One of the greatest limitations a real estate investor faces when it comes to investing is location. While there are major benefits to investing in your local market, you may encounter heavy competition, high real estate prices, or lack of inventory. Remote real estate investing allows you to expand beyond your local geographic area, open up a wider pool of investment opportunities, and access more affordable real estate than your local real estate market may offer.
Whether you're looking for a turnkey investment, apartment building, or rental property, learn how remote investing works, the pros and cons of this method of real estate investing, ways to invest remotely, and tips for remote real estate investing.
What does it mean to invest remotely?
Remote real estate investing is when a property owner owns and manages an investment property away from where the actual investment property is located, overseeing the on-site professionals who are managing the investment. This can be done from the location of your choice by phone, email, or video conferencing. While most remote real estate investing occurs with an out-of-town or out-of-state investment property, it can also encompass property located in your local market that you don't work from or visit on a frequent basis.
Pros and cons of remote real estate investing
Most large real estate investment companies, like real estate investment trusts (REITs), invest remotely. They have vetted systems and a team of professionals to help manage the investments for them regardless of where their business is headquartered. This allows them to pursue the real estate markets with the greatest investment opportunity for their asset class and diversify their portfolio, which minimizes risk. Owning real estate across multiple real estate markets means you're less exposed to economic or natural disasters that put your investment portfolio at risk.
But remote investing isn't just for big players in the real estate industry; smaller-scale investors can also take advantage of virtual real estate investing by identifying and seeking investments in markets that have more favorable property taxes, affordable real estate prices, higher demand, or less competition as well.
However, remote investing doesn't come without risks. While branching out of your local market could increase cash flow because of higher rental rates or lower real estate prices, there is more room for error and risk. Contractors can take your money and run, property management can misplace or misallocate funds, and tenants can trash your property and leave your rental in terrible condition.
|Pros of remote real estate investing||Cons of remote real estate investing|
|Access to a wider pool of investments||Cannot see the property yourself so you may miss certain improvements or management issues that need to be addressed|
|Invest in areas with more affordable real estate prices, less competition, higher rental rates, or more favorable property taxes||Can be difficult to ensure a property manager or contractor is doing their job to your level of satisfaction|
|Opportunity to earn higher returns or cash flow because of the above|
|Diversify your portfolio and reduce risk against negative economic factors such as natural disasters or sudden decrease in jobs (like a big factory closing)|
Ways to invest in real estate remotely
Whether you plan to own residential real estate or commercial real estate remotely, the key to a successful investment is conducting thorough due diligence on the type of property you're seeking to purchase and the relative market. Be sure to have local experts you can rely on for assistance, such as a contractor, real estate agent, property manager, engineer, or attorney. Know what the laws are for that state, and make sure you've done your homework on the viability of the investment in the long term with the right team of people to help you execute it.
Turnkey real estate is a common starting place for remote investors; because the properties are already rented and typically renovated, there is very little management required of the owner after purchase. However, investors can also engage in flipping houses, vacation rentals, ground-up construction, or converting REO properties into a long-term rental.
Real estate closings can be done by mail in advance of the closing date by having one or both parties sign the required documents and return them via overnight shipping. Any documents that require notaries can be done by a mobile notary or, in certain states, virtually with an e-notary. Tenant leases can be signed and executed with virtual document signing software, and rents can be collected online. With the variety of digital tools available to real estate investors and professionals today, it's actually far easier than most believe it to be.
Tips for investing remotely
I personally have been a remote real estate investor since the start of my investment career. While I have owned real estate in my local market, the majority of my real estate investments have been in other cities and even states from where I reside. With the tools and technology available today, it's easier than ever to monitor a real estate investment from afar. The key is knowing how to identify a good investment from a bad one and seeking advice from local professionals who know the area well and can help facilitate the work needed to maintain and manage the investment efficiently.
A great place to start with the idea of remote investing is to find an investment opportunity in your local market, but instead of being the on-site eyes and ears of the operation, hire a team to do the work for you and practice overseeing their work from your home. Try to avoid going to the property yourself and instead utilize the technological resources available to you to manage the management team. This can include property management software, weekly conference calls, virtual walkthroughs of the units or renovation each week, or a combination of these. It's also important to do the work to find a worthy team. Certain investments may require you to go to the job site regularly for a period of time until renovation work is completed or the business gets established and is operating to your standards. After that, you can begin to manage the investment remotely.
Remote real estate investing is not for everyone. Some investors will never get tired of visiting the property themselves and speaking with the tenants, property managers, or contractors face to face. But for those who are interested in location-independent real estate investing or gaining access to better-yielding or better-priced investments for their portfolio, it can be a great option.
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