Should You Invest in Property in Another State?
California is full of beautiful beaches, robust cities, and some of the most expensive housing markets in the country. If you’re interested in becoming a property investor, this may not be the best place to do it. Not only will you be facing much higher property prices than in other areas of the country, you’ll also be subjecting yourself to higher volatility. (Image Credit: Tierra Mallorca/Unsplash)
Property investing is one of the best ways to accumulate wealth (and protect that wealth indefinitely). But is property investing in another state worth it?
The Process of Investing in Another State
First, let’s explore what it means to invest in property in another state. When most new property investors enter the market for the first time, they tend to be resigned to buying property in their immediate vicinity. This way, they’ll be able to conveniently view the property during the research phase. They’ll also have more in-depth knowledge of how the local market works, so they can make a smarter decision. Perhaps most importantly, if they’re investing in rental property with the intention of becoming a landlord, buying local property will allow them immediate access if something goes wrong.
If you’re buying property in another state, you can start the research process with virtual tours; you don’t have to see the home in person until you’re ready to finalize the deal, and depending on the circumstances, you may not need to see the home in person at all. You may be unfamiliar with the market in the distant area, but you can easily find out with the help of online research and interviews with local residents. And if you’re managing a rental property, you can simply hire a property management firm in the area to take care of those responsibilities on your behalf.
There are several advantages to this approach:
- Access to a hotter market. First, you might be able to get access to a “hotter” property market. If you look elsewhere, you may be able to find low-cost properties in an area with a powerful potential upward growth trajectory. Your local neighborhoods might not be able to match it.
- A wider range of options. In any case, you’ll have a much wider range of options. If you’re looking for the “perfect” property, you might have a long list of criteria that need to be met. If you’re only looking at properties in your local area, you’re going to be heavily restricted. But if you’re open to properties all over the country, you’ll be much more likely to find the right fit.
- Avoidance of local conditions. Some local markets, especially in and around big cities, are simply horrible for property investors. The prices for properties are too high to be suitable for entry, and they’re so volatile that any investment would be a kind of gamble anyway.
- Diversification. Don’t forget the need to diversify your portfolio. If you’re planning on adding multiple properties to your portfolio, you’ll need to make sure they serve different functions and are exposed to different areas, to guard against potential risks. Buying properties in different states is one of the best ways to do this; you’ll never be overexposed to any one market.
- An excuse to be hands-off. Many people pursue real estate investment because it’s mostly a hands-off strategy. If you buy property in another state, you’ll have an easy excuse to be hands-off; you’ll have no choice but to let a property management firm handle things on your behalf (unless you’re traveling through the area regularly).
Of course, there are also some disadvantages:
- Initial research limitations. You won’t be able to explore properties in the area the same way you would as a local. You’ll have a harder time getting a “feel” for a neighborhood in another state, and when it comes time to tour properties, you may be forced to do so virtually.
- Travel to view the property. If you do want to visit the property, either to inspect it before buying or to check in on it personally, you’ll have to travel—potentially an extreme distance. If you only do this once or twice, it’s no big deal, but frequent visits can get costly.
- Less transparency. You’ll also have less transparency into how the property is being managed. You won’t be able to visit the property casually in person, and you won’t be doing any work on the property yourself.
Ultimately, it’s up to you as an individual investor to determine whether it’s worth the time and the disadvantages to invest in property in another state. If you decide to move forward, you’ll find it’s a much more accessible option than it at first appears.