Whether or not it is best to invest locally or focus on out of area markets remains highly controversial. The jury is still out as to which is best for investors. Of course, each side has its own contingent; people who fully believe they are investing in the right area. Like anything else in the real estate world, there is no right or wrong answer, only what you are comfortable with. Even if you see an upside investing in one market over another, there is no sense in making the transition if i means getting out of your comfort zone before you are ready. The principles of investing out of your area are the same, but they are accompanied by several nuances as well. How you go about completing a deal differs from one area to the next. Here are the pros and cons of both investing locally and out of the area:
The Pros Of Investing Locally:
1. Market Knowledge: It stands to reason that you would know your local market better than one 75 miles away. This should help you make better decisions and get deals at your desired price point. Trying to figure out a market that you don’t know well can be tricky at times. Plenty of things can change, even within a zip code. Having knowledge of these changes can make a big difference with your rental portfolio.
2. Price Points: There is a difference in seeing a property online and physically viewing it. This plays a part in helping you determine property value, and ultimately the offer you want to make. Being able to drive to a property gives you a much better idea of the value. This will have a trickle-down effect in the number you offer, and the profit you realize.
3. Higher Cash Flow: Being able to drive to your rental property will allow you to handle minor items on your own accord, which will save you money. Instead of having to pay for a property manager and local handyman, you can complete little tasks yourself. You can also screen and find new tenants in person.
The Cons Of Investing Locally
1. Competition: In most markets, there are more than enough deals to go around. However, there are some markets where the competition is so fierce that the margins are slim, at best. Instead of fighting over the same handful of properties, looking outside of your market makes sense. If the competition and lack of inventory becomes too much to handle, don’t hesitate to look elsewhere.
2. Similarity: Some markets are filled with the same set of cookie cutter properties that you may not want to invest in. This will lead you to look at alternatives within your local area first. Investing in condos, mobile homes or mix-use properties may not be for you. Some markets are limited, as to the kind of properties that are available.
The Pros Of Investing Out Of Your Area
1. Supply: One of the biggest steps for a growing investor is realizing there is more than what is right in front of them. There are thousands of properties out there if you are willing to look outside of your area. The internet and modern technology has made it as easy as ever to invest 500 miles away. If you don’t like what is happening in your local market, go to where the supply is.
2. Better Deals: There are times when you may find a better deal on a property located 100 miles away. As long as you mind your due diligence and everything checks out, this will make more sense for you. Some markets have fewer investors than others, and offer properties at lower price points. By doing your homework and keeping an open mind, you may be able to find better deals.
The Cons Of Investing Out OF Area
1. Management Costs: Before you take ownership of a property out of your area, you need to find someone to manage it. Finding someone you can trust is one hurdle, but making the numbers work is another. Property management costs will reduce your cash flow, making your profit margins that much slimmer.
2. Distance: There is a difference in handling issues over the phone and in person. Even if you think you have things ironed out over the phone, you really can’t be sure. It would be nice to drive to the property or to meet your handyman, but this isn’t realistic when the property is three hours away. You can get around the distance when you purchase, but running the property can be completely different.
3. Market Uncertainty: In much the same way that you understand your local market, there is always a bit of uncertainty when you get outside of it. Without driving the neighborhood and getting a feel of the area, there is no way to really understand what is going on. You can see the recent sales and read about the market online, but this doesn’t always tell the whole picture.
The most important point to remember is that what works for one investor may not work for you. Someone else may have great success investing in the next state over, but that doesn’t mean you will. There is a difference between taking a chance and doing things that you don’t feel comfortable with. If you can’t sleep at night because you are worrying about what is going on in a rental property 200 miles away, out of area investing is probably not for you. As long as you are comfortable with your market, feel free to invest anywhere you like.