Location, location, location—that is the real estate mantra. If you have been investing exclusively in your own local market, perhaps you see that phrase as applying to the properties you select within a limited geographic radius. If think about the phrase more broadly, however, you might find advantages in taking your residential real estate portfolio to the next level by expanding geographically beyond your own hometown.
Moving beyond your geographic comfort zone is not necessarily easy. You have to research potential markets, make new connections, and commit more time to establishing yourself in unfamiliar territory. But if you take the time to do that, the return on your efforts could be well worth it.
“Often times, the investors who have the best returns are those who think beyond the arbitrary geographical limits they set for themselves,” says Steven Davis, CIO/CFO for 5 Arch Funding. “If you look online for the best markets for residential real estate investors, it might be nowhere near your personal residence. Why should you be shut out from a potential money-making opportunity simply because it is not within driving distance of your hometown?”
It is important to realize that not all investment markets are created equal. Depending upon where you live, there are zip codes, metropolitan areas and even entire states that may perform better for you than your own backyard. Opening yourself up geographically allows you to go where the rental demand is the highest and the return on your investment dollars is the strongest. When the economy strengthens in one part of the country versus another, you could benefit from the fact that you decided not to confine yourself to a specific geographical area.
Tips for Expanding
“The most important thing to remember when expanding geographically is to do your research,” Davis says. “The internet will be your best friend, since you can learn quite a bit by reading up online about various markets, learning about the demographics, and understanding what makes a particular community tick.”
Even when you pinpoint a particular market for investment, remember that overall market is not homogenous. You still need to pick a good location within the market that can maximize your return. Having a local partner who can steer you toward the best properties is the best way to ensure you are selecting a property that is right for you.
Additionally, as a remote real estate investor, you will need to rely on a property manager you can trust. “A good property manager is make or break when you cannot be there to manage the property yourself,” says Davis.
You will need to choose a property manager that comes with bona fide expertise when it comes to screening tenants, collecting rent, handling maintenance issues, and dealing with potential problems, such as tenants who violate the terms of their lease or don’t pay their rent on time.
“Experience counts in issues like these,” Davis says. “Make sure the property management resource you select is well-versed in all applicable rules and regulations related to tenants’ rights. Working with someone who has a proven track record is the best way to minimize problems and have your remote property run like a finely-tuned machine.”
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