Smart investing, smart due diligence, on-site inspection

If you are an investor on the coast (California or New York) then you know that the prices of your real estate are highly inflated.  Some of us like to invest in out of state markets and there are several ways to do that.

Invest in your own ventures

Pros:

• Full control of your asset to buy and sell as you see fit.
• Not having to share any profit with partners or investors.
• Ability to influence performance of your assets.

Cons:

• Limited ability to invest in all of the projects you want to take on.
• Requires management of all project operations.
• Difficult to learn many new markets (for diversification).

Investing with an operator (syndication)

Pros:

• Ability to invest smaller portions across many different investments.
• No management or operational stress.
• Once you learn an operator and establish trust you can reinvest multiple times.

Cons:

• Initial due diligence on an operator can be time consuming.
• Limited or no control of an asset's operations.

Now that the pros and cons have been established (mind you there are plenty more of both) we can begin to break down the importance of on-site due diligence regardless of whether you use an operator or are investing yourself.

Many people believe that with Google maps and modern technology it is no longer necessary to check out a market and conduct on-site due diligence.  This is not a good idea and here are some reasons:

• Google maps isn't always up to date (especially in smaller markets)
• If you are dealing with an operator you will want to conduct separate due diligence in addition to whatever information the operator gives you.
• If you are investing on your own you will want to walk the site and set up your team.  This can include: real estate agents, brokers, architects, engineers, lawyers, property managers, and any other type of team member that you should interview in person.
• If you conduct a week of due diligence (at least) then you may find that the property that looked so good online now does not look as good in person.
• Upon finding new information of an area you may find properties that are better (off market).

There are, of course, many more reasons to go on-site when investing out of state, but I believe that covers enough to convince anyone who is thinking of investing out of state to perform proper due diligence.

Lastly, if you are considering investing out of state then remember that the economy of each different region in the US works slightly differently and it should not be a shock for the market trends in Tennessee or Mississippi to be different from California or New York.

Dmitriy