Long-Distance Real Estate Investing – Beginner’s Guide

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A short outline

While long-distance real estate investing may have been too daunting for many in the past, it is now a bustling sector of the industry that is becoming more popular thanks to the rise of digital tools and the ease of the process. If you’re considering it, here’s our long-distance real estate investing beginner’s guide.

Table of Contents

While real estate investing continues to remain one of the most common vehicles for wealth building, the way it’s done is changing. Long-distance real estate investing is becoming more popular, fuelled more recently by the pandemic, as people look for property that is more affordable and therefore not necessarily in their area. Long-distance real estate investing allows investors to expand into different markets to increase their portfolio, find more affordable properties and find better deals. Read on to find out the pros and cons of this strategy and whether it’s right for you, in our long-distance real estate investing beginner’s guide.

What is long-distance real estate investing?

As the name suggests, long-distance real estate investing is the process of buying or investing in property that is outside of your local real estate market, or at a distance. This could be property in another city nearby, or even in a state many hours away. One of the main features of long-distance real estate investing is the need for someone else to manage the property that you purchase.

Essentially, long-distance real estate opens doors for investors who otherwise wouldn’t have been able to get into the real estate game. For example, if an investor lives in a state like California where there is a higher cost of living, they could use long-distance real estate investing to purchase a property in a city or state where it’s more affordable.

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Advantages of long-distance real estate investing

Portfolio diversification

Long-distance real estate investing allows investors the opportunity to purchase properties in other cities and states, and thereby diversify their real estate portfolio to include different locations and markets. This is a strategy used for both rental properties and buy and hold properties. The access to different markets can yield different results and help investors figure out where the best places to buy property are.

This is particularly useful in times when real estate markets are fluctuating as investors can have multiple geographies in their real estate portfolio to compensate for any real estate market drops.

Access to new markets

One of the biggest benefits to investing in real estate long-distance is the ability to access markets that may be more lucrative. Investors who are based in an area with higher property values can invest in an area where properties are priced lower, which can result in the ability to purchase more properties or larger ones. This means that investors who only had access to a specific type of area can now branch out.

A hands-off approach

Property management naturally can’t be done the investor if they’re not in the same zip code, and this can be a benefit to investors who are then forced to hire property management companies to do the running of the property, dealing with tenants and so on. Good property managers can make investors’ lives a lot easier and make the investment much less of a headache.         

All online

These days long-distance real estate investing is easy to do, thanks to the plethora of online tools available that make virtual real estate investing a reality. From assessing the real estate market, to finding the right property, getting funding and then purchasing the house, this can all be done from afar easily.

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Disadvantages of long-distance real estate investing

Reliant on others

One of the major drawbacks to long-distance real estate investing is that investors are heavily reliant on other people. Whether it be property managers, real estate agents or electricians, having the right team is crucial to the success of the strategy and if someone drops the ball, the investor is on the hook.

Not seeing the property

For some investors, this may be a disadvantage, for others it may not be a problem. However, long-distance purchasing often means that investors are buying a property they haven’t seen and this can leave room for issues with the property that haven’t been planned for. Such as expensive repairs and damages that the investor wasn’t aware of.

Less housing market knowledge

Typically, people would know more about the housing market where they live, so buying a property in another city or state will require more research to get to grips with the housing market. It will also take time to track the market over time and figure out what the current trends are. Each state can vary quite a lot, so this can be a learning curve for some.

Unfamiliar service providers

Investors are likely to have a good network of reliable service providers in the area where they live, so branching out into a new area makes it difficult to find reliable service providers as it’s an unfamiliar market. It will take some time to build up a team that an investor can rely on.

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Tips for buying rental property out-of-state

1. Get to know the housing markets

Getting to grips with the real estate markets across the country to figure out which is the best to invest in for your purposes is the first and potentially most crucial step. Then, you’ll need to learn about the housing market in the location you have chosen. This means doing your homework with real estate agents in the area and looking at data around the population, employment and vacancy levels.

2. Pick the best local team

Another important aspect to long-distance real estate investing is to assemble the right team. To do this, you’ll need to find and form connections with service providers and others associated with real estate before you even purchase a property. These are people like other real estate investors, agents and brokers, property managers and contractors. The right combination of people is crucial to the success of your investment, so make sure they come recommended and have previous work to show for it.

3. Crunch the numbers

Just like a real estate investment in your area, an out of state property will need to be looked at the same way in terms of finances, so crunching the numbers is a vital part of the process. A positive cash flow is the goal, and this requires working out the Net Operating Income (NOI) and capitalization rate. Make sure that you know the rental income, insurance, property taxes, vacancy rate, repair costs and any other income or expenses that will affect whether the property could end up being a good or bad investment for you.   

4. Research the laws

Each state has different laws around real estate, so it’s important to get to know the local real estate laws in the state where you’ll be buying property. This includes the landlord-tenant laws which are a central aspect to the strategy if you’re buying a rental property.

Another aspect to consider is the laws around land usage, as these can become a problem if you are intending on using the property for something outside of what it should be.

5. Bring in an inspector

Getting a home inspection done by a professional is good general practice for any real estate investment, but even more so for those buying property further afield. A property inspector will give you a professional and accurate report on the condition of the house so that you’re aware of any repairs it may need upfront. This will also give you an indication as to the price point for the house and if you’re offering too much or too little.

house for sale

Mistakes to avoid when buying out-of-state properties

1. Not doing the research

Not doing your due diligence and buying a property sight unseen can be a costly mistake. It’s important to do in-depth research into the local housing market of the area where you’ll be buying property. If not, you’re likely to make a mistake that could cost you a large sum.

2. Skipping due diligence

Doing due diligence on a property that isn’t in your state is vital and this is not a process than can be skipped or taken lightly. The fact that you aren’t there and might not be able to see the property yourself means that you could easily end up with a property that has multiple defects which are costly to fix. Some investors forget to take this step seriously, and this can land them with a bunch of expensive repairs to make on a home that could lead to the purchase not being worthwhile at all.

3. Not checking the credentials of your team

Since long-distance real estate investors are so reliant on their teams, checking the credentials of the team to ensure that each member is licensed, qualified and experienced is imperative to this investing strategy. It’s easy to get caught up what people are telling you and forget to do a proper check, but this can be a mistake that will lead to major problems if anyone in the team lets you down.

real estate online

Is this investment strategy right for you?

Choosing to do long-distance real estate investing comes with pros and cons, so once you’ve learnt about these, you’ll be able to weigh up whether the strategy is right for you. It’s likely that this could be a good investment strategy for you, if you’re currently living in an area with higher property prices, in which case you could invest in properties in another city or state that is more affordable, and potentially buy more properties or larger ones.

The decision depends on how willing you are to be relatively hands-off, however still have time to do the initial research and team assembly. There are risks associated with this type of investment, but your own personal situation will dictate if these risks are too high or not. However, this strategy can be quite successful for certain investors, and is worth considering.

Final thoughts

Long-distance real estate investing is getting easier and easier as we dive further into the digital realm as a society. With that being said however, we cannot forget that sometimes we need a pair of eyes and ears on the ground, and this can often make or break a long-distance real estate investment deal. The takeaway is do your homework and when you think you’re done, do some more.