4 Factors To Consider Before Investing In A New Market
By Paul Esajian on December 28, 2018
Real estate investing can be done virtually anywhere. You don’t need to be restricted to properties you can drive bye to be successful. Sure, it is much easier finding properties and building your team within your primary investing market, but there are other options available. There are many out of area, even out of state, markets that with just a little due diligence can produce tremendous returns. Instead of banging your head with the local competition you can find a market that is much easier to deal with and potentially far more profitable. Investing outside of your local market seems intimidating at first but the deeper you dig and the more you know the smoother the process becomes. Here are four areas to consider when investing in any new market.
- Map out a plan. Change for change sake is not always a good thing. Simply investing in a new market simply to switch things up can often do more harm than good. Before doing anything else you need to consider why you are thinking about investing outside of your primary market. This could be based on the amount of local competition, price or demographic changes, supply and demand or a greater potential elsewhere. Whatever it is make sure there is a concrete reason why you are looking at other markets. Next, think about the types of properties and deals you are interested in. In most cases buy and holds are easier and more realistic than out of state flips. With a buy and hold there is much less day to day management needed and less people you need on your team. Whatever your goals and prospective strategy are make sure they make your current business vision. Just because you are exploring other markets doesn’t mean you should change your investing philosophies. It is always important to make a plan, but even more so with out of area properties.
- Know everything about the market. If you are going to invest your hard-earned money somewhere, you need to know everything about it. It is amazing how many investors make offers on properties without full knowledge of the market. Without knowing the market, the individual property may not make that much of a difference. Fortunately, in 2018 it is easier than ever to do your homework and find the information you need. A simple stop at the town website can offer a slew of critical demographic information. Prior to writing up a contract you need to know about changes in employment, crime rates, schools, taxes and more. An area with declining demographics will eventually impact the housing market. In addition to knowing all the pertinent demographics you also need to study the housing market. It is not enough to look at the last 90 days of comparable sales and listings. You need to know what has influenced the changes and where the market is headed. Look at the average days on market, sales price changes and current inventory. Getting an out of area property at a steep discount doesn’t do you much good if the market is on the verge of a decline.
- Detail team needed and start reaching out. As obvious as it sounds investing in an outside market is similar to a local market, with a few subtle changes. As you consider where to invest it is important to start building your team. Depending on your specific goals you can start reaching out to specific people needed in the market. Remember, that your only access to the property and to your team will be through technology. You need to be willing, and able, to back off and trust your team. If you are looking at buy and hold properties a local contractor, property manager and real estate agent are essential. It is not good enough to move forward with the first person that shows interest. These three people will be directly involved in the success or failure of the property. Not only do they need to be uber qualified, you need to be comfortable with them. Trust should be the least of your concerns. They should be able to communicate without you having to chase them down if you want to talk. Think about everything you need to complete a local transaction and then add the people needed for an out of market one. From there start searching online to find the best possible people to fill out your team.
- Scale upwards. Regardless of how much you know or how good the opportunities look, investing in outside markets can be an adjustment. It is always better to start off small and build your portfolio from there. Getting involved in a small deal softens the blow in the event of a setback. The odds are that you won’t know every detail on your first deal and may overlook something that eats into your bottom line. If you blindly dive into a massive deal you run the risk of impacting your portfolio for months, if not years down the road. On the flip side, dipping your toe in an outside market on a small property allows you to learn the ropes without the stress, and financial impact of a large deal. It may only take you a deal or two before you feel truly comfortable and can explore larger out of market options.
Real estate investing is always full of changes and surprises. Investing in new markets is part of the business, but one that you need to know inside and out before moving forward.