Real estate is still one of the most reliable investment opportunities in the United States, and a recent poll pointed it as the best long-term investment ahead of stocks
But then, we can’t deny the fact that real estate is quite expensive for investors who live in areas such as San Francisco with a high cost of living. Zillow places the average price of a home in San Francisco at $1.48 which may debase an average real estate investor.
So, here’s where long-distance real estate comes to play. It gives room for individuals to delve into the market in more affordable areas, and would likely produce higher returns.
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What Is Long-Distance Real Estate Investing?
Long-distance real estate investing is basically investing in real estate by acquiring property outside of the local real estate market. It could mean investing in a property in some distant areas from your country or a few hours away from your local area.
In most cases, this means that you will not have to do any personal handling of the properties, but will employ professionals in your local area to take it up.
This investment strategy is quite popular among investors who are located in areas with high property values, where it may be expensive for them to delve into their market, or where they are restricted by local rents to generate returns that are high enough on whatever they invest.
How To Start Investing in Long-Distance Real Estate
1. Decide on your ideal market
The first thing to do when starting a long-distance real estate investing is to decide on the market you want to invest in. If you choose to invest outside your local real estate market, it may either be because you are unable to get an adequate return, are not financially capable of investing in your local market, or because you simply want to diversify your portfolio.
In essence, it is important that you choose a market that satisfies your needs.
“Ideally, a hot market would have a growing population, high demand for rental units, low crime rate, and a thriving economy,” said Martin Orefice, the founder of Rent to Own Labs. “With this analysis, you can make an informed decision.”
2. Choose the preferred property options to buy
What kind of property are you considering buying? Is it to buy single-family or multi-family homes that you’ll also rent out to long-term tenants?
Could you also be considering finding a place that you can rent out on platforms like Airbnb for a short-term? Or you are looking to flip property within a short time?
Setting your priorities right before choosing a property is very crucial.
3. Understand your local market
When you decide to invest in an area that is not within your local real estate market, it is crucial to get to know the market. It is possible that there are quite a lot of aspects that you do not know about the market. You can get sufficient information through the local professionals – including property managers and real estate agents.
4. Build a formidable team of local professionals
Whether you are flipping or investing in a long-term rental property you’ll need local professionals to help you out. Include a real estate agent, an attorney, contractor, property manager, and others. It depends on what your needs are.
5. Check out the figures
We all invest to get returns. Before you launch fully into a real estate investment, ensure to put the figures together to be sure the work is really worth it. Crunch the numbers to be sure that your investment will generate sufficient returns.
Benefits of Long-Distance Real Estate Investing
Long-distance real estate allows you to diversify your properties. Diversifying your property holdings helps to prevent your entire portfolio from being at risk when there is a poor performance by an industry or company.
For instance, if you own a rental property in Maryland, Wisconsin, and Texas, and the Wisconsin rental market tanks, you can leverage holdings in other regions to help you balance your losses.
Access to More-Lucrative Markets
One of the biggest advantages of long-distance real estate investing is that it helps you to access more financially accessible real estate markets.
“For investors who are based in areas with high property values, investing in lower-priced markets allows them to buy more units or larger properties, In the pricey Washington, D.C., metropolitan area,” said Eric Maribojoc, the director of the Center for Real Estate Entrepreneurship at George Mason University. “For instance, several real estate investors look to the nearby metropolitan areas of Baltimore (Maryland) or Richmond (Virginia)”
Also, areas such as New York and California may experience a spike in the prices of properties for investors to venture into the market. By delving into long-distance real estate investing, they can choose to invest in areas with lower prices which could lead to a more significant investment return.
Tips for New Real Estate Investors
Get acquainted with the local laws and taxes
It is important to find out about the unique local real estate laws, including taxes, especially if you are considering investing in real estate in other areas. Depending on the real estate type you are going for, you may be required to get an understanding of the land-use laws and landlord-tenant laws to ensure that you are not violating them.
Also, endeavor to understand your tax liability as an investor. If you are investing in long-distance real estate, especially outside your home state, you may need to file extra tax returns. And each state has its different property tax laws. In fact, each state will have different property tax laws, further complicating the process. However, as long as you use a reputable online tax filing program, then it should have a section devoted solely to second homes and overall real estate.
Check out the property In person
While it is true to an extent that you may not have to be physically present to sight a property, visiting the property can give you firsthand information of the location, as ongoing visits will help you discover that your property remains in the right condition.
Pull together a reliable team
With long-distance real estate, you cannot afford to jeopardize having a team that is trustworthy and reliable. They will be the ones to help you out with emergencies and help to ensure that you retain a good shape. This team will be available to handle tasks for you since you will not be physically present as a return of your location.
And lastly, the members of this team are expected to have a better understanding of the area and can bring in a level of expertise that you can benefit immensely from
“The single most important thing you can do as a long-distance real estate investor is to assemble a local team you can trust and rely on to handle most aspects of your business,” said Omer Reiner, a licensed Realtor and the president of Florida Cash Home Buyers.
He also said that real estate agents or brokers, contractors, local lenders, property management companies, and others should be involved.
“Do not hesitate to ask for referrals from other investors and local actors, and check for reviews online using Yelp, Google, Angie’s List, etc. Look for professionals who are extremely responsive and preferably used to working with investors,” Reiner added.
Frequently Asked Questions (FAQs) in Long-distance real estate investing
Where should you invest in long-distance real estate?
Locate markets in affordable property areas with one that has an increasing population, high rental units demand, and thriving economies to provide you with the best returns on your investment
How can one venture into commercial real estate investing?
Commercial real estate investing is a form of real estate investing that is geared towards nonresidential properties. Such properties include retail spaces, warehouses, buildings, and others.
This kind of investing often requires diverse financing from home mortgages. Ensure to speak to a lender to find out if you qualify for commercial real estate financing.
What are the cons of direct real estate investments?
Investing directly in real estate is often a demanding and hands-on experience. If you venture into real estate to rent out to tenants, you need to take up the position of property manager.
Despite long-distance real estate often requiring outsourcing, it still requires investment financially to pay the management team of properties and also ensure its maintenance. Another downside to commercial real estate is that if the property isn’t leased in good time, you could lose a lump sum.