Investing in real estate outside your local market, in an area you may never visit, and where you have no trustworthy friends on whom to call can seem absolutely terrifying, especially for new investors.
However, this leap into seemingly scary territory may be the key to real estate investing success.
Most real estate investors begin with local deals, and while some get lucky, others do not. The truth remains: There are more opportunities “out there” than you could ever imagine, and you’ll never see or know about them without the courage and wisdom to explore outside your local market.
Sure, diversifying your holdings is important, but there can be some other hidden benefits to investing outside your backyard as well.
#1 – Diversify Your Portfolio – Let’s start with the obvious, diversification. Similar to the way your local market has limited attributes (population/job growth, demographics, geography, etc.) when compared across the states, by only investing locally, all of your proverbial real estate eggs are in a single basket.
A local-only strategy leaves room for little-to-no diversification and could be devastating to your real estate investments if any type of natural disaster, local economic/government issue, or market recession were to occur.
By investing in multiple markets, both locally and out of state, you’re actually creating diversification within your real estate portfolio and protecting yourself from the ever-changing market cycles.
#2 – Take the Emotion Out – Personal biases, convenience, and emotions are highly likely to cloud your vision when in search of a local investment opportunity. For example, you’re more likely to give an investment a chance (even though the numbers are low and it needs a ton of work) because it’s in between your home and your favorite coffee shop.
Investing elsewhere forces you to rely on the property-specific data and removes the emotional component from the process, resulting in a higher likelihood that you’ll invest based on preset criteria and goals.
#3 – Increase Your Flexibility – It’s highly likely that your local real estate market can provide only a narrow slice of the attributes you’d need for your overall investment portfolio.
By constraining yourself to invest locally, you’re barred from options in other markets representing the ideal mix of investing criteria – population and job growth trends, geography, real estate prices, and government and state laws – that would help you, personally, to meet your investing goals.
Further, because real estate is hyperlocal, investing in a variety of different markets allows you to adapt your investing strategy to where we are in the market cycle.
Simply being open to the possibility of investing in real estate outside your local market expands your options and removes potential limitations.
#4 – Build a Great Team…beyond yourself – Investing outside of your local market FORCES you to rely on others. There’s just no way you can do everything from thousands of miles away, no matter how diligent and capable you think you are.
Building a great team is a skill. So is learning to leverage and rely on that team.
Once you properly execute this in one market, you can replicate that anywhere, furthering your reach and the investment opportunities available to you.
#5 – Focus Your Intentions – When you invest outside of your local area, you’re automatically protected from “stumbling upon” an investment. You can’t get a “great feeling” during a tour or buy into some real estate out of convenience.
Since you’d be throwing money in “sight unseen,” investing across state lines requires a process, intentional communication, and, possibly, more research and analysis on the property to ensure its qualities align with your investment goals.
In summary – Every real estate investor should explore options outside their local area, either exclusively, or in addition to local real estate deals.
Investing money is already an emotional endeavor, but by investing out of state, you can be more deliberate and intentional about meeting your personal finance goals.
The opportunity to choose the markets with the highest job and population growth and to build a strong team sounds exciting and challenging all at once… and completely worth it.
Bonus Tip: Investing Passively in Real Estate Syndications – One of the best ways to invest quickly and easily out of state, and not have to worry as much about the team-building part, is to invest passively in real estate syndications.
The sponsor team leads the project and allows the investors to enjoy passive income and diversification of multiple markets and asset classes.
Prevail Innovative Real Estate Opportunities, LLC., (PREO) is affiliated with Prevail Wealth Advisors, LLC (Prevail IWA) and Prevail Strategies LLC., because they are under common ownership and control. PREO was formed to provide real estate investment opportunities for high-net-worth investors looking for diversification. Prevail Wealth Advisors, LLC., is a federal registered investment advisor. Registration with any securities authority is not an endorsement of the services offered by the investment adviser. Fixed insurance products and services are offered through Prevail Strategies, LLC., a licensed insurance agency. Any investment by a Prevail IWA client into a PREO-sponsored real estate investment would be without the involvement of Prevail IWA and should not be seen as a recommendation by Prevail IWA. Additionally, Prevail IWA clients should realize that any capital they invest in a PREO-sponsored real estate investment would be completely outside of their advisory relationship with Prevail IWA and not part of their Prevail IWA account going forward. Finally, there are material differences between the type of investments PREO may offer and the investments on which Prevail IWA provides advice in terms of risk profile and liquidity, and the compensation PREO earns from a real estate project in which Prevail IWA clients invest may be materially different than the investment advisory fees Prevail IWA charges its clients.
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