If you are looking at investing in real estate, please take this word of advice - real estate investing doesn't have to be local. Many real estate investors make this mistake, and as a result miss out on a world of opportunity. Sure, there are some appealing reasons to buy properties in the city your live in, but there are even more reasons to expand your borders. In this article - which is the second in our series about mistakes real estate investors make - we will go through some common misconceptions real estate investors have about localized investing, and then talk about why you need to look outside your own backyard.
Why Real Estate Investors Invest Locally
There are a number of reasons why real estate investors tend to invest where they live, but here are the top ones:
- They know the area
- They can easily view properties
- They can manage the properties themselves
- They feel that there is less risk involved
- They are not able to find a trusted partner
Now these are all good reasons for real estate investors to stick around home, however, we argue that things are changing in the marketplace and as a result there might not be as much validity to these arguments anymore. Let's go through each of the reasons just mentioned and take a closer look.
Knowing the area
This is typically the #1 reason investors state when we ask them about why they choose to invest locally. When we ask them what it means to "know" an area, they tell us that they know all about the home prices, rents, and so on for their neighborhood. When we ask them how they learned this information, though, they tell us they keep an eye on things via the internet. They are constantly on sites like Zillow keeping tabs on the value of their home, along with other homes in the area. Guess what, Zillow and all those other real estate websites cover other markets too. That's right, the internet can provide you with all sorts of information on property values, rental rates, schools, crime, and so on - pretty much everything you could possible need to "know" an area.
Sure viewing properties a long distance away from where you live can be tricky. Do you really want to fly around the country checking out real estate opportunities? Most investors probably don't, but there is a compromise. The key here is that you need to have some people in the area to help you out. If you can't be there to personally see every property, what you can do is have your agent send you a detailed video tour of the house. This video should go through ever part of the house and give you an adequate understanding of the general condition of the home and its features. We wouldn't recommend stopping there, though. If everything looks good on the video, you should also have someone you trust (ideally a property manager), go through and take a look at the home. They should be looking at the home in terms of suitability as a rental property. A good property manager will have looked at hundreds of homes in the area and should have an intimate knowledge of what tenants look for in a property.
We've found that this process tends to work out better anyway, as many real estate investors get too caught up in the details that they like to see in a property, rather than what a tenant wants. Remember you aren't going to live in the house. If you don't feel comfortable buying a house sight unseen (sort of), then use this process to weed through potential homes and save the trip out to physically view the property until you are ready to buy.
Most new investors believe that managing properties themselves is the way to go (i.e. they prefer to be a landlord instead of being a true investor). They think, "who wants to pay 6-10% off the top to some property manager who doesn't really do anything?" Typically what happens is after a year or two - quicker if multiple properties are involved - the investor learns to hate property management. Who wants to take phone calls from tenants about clogged toilets, or bug tenants about paying their rent? We've found that most successful real estate investors end up hiring a property manager anyway. Why not save yourself the headache? The key is finding a good property manager who has experience managing a large number of properties in the area. A good property manager will be worth much more than what you pay them.
There are going to be risks involved no matter where you invest. In fact, at the end of the day if you only invest in one place your risk is going to be much higher than if you invest in multiple locations - a little thing called diversification. We find that when investors talk about "risk" they really mean "comfort" - they are more comfortable investing locally and therefore in their mind it is less risky. In reality, this argument is actually one for why you should invest in multiple real estate markets.
Finding a trusted partner
There are a multitude of investment providers who are looking to sell turn-key investment properties to investors, and even manage the properties post-sale. However, finding a trusted operator/partner is not always so easy. If an investor can find a trusted partner in their city of choice, the investment can be a breeze. A good operator will be able to assist the investor from choosing a property, to financing it - all the way through to the ongoing property management. A good investment provider truly is a partner, and will remove most of the burdens involved with investing remotely. As an investor, you will want to look for an operator with a lot of experience. Furthermore, you will want to ensure that they have a successful track record - not only in the acquisition of investment properties, but also with the property management side.
Why You Need to Invest beyond where you live
Now we're not telling you never to buy local properties. If the market fundamentals for your area look good, by all means - go for it. What we urge you to avoid is to only look in your city, and stop the search there. The country (and world for that matter) is a huge place with thousands of individual real estate markets. Chances are, the best market to invest in is not the city you live in. Once you get over the initial fear factor involved with investing in places you aren't necessarily familiar with, there will be a world of opportunities open to you. You will likely be overcome by the sheer volume, and sometimes that too becomes a struggle for investors. This is why companies like ours (HomeUnion Services) exist - to help investors weed through the multitude of opportunities.
Don't be afraid to ask for help. The biggest hurdle is to accept that investing in real estate doesn't have to be local, then the rest will come.
This is the second article in our series on critical mistakes real estate investors make. Make sure to check out our first article: Single Family Real Estate Investment. Also keep an eye out for our third article in the series next month. If you want to get a sneak peek , though, we've made our full report on the critical mistakes real estate investors make, available for instant download on our website. If you would like to receive a copy of our free report, you can download one here.