Investing in real estate outside your local market, in an area you may never visit and where you have no friends to call on, can seem daunting, especially for new investors. However, this step into seemingly scary territory may be the key to real estate investing success.
Most real estate investors begin with deals in their local area, and while some get lucky, others don’t. The reality is that there are more opportunities “out there” than you could ever imagine, but you’ll never see or know about them without the courage and wisdom to explore outside your local market.
Why Everyone Should Invest Out of State
Investing across state lines allows you to align your real estate portfolio to your long-term investing goals through:
- Removing emotion
- Increasing flexibility
- Building a team
- Diversifying your portfolio
- Focusing your intentions
#1 – Take the Emotion Out
Emotions, individual biases, and convenience are likely to cloud your vision when you search for a local investment opportunity. For example, you’re more likely to give an investment a chance (even if the numbers are low and it needs lots of work) because it’s near your daily commute.
I experienced that when I first started investing in single family homes. I’d buy a house when I moved to a new duty station in the Marines and rent it out when I moved again a few years later. But buying a house as both a home and an investment meant there was emotion involved in the decision to buy instead of looking at it more objectively.
Investing outside your area forces you to rely on the property-specific data and removes the emotion from the process, resulting in a higher likelihood that you’ll invest based on your pre-established criteria and goals.
#2 – Increase Your Flexibility
Most likely, your local real estate market can provide only a narrow portion of the characteristics you want for your overall investment portfolio.
By constraining yourself to investing locally, you’re ignoring options in other markets that can contribute to the ideal mix of investing criteria — population
and job growth trends, geography, real estate prices, and government and state
laws — that would help you meet your investing goals.
Furthermore, because real estate is hyperlocal, investing in a variety of different markets allows you to adapt your investing strategy to where we are in the
market cycle.
Simply being open to the possibility of investing in real estate outside your local market expands your options and removes potential limitations.
#3 – Learn to Build a Great Team
Investing outside of your local market forces you to rely on other people. There’s just no way you can do everything from hundreds or thousands of miles away, no matter how diligent and capable you think you are.
Building a great team is a skill. So is learning to leverage and rely on that team.
Once you properly execute this in one market, you can replicate it anywhere, furthering your reach and the investment opportunities available to you.
#4 – Diversify Your Portfolio
Similar to how your local market has limited characteristics (population and job growth, demographics, geography, etc.) when compared with the rest of the country, when you only invest locally, all of your proverbial real estate eggs are in a single basket.
A strategy that’s only local doesn’t leave much room for diversification, which could be dangerous to your real estate investments if any type of natural disaster, local economic or political issue, or market recession were to occur.
For example, several investors I know in the Dallas area tend to only invest in their home market. And hey…it’s a great market which we invest in too!
However, by concentrating their investments like that, one bad hail storm could potentially damage their whole portfolio. And if you live somewhere that’s exposed to hurricanes…well, you get the picture.
By investing in multiple markets, out of state as well as potentially locally, you’re actually diversifying your real estate portfolio and protecting yourself from the market cycle and other unforeseen events.
#5 – Focus Your Intentions
When you invest outside your local area, you’re automatically protected from stumbling upon an investment unexpectedly. You can’t get a “great feeling” during a tour or buy into a piece of real estate out of convenience.
Investing across state lines requires a process, intentional communications, and potentially more research and analysis on the property to ensure its qualities align with your investment goals.
Wrapping it All Up
Every real estate investor should explore options outside their local area, either exclusively, or in addition to their local market.
Investing money can be an emotional event, but by investing “away from home,” you can be more deliberate and intentional about meeting your personal goals.
The opportunity to cherry-pick the markets with the highest job and population growth and to build a strong team sounds simultaneously exciting and challenging…and also…completely worth it.
Bonus Tip: Investing Passively in Real Estate Syndications
One of the best ways to invest quickly and easily out of state, and not have to
worry as much about the team-building part, is to invest passively in real
estate syndications.
The sponsorship team leads the project and allows the investors to enjoy passive income and to diversify across multiple markets and commercial real estate
sectors (multifamily, self-storage, office, retail, etc.). Plus, in the multifamily sector, you can find far more competent and professional third party property management that give you the safety and surety to invest away from home.
If you’re interested in learning more about becoming a passive real estate investor, consider joining the BluSky Investor Club.
Further reading: Real Estate Syndications — Are They Right for You?
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