Local or Long Distance: Pros and Cons of Real Estate Investing Near or Far

In today’s market, mortgage rates for real estate investors are still very near historic lows. It’s an ideal time to buy and finance for the long term. However, if there are few opportunities where you live, low rates matter little. So, do you break the rule and look beyond your borders? Is it really necessary to live where you invest? While investing where you live might be the most ideal approach, if searching for more quality inventory beyond your own metropolitan statistical area crosses your mind, here are a few things to consider. After all, as an investor you must go where the deals are, not where they aren’t.

Long Distance Due Diligence

The advantage of buying where you live could not be more plain compared to doing research on a city far away. Buying long distance, your experience with a neighborhood and the trust you’ve established with your local partners is non-existent. You need to start from scratch to determine where your first long distance deal will be.

Low property values aren’t a true indicator of a healthy return. “Low” is a relative term and if you regularly invest in single family homes at $100 per foot the property listed for sale at $50 per foot isn’t necessarily a find. Instead, what will the home sell for once repaired? Or, will the property consistently cash flow given current market rents and financing costs?

Much of this information is readily available simply by visiting a real estate agent’s website that lists homes for sale as well as researching vacancy rates and rental rates. There are several places that offer historical trends of home price data such as the S&P/Case-Shiller’s Home Price Index. Look at areas where job growth will be sustained and in popular areas. Extend that due diligence and micro-search for trending neighborhoods within a promising city.

Creating Your Team

Performing your own due diligence with your computer can provide you with an extensive amount of data. But you don’t have your own ears-to-the-ground in this manner. You need some local talent. Therefore it becomes critical to forage for trustworthy local talent that will help find potential investments for you that you can trust. This means a personal referral from members of your own team. Ask your real estate agent if their franchise has a branch in that city as well as a referral for a top agent there. Agents can be awarded referral fees when a lead turns into a closed transaction.

Don’t overlook the importance of getting someone with experience with the types of properties you buy. If single family homes appeal to you, you need an agent that can find those properties with tenants in mind. Most real estate offices offer property management services that can maintain the property, screen tenants and collect the rent each month.

You can rely on successful real estate agents to provide a few names for local, trusted contractors, inspectors and settlement services. It will take some time to establish the same level of trust that exists with your local team, but without it you’ll soon find the opportunities simply aren’t worth the worry.

Some investors find a turnkey real estate operation instead. Such companies find rental properties on their own, renovate when necessary and find tenants for investors. It’s a complete package for the investor without all the work. All the investor need do is agree to buy such a property from the turnkey company. The sales price will be higher compared to finding a long distance property on your own, but if the higher price offsets the amount of due diligence performed on your own, it may be something to consider.

Turnkey companies also seek private investors to fund an acquisition and once completed, the investor’s investment plus interest are returned once the turnkey property is sold. Don’t forget trust. Due diligence in this scenario means researching the experience, reputation and principals of the turnkey vendor. Evaluate the company in the same manner as you would any other partner.

Investing long distance and provide opportunities that may simply not exist where you live. Investing long-distance is not for every investor, especially those who prefer the ability to drive by their holdings on their own and eyeball their investment. But if you’re actively looking for more opportunities and they simply aren’t around in the areas nearby, go find them elsewhere using some of the ideas herein.

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