While most investors start out investing locally, many grow their portfolio by investing in long-distance real estate.
Why? For those who live in an high-priced area or an area with little growth potential, investing in a different city might be a great option.
While there’s no one-size-fits-all answer for whether investing locally or from a distance is more profitable, by examining the pros and cons of both, it’s easy to determine the right real estate investment strategy for you.
Investing From a Distance
The primary downside of investing from a distance is the necessity of needing someone “on the ground”. Most long-distance investors choose to hire a property manager.
While it’s technically possible to be a long-distance landlord, it’s just not feasible, since many landlord responsibilities require at least occasional on-premise responsibility. Plus, it would be time-consuming enough to be considered a real job.
Even if you’re thinking, “Great – I’ll just hire a property management company,” there are several things to be aware of. Due to the low margin of profit that property managers make, it’s hard to expect the utmost attention or best service from someone you hire.
There are diligent property managers out there, but they usually cost more, as opposed to property managers that try to manage every property possible and value quality over quantity as a result. That’s a no-no.
1. Consider Common Problems with Managers
First, look for individuals instead of hierarchy-ridden management companies. Real estate requires prompt communication, whether it involves tenants’ needs or potential sales/purchases. Historically, communication among property management companies tends to be very poor, since they are often managing more properties than they can handle.
There’s nothing worse than investing in a property and not being able to get in touch with the property manager during a crisis. Seek out individual property managers that aren’t simply the lowest bid to prevent this.
2. Check Online Reviews
In terms of finding that perfect property manager individual, ask around – whether it’s in real estate forums or a local real estate agent you trust. Yelp and Google also offer convenient reviews of every respectable service imaginable. If someone is a poor property manager, chances are an investor or tenant has already complained somewhere online.
If you end up hiring a property manager who doesn’t pan out, don’t hesitate to fire them if the service isn’t up to par. It is your money, after all, and you shouldn’t feel bad for letting someone go who is not meeting their potential, especially when there are viable alternatives waiting to be discovered.
3. Use Modern Technology
If you intend to invest from a distance, make sure you’re fully prepared to trust other professionals and are comfortable with various forms of communication. In addition to the basics such as phone and email communication, newer tools like Skype and FaceTime can make a world of difference. The property manager you end up hiring will likely be the one who inspects the property and fulfills all requests, so it’s important to trust them.
When investing from a distance, it is possible (though difficult) to manage everything over the phone – from hiring/firing property managers to calling up services to make repairs. Real estate investors typically don’t double as repair persons or plumbers, but they can certainly use the phone to help find someone who can.
Tools like Cozy can help you do most everything that a traditional property manager would do. But even so, you’ll need someone local to deal with key exchanges and inspection.
4. Realize that it’s Possible to Invest Anywhere
The main benefit of investing from a distance is that your real estate investment skills are truly free to soar, with every potential neighborhood in the country at your fingertips. Without geographical restrictions, you’ll be able to flex your investing abilities in the open market. While the property manager and communication aspects can be obstacles, there are viable resolutions to both.
One of the obvious benefits of local real estate investment is your firsthand knowledge of the area. You likely already know the good neighborhoods, the good schools, the upcoming developments in town, etc. Plus, you have the ability to do an on-site evaluation of your investment property and potentially address concerns before they become a big issue.
1. Forget your Memories
Still, familiarity of a certain locale can lead to bias, which is often an investor’s enemy. Positive personal memories can lead to a false sense of security from a financial standpoint. Emotional security does not always equate to a wise financial investment. Therefore, if you identify positively with a neighborhood or house from your childhood and wish to invest in it partly due to that, be wary – even if you’re telling yourself internally that nostalgia couldn’t possibly be the driving factor.
2. Know that Profitable Properties are Everywhere
Depending on where you live, there could be plenty of ripe investment opportunities in your locale. The most important thing here is to avoid personal bias during your investment process. Instead, stick to the principles that any prudent real estate investor does – such as a great neighborhood, fair property taxes, low crime, nearby schools and amenities, future prospects, building permits, etc.
Whether investing locally or from a distance, considering the aspects above will help guide you toward your own optimal investment strategy. I believe a safe portfolio will include both local and long-distance properties.