I think you’ll agree with me that the idea of investing in real estate outside your local market, in an area you may never have visited, and where you know no one, can be downright terrifying. However, I also believe that committing to investing out of your local area, or at least being open to it, can take your real estate investing game to the next level.
When I first started investing in real estate, I started by investing in my local market. There was nothing inherently wrong with that, but that’s only because I completely lucked out.
You see, I was living in Washington, DC, at the time, and the market was still recovering from the Great Recession, so it was a terrific time to buy.
I didn’t take any time to consider whether the market was growing or not, whether more jobs would be coming to the area in the future, or what I was really hoping to get out of the investment. It was just dumb luck that got me into a cash-flowing investment that appreciated steadily over the years following.
Investing Out of State, and Why Everyone Should Do It
It took me another ten years of investing in my backyard (first in Washington, DC, and then in Oakland, CA) before I had the courage and the wisdom to invest outside of my local market.
Doing so has opened up infinitely more possibilities than I’d ever been aware of and has helped me to align my real estate portfolio to my long-term investing goals.
Nowadays, I recommend out-of-state investing to everyone, and here’s why.
- By investing outside your local market, you…
Take the emotion out
- Increase your flexibility
- Learn to build a great team
- Diversify your portfolio
- Become more deliberate
#1 – Take the Emotion Out
When you invest in your local market, you likely know the neighborhoods well. You can go and tour the properties. You know that this house is next to that coffee shop you love, so you don’t mind that it needs a bit more work.
When you invest in your backyard, your emotions are more likely to interfere with the process and the data.
This exposes you to the potential to get more attached to a property, or to turn a property down based on personal biases.
When you invest outside of your local area, you must rely more heavily on research and data. Often, this helps people remove the emotion from the situation and better stick to their investing criteria and goals.
#2 – Increase Your Flexibility
When you invest only in your local market, you’re limited to the specific attributes of that market – local population and job growth trends, local geography, local real estate prices, and local government and state laws.
While some of those might meet your investing goals, chances are, your local market likely isn’t the ideal mix of all of those.
Thus, constraining yourself to your local market might force you to compromise on some of your investing criteria.
For example, if you live in a city that’s growing fast, with lots of jobs coming to the area, the prices might be out of your range, or the local laws might not favor landlords. On the flip side, if you live in a place with little growth, you might be able to achieve some cash flow, but appreciation might be harder to come by.
When you look outside of your local market, you expand your options and remove your limitations. You can define your ideal market criteria and find the markets that best match those criteria.
#3 – Learn to Build a Great Team
When you invest out of state, you MUST rely on others. There’s just no way you can be the sole landlord from thousands of miles away, no matter how diligent and capable you think you are.
Side note: My husband actually tried this when we moved from the east coast to the west coast. He was convinced that landlording was simple enough that he could do it remotely. Things went swimmingly for about two months. Then, in one week, two basement apartments flooded simultaneously. ?♀️ Very soon after that, we had professional property management in place.
Building a great team is a skill. So is learning to leverage and rely on that team.
Once you learn to build and leverage a great team in one market, you’ll be able to replicate that anywhere, which further expands your options.
#4 – Diversify Your Portfolio
When you invest only in your local market, you’re putting all your proverbial real estate eggs into one basket. If something major were to affect that market (a devastating earthquake, hurricane, wildfire, or any number of other natural disasters), your entire portfolio could be wiped out.
By investing in multiple markets, both locally and out of state, you’re able to hedge your bets.
Since every market is in a different part of the real estate cycle, some markets will be expanding, while others are contracting. By diversifying your portfolio and spreading your investments out into different markets, you thereby lower your overall risk.
#5 – Become More Deliberate
When you invest locally, you’re more likely to stumble into an investment without clearly defining your investing goals. This could be because the property was the best available at the time, or because you got a good gut feeling when you walked into the property, or any number of other reasons.
Investing locally is easier in the sense that it’s more accessible, but that doesn’t mean it always results in better deals.
When you invest out of state, there’s a certain formality and structure you must take on, simply because you aren’t able to casually meet up with your broker whenever you want to see a property.
The process of investing out of state tends to be much more deliberate, involving more research and analysis, more interviews, and more clearly defined criteria and goals.
While many new real estate investors start by investing in a local rental property, I highly recommend that every real estate investor invest outside of their local area, either exclusively, or in addition to local investments.
By doing so, you can approach the process with more deliberate intent and less emotion. You can cherry-pick the best markets, those with the highest job and population growth and those that are the most landlord friendly.
You will learn to build strong teams that will do the work for you, efficiently and reliably. And, you can hedge your bets and lower your overall risk by diversifying your portfolio.
Does it take a ton of work to invest out of state? Heck yeah. But is it worth it? One hundred percent.
Bonus Tip: Investing Passively in Real Estate Syndications
One of the best ways I’ve found to quickly and easily invest in multiple markets out of state is through investing passively in real estate syndications.
As a passive investor in a real estate syndication, I can leave all the hard work to the sponsor team.
Rather than do it all myself (the local market research, broker networking, analyzing the properties, etc.), I can rely on a great sponsor team to lead the project, while I invest my money with them and go along for the ride.
Investing passively in real estate syndications has, in fact, become my favorite real estate investing strategy, and it has allowed me to diversify my portfolio to include multiple markets and asset classes.
If you’re interested in learning more about becoming a passive real estate investor, consider joining the Goodegg Investor Club.