
Don’t Let Distance Hold You Back from Real Estate Investment Success!
Knowing how to get started in real estate investing can be a challenge—especially if you’re considering non-local properties. However, long-distance real estate investing can provide you with opportunities you wouldn’t otherwise have in your home market. By following this guide, building knowledge through real estate investing books, and using the Privy Advantage, you can feel confident in your decisions and start building wealth from afar. Learn more about how Privy helps investors find the best deals in markets around the country when you reach out to our team!
Get more expert insights into being a successful real estate investor! Download our free guide, “How to Invest In Real Estate: A Guide!”