Before you even consider investing in real estate, it is important to know where you intend to invest. While many prefer investing locally, it is important not to pigeonhole yourself. There is no better way for investors to get in trouble than to wait for deals to come to them in their own market. With such a finite area, there is a chance you will be waiting for a long time. In knowing where you want to invest, you will have a much better grasp of local prices, buyers’ preferences, economic factors and subsequent neighborhoods. However, do not ignore the prospect of out-of-area markets. A great deal can be had whether it is 10 minutes away or 1,000 miles away. Investing out of area is not for everyone, but it does have great advantages.
Most investors only feel comfortable investing in properties that they can drive to. This logic is sound, as they probably know the area better than any other. Knowing the area means more than looking at some recent sales or recent comparable listings. To really know which way the market is trending, you need to dig a little deeper. This means knowing as much as you can about the economy and the demographics. Are there new houses being built or is there an abundance of inventory? Have the property taxes seen a sharp increase in recent years? A local deal on face value may appear great, but once you get inside the market it may not be exactly what it seems.
In addition to the demographics, you also need to know the people and, of course, the numbers. Past sales may provide some clues as to the strength of the market, but it is not the only indicator. You need to get inside, past MLS listing sheets, and see if there were any factors that affected the sales price. If a home was in foreclosure or a short sale, it may have been sold “as is,” lowering the sales price. If the home was on the market for over 180 days, the lender may have accepted an offer solely because it was with cash. You need to take the time and really compare apples to apples when looking at a market and each property in it. There could be an opportunity to get many good deals, but if you don’t do your homework you can also get stuck with an undesirable property in an undesirable area.
Another way to figure out if an investment market is the best for you is to drive the neighborhood. A lot can change in a matter of a few streets. It is important that you do not blindly trust the zip code of a listing. You should get a feel of what retail stores are in the area and how things may change at night. If you find the area undesirable, odds are that a potential buyer or renter will feel the same way. Driving a market will give you an idea of what other homes are on the market and the style and layout of each home. If you really want to know what a market is all about, you need to actually see it for yourself.
If you are having trouble finding homes in a particular area, consider searching out of market locations. There are some investors who are against such a move, but a good deal is a good deal – regardless of where it is located. This requires much more due diligence on your end, but the payoff could be great. You need to first isolate what your end goals are with the property and then get some local contacts in place. This means reaching out to a local realtor, contractor, property manager and attorney. The more people that you can call to discuss a deal with at a local level, the more confident you will be in the results.
The internet has made property evaluation as easy as it has ever been. Much of this information can be obtained online through the local town’s website. Additionally, there are numerous websites that can provide pictures and videos of listings that can give you a good sense of what you may be buying. Even if there aren’t videos online, a local realtor can easily record a video tour on their phone. It will take a leap of faith in buying a property that you have never seen with your own eyes, but technology and a local team will give you the confidence that you know as much about the property as possible.
One of the keys to investing out of area, whether it is next door or 100 miles away, is knowing everything you possibly can about a property. In many cases, an out of state rental property can be much more profitable than one in your local market. The numbers are simply in favor of other areas. If you feel more confident looking at homes in your local market, do so, but there may not be enough inventory to support your strategy. You should know that there are numerous resources and methods available to make you as confident as possible. Start by assessing what it is you want out of a purchase, then go from there. Figuring out where to invest is not nearly as important as determining what kind of property to invest in.