Despite the fact that real estate opportunities are always available in various parts of the country. Owning and buying property is never that simple and easy as some people think. The fact that you are not confined to investing in your local market alone makes real estate investment one of the greatest endeavors in the world economy. If owning property close to where you live comes with its share of challenges, what of investing in a property that is in a distant location. While owning an out-of-state property might look appealing, you should understand the challenges of ownership also multiply. However, this should not discourage you from trying to venture when an opportunity presents itself. There are many seasoned real estate investors who have thriving businesses in out of state properties.
While such properties come with their distinctive set of challenges, if you get the right property, it would make a lot of business sense. However, before venturing into such markets, you need to understand that local market first. Remember that while the concept governing real estate markets might be the same, every local market is unique with a number of significant differences which you can only ignore at your own peril. Some of the advantages and disadvantages of investing in out of state market include:
Pros • Opportunity
Entrepreneurs need to be dynamic, if there is not enough market in your local area, you need to cast your eyes elsewhere. This requires that you take a step of faith which should also be accompanied with little due diligence. You will discover there are many markets that match your vision of investment. It is likely that in some of the markets the price points are much lower and the competition is not as fierce as in your local market. You might have everything lined up for you in your company, but deals, deals, and deals are what keeps people in a business. It will not hurt to simply explore other markets that have great opportunities.
• Return on Investment
People get into business to make as much profit as they can on their investments. For the markets where the competition is stiff, there might be a limit to your ROI on the deals you get. While in new markets, you will realize that you can always make one big home run deal at once yearly. If your market is very competitive, you can always look for out of state markets that have a higher return on investment. If you consider all factors, an out of area market is the place to get big value for your money.
There is a common phrase often used in business circles known as putting all the eggs in one basket. This phrase means risking it all without diversification. Even if your area market is doing so well, you need to diversify your market portfolio. Those investors who were in the real estate industry in the last decade can attest that things do change fast. A slight change in demographics can easily turn an aggressive market to a declining one. A large organization can simply declare multiple layouts which negatively impacts demand and this lowers property prices. Seasoned investors have learned how to protect their investments by diversifying their portfolios. This is because not two local markets are precisely the same. If you invest in different locations, you will easily be protected in case there are changes in the market.
Cons • Unknown market
If you have been in an area market for long, chances that you know everything about that market is high. This is because you have probably lived or worked in that area for many years. Consequently, you will be aware of the sale trends better than other people entering that market. However, when venturing in out of state markets, you will be starting from scratch. And because you do not know the market trends, one bad deal can significantly affect your business. While you can get as much information as you want online, you can also drive to town hall to find information. But, this information does not always portray the actual picture of what is on the ground, so you cannot be as conversant with a market as those investors living in that area.
• Relying on a team
It is not possible to be in two places at the same time. With your property many miles away, you need to learn to get help from others. Relying on a team requires that you believe that they can do a good job which will eventually affect your bottom line. You will need the services of a real estate agent to help you find the properties in the market. And even if you find one by yourself, you will still require the services of a real estate agent to complete the deal. The real estate agent will advise on some of the best areas to invest in and the areas you can avoid. Once you acquire the property, you will need the services of an experienced property manager to help with the daily operations. You will have to pay the property manager at least 10% of the rent besides trusting them to do the work for you. The property managers will be your ears and eyes for everything involving that property. For those people with trust issues, out of area market is the not the ideal thing for you because you have to give up control.
• Local regulations and rules
Every market has its rules and regulations. Even if the rules sound outrageous, you still need to comply if you want to operate in that market. It is not uncommon to find investors acquiring property only to realize later that they cannot do what they anticipated with the property due to the rules and regulations of that local market. It is therefore important that you do your homework well, before taking ownership of a property in any market. Some markets look prime from outside but until you get inside is when you will realize it’s a nightmare.
In conclusion, you will not know much about a market until you try out. Some markets have the potential of changing your returns for the better. But before you get into any out of state market, ensure you do your homework well and get the right team to makes things happen for you because a simple mistake can really cost you a fortune.