Going the Distance: Should You Invest in Out of Town Real Estate?

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It’s easy to be tempted by out-of-town investments that seem to be a great opportunity. Sometimes they are outstanding deals, but are they good deals for you? Hurricane Katrina left an extremely devastated area that became the GO Zone. Mega storm Sandy blazed its own trail of destruction that will lead to opportunities for many. However it could also be an investment disaster to some. Investing out of your own geographic area is not for everyone.

I’ve had my own experience with long-distance investing and learned a number of hard lessons. My first foray into that arena was investing in Las Vegas real estate while I lived in New York. This was back in the 1990s, long before the real estate bubble. The properties were a good deal and great rentals yet I didn’t make much money on them by the time I finally sold them. The problem was that distance magnifies your cost and diminishes the amount of control you have. You have to rely on property managers unless you want to hop on a plane every time there’s a problem. After that experience I stuck with investments in my own back yard for many years. I eventually did try out-of-area investments with much more success because I refined my strategies.

Keeping it Close

After that first foray I kept my investments extremely close. I actually lived in houses as I rehabbed them. I kept doing that until I moved to Las Vegas about ten years ago. My time of living in my rehabs was over at that point and I began to hunt for other opportunities near where I lived. Unfortunately the market had started to heat up and I found nothing that I thought was reasonable. That was when I started to look outside my area again. I would be smarter this time.

My number one priority was that I needed to be able to drive to my investment area and return in the same day. That limited me to about 250 miles. That’s not to say that I was commuting to these properties, but I could get there quickly when the need arose without getting on a plane. That’s something I have had to do quite a few times over the years. It also allowed me to make short trips of a few days to meet with contractors, property managers, and real estate agents. Those were things I wasn’t able to do easily with investments that were further away.  

Factor in Other Costs

When looking out of area be sure to factor in the cost in both time and money of dealing with you properties. These are not small issues. Airfare, hotels, rental cars, and other travel related expenses add up very fast. There is also a significant amount of stress involved. Time away from family, friends, and other investment properties takes a toll of its own. Some of these things are hard to put a monetary figure on. So if you are tempted by the opportunities presented by Sandy, or some other out-of-town deal, think it through before you act. I know several people who jumped on the Katrina GO Zone and lived to regret it. There are opportunities for sure, but are they right for you?

When written in Chinese, the word “crisis” is composed of two characters. One represents danger and the other represents opportunity. – John F. Kennedy

Photo Credit: U. S. Fish and Wildlife Service

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8 Comments

  1. Great post! I completely agree with you, although after my long distance investing experience, I’ve decided to keep all investing within an hour of my home. My long distance investment property should have blown away all my local investments. However, like you said, the distance seems to multiply the costs. I also ended up with a property manager who wasn’t very honest, and didn’t keep good control. While there can be some great long distance investments, I don’t like the lack of control when doing things from a distance.

  2. The vultures and sharks are gathering for all the opportunities they think are available after the big storm went through. Hope they end up losing a lot for their efforts in trying to take advantage of others misfortunes.

  3. Richard,

    This post is timely, my wife and I have been discussing this very topic.

    Has newer technology helped improve long distance investing for you? What would make you consider investing further than 250 miles?

    Jason

  4. Richard Warren on

    At this point nothing would make me consider investing further away. But that’s just me, for some people this is a perfectly acceptable pursuit. The point of the post is that you need to weigh the options very carefully and choose what is the best course of action for YOU. Plenty of people have done extremely well with long-distance investing.

  5. More useful additional information would be identifying strategies to effectively manage properties from a distance. I do like your 250 mile rule. Most investors can get to good cash flowing properties within 250 miles. A few thoughts on managing properties from more than 40 miles away.

    * Screening PMs for integrity, checking references from other owners, visiting some of their properties, talking to local investors and REI club members.
    * Best practices for maintaining good communication with PM. Frequency of meetings, content of reporting, clear targets for maint/repairs, vacancies, etc. (as a percentage of gross potential rent).
    * Get exact detail of maintenance work performed and time/materials required to do the work.
    * Best practices for ensuring accounting processes used by PM do not permit shenanigans, such as collecting rent on vacant units.
    * Monitoring of PM’s marketing efforts and web postings when leasing your vacant units.
    * Obtaining copies of leases and new tenant paperwork, possibly even requiring your signoff on new tenants.
    * Having a local trusted contractor/handyman who can monitor and spot check on PM maint work. Just the threat of this should help keep the PM honest. (Many are basically honest but there is a lot of temptation to overuse their maintenance staff to increase profits.)
    * Having periodic unit walk-throughs, checking condition, furnace filters, sink/toilet leaks, etc.
    * Consider using a PM for leasing, rent collection, and tenant communication, but use your own trusted handyman for maint and repairs. (This may get a lot of pushback, since PMs make a lot of their profit from maintenance.)

  6. Because we live in a great area (our backyard is filled with opportunities!), I would never consider investing at a distance – I don’t know all I need to know about the area and too much I can’t control.

    Thanks for the post.

  7. Can’t really agree with that one. My best investments are continents away from where I live, simply because conditions, availability, affordability and market cycles now dictate it. I think it boils down to picking the right country for your personality traits, then building the right team/s in that country – and that property could theoretically be on one of those new asteroid mining towns they’ll soon be building, as far as the investor could care.

  8. I’m with Ziv on this. I’ve made out alright on my investments in Beijing, where I live, but I’m doing just fine now, albeit with still some self-inflicted internal angst over the distance, with my investments in the US. But echoing again, as Ziv points out with the right team in place long distance investments can be more lucrative than local ones – market conditions apply. Creating and building the team is the itch – but not one that need scratching with due diligence.

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