Real Estate Investing Basics

An Investor Analyzes: What’s Better, Local or Out-of-State Real Estate Investing?

Expertise: Commercial Real Estate, Personal Finance, Real Estate Marketing, Business Management, Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
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What’s better — local or out-of-area real estate investing?

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There are very strong advocates for either sticking to loyally investing in your local property market or casting a very wide net. So who is right? Or does it completely depend on the market and your individual plan?

It is very important for every individual to recognize the media spin and bias of different investment operators. It is hard not to be biased, and they may have the best options — just be alert and think for yourself. Make sure the recommendations you are considering are really in your best interest and match your goals.

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Stay Close to Home Before Testing Outside Waters

Personally, I normally advise newer investors to stay close to home, especially for the first few deals, before venturing out of state. There are a few reasons I feel this really makes sense. The first is just getting the learning experience. If something goes wrong, you can drive down the street and take over. You also know the local market better than somewhere you rarely visit. It helps to make better decisions and get better value. 

Related: 3 Reasons Beginners Don’t Invest Out-of-State (& How to Overcome Them!)

Eventually, it makes sense for all investors to expand and diversify into more distant markets. This is for different reasons than why stock market investors recommend diversifying broadly. In stocks, even the best and most experienced advisors acknowledge they have no control over performance and have no idea what will go up or down. That’s a little different in real estate because it’s more tangible. Yet it is smart to diversify to optimize performance over time, to keep income consistent, and to defend against factors like earthquakes or even an economic downturn.

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When Newbies May Want to Consider Out-of-State Investments

Still, it is true that some investors are better off investing out of state — and perhaps even first. Perhaps you are in a market like California and you simply can’t afford to get started in real estate locally or the numbers just don’t work for finding cash flowing rental properties. In this case, investors should absolutely look further afield. Once you’ve made some money, you can always add a place in San Diego, Los Angeles, or San Francisco later on, when the numbers make more sense.

Related: Interview With a Bi-Coastal Investor: Why I Purchased My First Multifamily Property Thousands of Miles Away

In making your decision, revisit your ultimate goals, your timeline, and your resources. Can you invest into a small portfolio of cash flowing properties with good value locally? Or do you have to look further? Is it smarter to lock into more profitable deals up front and grow with your gains? Or gamble on one property where the numbers are already very tight?

Personally, I prefer to invest in common sense bread and butter markets first. And while I love to travel to more expensive and exotic locations like Miami, any “investments” made there would be more likely to be fun splurges.

Do you prefer to invest in your local market or in out-of-area locations? Why?

Leave your thoughts below!

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling w...
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    Michael Sadler
    Replied over 4 years ago
    I find that new real estate investors that use free internet marketing like social media attract deals that are out of state.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Interesting point Michael. Are you saying new real estate investors are using platforms similar to facebook to find motivated sellers?
    Fay Chen Investor from Los Angeles, California
    Replied over 4 years ago
    I bought a duplex out-of-state last December. 5 months later, I’m still struggling to get it on track. Fortunately, I don’t depend on it, and I’m learning so much from this little piece of **** property. I’m going to push through the problems. But my next purchase is definitely going to be local.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    That is very unfortunate to hear Fay. But great news is you can learn from this experience & do better on the next purchase.
    DeAnna Fraser Real Estate Investor from Bronx, New York
    Replied over 4 years ago
    Good read!! I’m in New York and everything is expensive here. However, I am still marketing here but out-of-state as well in markets where I have family, friends, realtor connections, etc.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 4 years ago
    Have you found any good deals through your marketing this year, Deanna?
    John Mathewson Developer from Hobart, IN
    Replied about 4 years ago
    Difficult question to answer but great article. We are fortunate enough to have some awesome deals right here on our own market.