Real estate remains a popular investment opportunity in the U.S. In a 2019 Gallup poll, Americans named real estate the best long-term investment, beating out stocks.
But real estate is also an expensive market to break into, especially for investors living in areas with a high cost of living. In San Francisco, for example, where Zillow places the average home price at $1.48 million, the average investor may not stand a chance.
That’s where long-distance real estate investing comes in. This endeavor allows individuals to enter the market in more-affordable areas and cities, where they might get a higher return on their investment than in their own area. Learn what long-distance real estate investing is and how to get started.
What Is Long-Distance Real Estate Investing?
Long-distance real estate investing is purchasing or investing in a property outside of your local real estate market. Long-distance real estate investing could mean purchasing a property a few hours away or on the other side of the country.
In most cases, long-distance real estate investing means you won’t be managing your own properties, and will instead be outsourcing that job to local professionals.
Long-distance real estate investing is a strategy common with investors in areas with high property values, where they either can’t afford to enter their own market or where local rents don’t allow them to earn a high enough return on their investment.
How to Start Investing in Long-Distance Real Estate
Step 1: Choose a Market
The first step to long-distance real estate investing is deciding what market you’ll invest in. If you’re investing outside your local real estate market, it’s likely because you either can’t afford to invest in your local market, can’t get an adequate return, or simply want to diversify your portfolio. As a result, it’s important you focus on markets that meet your needs.
Ideally, a hot market would have a growing population, high demand for rental units, low crime rate, and a thriving economy, according to Martin Orefice, the founder of Rent to Own Labs.
Step 2: Decide What Type of Properties You’ll Buy
Are you planning to buy and rent single-family or multifamily homes to long-term tenants? Are you hoping to find a place you can rent out for short-term stays on Airbnb or another homeshare service? Or are you planning to flip the property in a short amount of time? Before choosing the right property, it’s important to know your specific objectives.
Step 3: Get to Know the Local Market
When you’re investing in an area outside of your local real estate market, it’s important to do your homework. Chances are you don’t know the market as well. Local professionals such as real estate agents and property managers can help you learn more about the market.
Step 4: Build a Team of Local Professionals
Regardless of whether you’re investing in a long-term rental property or a flip, you’ll need local professionals who can do the work for you. Your team should include a contractor, real estate agent, property manager, attorney, and more, depending on your needs.
Step 5: Run the Numbers
Ultimately, the goal of real estate investing—or any type of investing—is to gain a financial return. Be sure to crunch the numbers before buying to ensure you’ll get a sufficient return on your investment.
Benefits of Long-Distance Real Estate Investing
Access to More-Lucrative Markets
Perhaps the greatest benefit of long-distance real estate investing is that it allows you to break into 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. According to Eric Maribojoc, director of the Center for Real Estate Entrepreneurship at George Mason University, in the pricey Washington, D.C., metropolitan area, for example, many real estate investors look to the nearby metropolitan areas of Richmond (Virginia) or Baltimore (Maryland). Similarly, in states such as California and New York, property prices may be too high for some investors to enter the market.
By getting into long-distance real estate investing, they can put their money in areas with lower prices that might lead to a more significant return on their investment.
Another benefit of long-distance real estate investing is that it allows you to diversify your property holdings. When it comes to the stock market, investors are advised to diversify their holdings so that if one company or industry performs poorly, their entire portfolio isn’t at risk. The same goes for real estate.
For example, suppose you own rental properties in Wisconsin, Texas, and Maryland. If the rental market in Wisconsin takes a turn for the worse, you have holdings in other regions to help balance out your losses.
Tips for New Real Estate Investors
Get to Know the Local Laws and Taxes
Each state has its own unique real estate laws, so if you’re going to invest in real estate in another state, it’s important you do your homework. Depending on the type of real estate you’ll be purchasing, you may need to read up on landlord-tenant and land-use laws to ensure you’re complying with all of them.
It’s also important you understand your tax liability as a real estate investor. Investing outside your home state may require you to file additional tax returns, and each state has different property tax laws.
See the Property in Person
Some people might argue that with the right team, it is not necessary to see the property in person. And it’s true that not all long-distance investors do.
Visiting the property in person can give you a better idea of the area that it’s in, while ongoing visits allow you to see that your property remains in the condition you’d expect.
Assemble a Team You Trust
When it comes to long-distance real estate investing, having the right team in place is critical. These individuals will act as your boots on the ground to handle immediate emergencies and ensure your property remains in good condition. They’ll take care of tasks that you can’t because you aren’t located nearby. Finally, as they may know the area better than you do, they bring a certain level of expertise that will benefit you and your remote investment.
One of the most important things 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. Real estate agent/broker, property management company, local lenders, contractors, and so on. 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.
Where Should You Invest in Long-Distance Real Estate?
Look for markets where you can afford property and ones that have growing populations, thriving economies, and high demand for rental units to ensure you’ll get the best return on your investment.
How Do You Get Into Commercial Real Estate Investing?
Commercial real estate investing means investing in non-residential properties, including office buildings, retail spaces, warehouses, and more. Commercial real estate investing requires different financing from home mortgages, so before diving in, talk to a lender to see if you qualify for commercial real estate financing.
What Are the Disadvantages Associated With Investing Directly in Real Estate?
Real estate investing is often a time-consuming and hands-on process. If you invest in real estate to rent out to tenants, you often take on the role of the property manager. While long-distance real estate investing is typically more hands-off because you outsource the work, it still requires financial investment to pay the property management team and maintain the property. Another disadvantage is that if the property sits vacant for any period of time, you could lose a significant amount of money.