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Your Guide to Long-Distance Real Estate Investing


Jun 24, 2020 by Tara Mastroeni

For those who have a goal of building wealth and having a thriving investing career, long-distance real estate investing can often be the key to success. Though investing in a different city or state can sometimes be a little more complicated than investing in a property that's right around the corner, with the right due diligence, it can be done. Read on below to learn how you can start building your real estate empire today.

What is long-distance real estate investing?

As the name suggests, long-distance real estate investing occurs when an investor chooses to buy an investment property in an area that isn't local to them. In this case, the property is usually in another city or state, but any investing that occurs in a different real estate market could be considered long distance.

Though this strategy can be employed by anyone, it's most often used by investors in high-priced markets like San Francisco or New York City. When that's your local market, finding a good deal on an investment property can be particularly tough, so it makes sense for property investors to look for markets where their dollar will go further.

Why does this real estate investment strategy work?

It allows for diversification

While every real estate investment strategy carries with it a certain amount of risk, the inherent benefit of long-distance investing is that it allows for diversification. When you are no longer tied solely to the real estate market outside your front door, you give yourself the opportunity to find the best deals, regardless of where they may fall on a map.

Additionally, since each local market will ebb and flow in its own time, long-distance investing, and particularly out-of-state investing can potentially help shield you in economic downturns. Essentially, if the bottom falls out of one market, having the rest of your portfolio in different markets will give you a better chance at maintaining a sense of stability.

Technology makes it easier than ever

In past decades, long-distance real estate investing was much harder. Back then, there weren't as many tools available to help you research potential markets or to help connect you with the team of experts that you need to in order to help you make your investment deal happen.

In those days, you more or less had to get a referral for a real estate agent and a property manager or find them out of the phone book. Then, once you did land on a solid team, you had to trust that everything they were telling you about the local market was correct.

Thankfully, these days the process has changed for the better. In today's world, there are apps and websites you can use to find the top real estate agents in a given area, to research potential rental rates, and to look at available homes on the market. Even if you're a plane or a car ride away from your investment, technology has given you the ability to do your due diligence from the comfort of your own home.

Tips for building a profitable rental portfolio as an out-of-state investor

All that said, out-of-city or out-of-state investing can be a much different ballgame than investing in a market where you can simply drive around the corner to visit the property. With that in mind, here are a few tips you can use to help yourself build a profitable rental portfolio as a long-distance investor.

Research the local market

The first step in long-distance investing is to find your next market. Of course, ideally, you'll want to land on a hot market, which typically has the following characteristics:

  1. A growing population.
  2. A diverse economy with a growing workforce.
  3. Good school districts.
  4. Low crime rates.
  5. High demand for rental units.

As far as how to find the right rental market, savvy property investors make use of data from the U.S. Census Bureau.

While there can be a little bit of a learning curve on how to access and filter the data, you can use it to access accurate figures for population growth, as well as demographic data like the percentage of homeowners vs. renters and their average household incomes.

Build a team of local experts

Once you've found your target market, the next step is to build a team of local real estate experts. At a minimum, you need to find a real estate agent you trust to guide you through your search for the right property.

However, you'll likely also want to find a great property manager. Since you won't be local to this investment, it's a good idea to have someone who can act as boots on the ground in the event that a problem arises with your rental property at some point down the road.

If you're looking at properties that need some work, you'll also want to think about finding a general contractor who is capable of taking point on the project. Typically, once you find a good general contractor, they'll be able to connect you with other reputable service providers.

Focus on finding a turnkey rental property

That said, whether you're only looking for a single property or you're working on building a real estate empire, when you're doing long-distance investing, it's likely a good idea to focus on finding a turnkey property. In real estate, a turnkey property is one that can be lived in as-is without having to undergo renovations first.

Put simply, when you live in another city or state than your rental property, it's just easier to invest in one that doesn't need much work. That way you don't have to stay on top of managing a renovation from afar.

Luckily, if you have a solid team in place, it should be easy to make this happen. All you should have to do is tell your real estate agent that you're looking for a property that's in good condition, and they should be able to send you listings that match your criteria.

Do your financial due diligence

Once you're at the point where you're receiving potential listings, long-distance investing becomes a lot like investing in your own community. In essence, your main goal should be to find a property that's a good deal or one that will generate enough rental income on a consistent basis.

In real estate investing, there are several equations you can use to estimate what kind of return on investment you'll get on a particular property, including:

  1. Gross rent multiplier (GRM).
  2. The 1% rule.
  3. Cap rate.
  4. 50% rule.
  5. Net income (after financing costs).
  6. Cash-on-cash return.

Use these metrics to evaluate all of the potential listings that you think might be a good fit for you until you land on one that suits all of your needs.

The bottom line

Long-distance real estate investing may not be the right choice for everyone, but for those who have dreams of launching a substantial investing career, it can be an important step to take. With that in mind, if you're ready to start long-distance investing, use the tips above to help guide your search for your next perfect rental market and rental property.

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