You love to push boundaries. Explore new terrain, train for a new event, or visit new and foreign places. This life strategy allows you to experience incredible highs and keep growing. Let’s take that approach to your real estate investing.
Investing in real estate outside your local market, in an area you may never visit, and where you have no trustworthy friends who you can call may seem absolutely terrifying, especially for new investors.
We’d like to share how this intimidating leap into new territory may be the key to your real estate investing success. And will make growing your money in real estate easier with time.
Starting local may seem like a safer option to get into real estate investing. That is how we got started. As home prices started to skyrocket around us, even creatively turning a single-family into a duplex was out of the question – if we wanted cash flow that is.
The truth is there are big upsides to looking beyond your neighborhood to invest in real estate. Let’s talk about 5 reasons why investing out of state can actually help you do more real estate investing and get to your version of financial freedom sooner.
Why Everyone Should Invest in Out of State Real Estate
Investing outside your home market allows you to align your real estate portfolio to your long-term investing goals through:
- Removing Your Emotion
- Increasing Your Flexibility
- Building Your Team
- Diversifying Your Portfolio and Mitigating Your Risk
- Focusing Your On Reaching Your Goals
#1 – Take the Emotion Out of Your Investing Decisions
Personal biases, convenience, and emotions are highly likely to cloud your vision while searching for a local investment opportunity.
For example, you’re more likely to buy real estate because it is near your favorite coffee shop even though the numbers are low and it needs a ton of work. Or you may rationalize that YOUR market will definitely appreciate and therefore it is ok to buy without any initial cash flow.
Investing elsewhere forces you to rely on the numbers and data. You’ll use property-specific data and remove a lot of the emotional component from the process during your due diligence process. There is also a higher likelihood that you’ll invest based on preset criteria, goals, and a more comprehensive financial analysis.
#2 – Increase Your Flexibility
It’s highly likely that your local real estate market can only provide some of the attributes you’d need for your overall investment portfolio (if you are looking for a balanced portfolio).
For instance, maybe you do want to make an appreciation play where there is little initial cash flow but big potential for an upside if you sell in 5 years. That’s not a bad decision but may need to be balanced with other investments that aren’t dependent upon the same bet.
By investing in real estate in other markets, you are more likely to find your ideal mix of investing criteria satisfied (like 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. Go for that big upside potential, while also getting your money in a different market that has steady, consistent growth.
#3 – Learn to Build a Great Team or Partnership
Investing out of state forces you to use a team. Real estate investing is a team sport, especially if you are looking to use real estate to work LESS (not more).
If you only invest locally, you’ll be tempted to self-manage, take on some repair projects, or even drive by needlessly just to “check-in” on things. 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.
Learning to build a team or work in a partnership is a skill. You’ll learn what questions to ask, how to determine a partner’s management and communication style, and how you can best work together to do less.
Leveraging this skill can help you ramp up your investing more quickly. Once you build the skill of building your own team or finding great partnerships, you can replicate it. Find new partners, or leverage the same partners to continue buying assets.
#4 – Diversify Your Portfolio and Mitigate Your Risk
If you’ve listened to our other videos or read our other blogs, you know that we are huge proponents of a diversified portfolio. Our favorite real estate strategy is Note Investing, but it is not our whole portfolio. We never would put all our eggs in one basket.
Investing outside your local market is one of the easiest ways to diversify into a new market and a new team or partnership. The local-only strategy leaves very little room for diversification and could be devastating to your real estate investments if any type of natural disaster, local government policy change, or market recession were to occur.
By spreading your investments across different markets, your risk is greatly mitigated.
#5 – Focus On Reaching Your Goals
We love investing out of our local market because it allows us to target our specific goals.
When considering a new place to get our money working, we look at our goals first. Do I want to quickly grow a savings account? Do I need cashflow now? Once I identify which goal I want to go after, I then look for an investment opportunity.
When you invest outside of your local area, you’re automatically protected from “stumbling upon” an investment. You can’t get that “great feeling” during a tour or buy into some real estate out of convenience. Of course, you may find a gem this way, but it likely shouldn’t be how you buy all your real estate.
Investing across state lines requires a process, intentional communication, and even more deal analysis to ensure its qualities align with your investment goals. The opportunity to cherry-pick the markets with the highest job and population growth and to build a strong team sounds exciting and challenging. But it is completely worth it.
Summary of Investing in Out of State Real Estate
Every real estate investor should explore options to diversify out of their local market, either exclusively, or in addition to local real estate deals.
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. Simply being open to the possibility of investing in real estate outside your local market expands your options and removes potential limitations.
In Note investing this is easy. We invest notes in markets all across the country. It is one of the reasons we love this strategy. We spread our risk out across many different markets and remove the emotion from investing “next door.”
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.
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. You can also be nearly passive through some joint venture partnership opportunities.
The operator team, like us at Flow State Investing, leads the due diligence, asset management, and asset sale. This allows the investors to enjoy passive income and diversification of multiple markets and asset classes. In a JV Partnership, a capital partner would provide some higher-level management input. In our partnerships, we do all the heavy lifting while our partner gets to see their money working with more oversight opportunities.
If you’re interested in learning more about becoming a passive real estate investor, consider joining the Flow State Investor Circle. We’ll jump on a call to discuss your investment goals and see if adding Notes to your portfolio through a fund or partnership may be right for you.
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