Want to hear a bad joke? I promise it's only slightly terrible. Ok, here goes.
Most real estate investors won't touch long-distance real estate investing with a 10-foot pole. Why? Because it's not long enough.
OK, now that you're done rolling on the floor laughing, let's take a look at why long-distance real estate investing is actually surprisingly awesome (and why it's the only type of real estate investing I participate in).
1. Better deal flow
You may be one of many Americans that has seen the incredible run-up in real estate prices over the last decade. You also might be one of those people that lives in a prohibitively expensive area. Many times this stops investors from investing at all. But guess what? There are deals all over the place. You can choose a more affordable market or any market that helps you achieve your goals. Looking for cash flow? There's a market for that. Looking for industrial real estate within an hour of a major metro on one of the coasts? There's a market for that too. You just need to find the area and asset that is aligned with your long-term goals.
2. It's hands-off
Perhaps the biggest fear investors have when considering long-distance real estate investing is not being there. What if something goes wrong? What if the tenant skips town? Well, the benefit to investing far away is that you need to set up systems to deal with any possible scenario that could come up. Luckily, there's a thing called property management. Yes, they take a cut of the rents, but trust me, it is worth every penny. A good property manager will give you peace of mind and lighten the load significantly.
3. Easier than ever
Finding the right market is key. There are several factors to consider when vetting a market. As you learn to evaluate markets all over the country, you'll multiply your experience and become a more savvy investor. If you just stick to investing in your hometown, you may know it like the back of your hand, but you also may be blinded to macroeconomic trends or other factors that may not strengthen your investing business long term.
Luckily, it's easier than ever to vet markets with the help of online tools.
One tool I use frequently when evaluating far-flung markets is City Data. This free website has tons of information. Demographic info, real estate pricing, schools, crime...you name it. It's a great place to start and get an idea of an area.
For example, you're going to want to target areas with good schools, plenty of jobs, and low crime. When you narrow down these criteria, it gives you a good jumping off point for a deeper dive.
Specific things I look for are county seats. There are typically more jobs related to the local county government so this is a nice shortcut, but it's also not an end-all be-all. The next thing to consider is population size and growth. Regarding population, there are no set rules but I want a large enough population to be able to absorb potential contractions in the local economy. The larger the population the less of an effect a business or industry leaving will have on the local real estate market.
Wages are another important metric. I like to see what the median income is for a household and then work backwards on what rents would be for the types of housing I'd like to invest in. Would your rental be affordable for that median income earner? If not, are there enough people making the income needed for your particular property?
Long-distance investing can help you achieve your goals more quickly. Once your strategy is in place, you can rinse and repeat, either in the same market, or a different one. Say you have a vacation rental around Disney World. You will already have a property manager, maintenance person, and cleaning company. All you need to do to scale is find another property close by.
If you're branching into another market, you'll have the advantage of knowing exactly what vendors you'll need in place to make your investment a success.
One final caveat
If you're a new investor, it still may make sense to try to invest locally for your first deal. You'll likely have local connections and market knowledge that will give you an edge. Once you feel comfortable with the process, consider branching out. You just might get surprisingly awesome results.