Real Estate Deal Analysis & Advice

Difficult Market? Here’s How to Begin Investing Elsewhere

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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You want to get started in real estate investing, but your local market seems tough. Is it time to look elsewhere for opportunities? Probably!

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If so, when and how should you start investing from afar? And in which other markets should you be looking?

The Challenges of Getting Started in Real Estate Investing

It can be challenging to get started in real estate investing—even during the best of times. It can seem even harder in some markets and some phases of the market.

Those who succeed are those who realize that the best time to start is now, and find a way to do it in the face of any challenges.

Real estate investing may appear especially difficult if:

  • You are in a declining market
  • Competition is incredibly high
  • You have very limited resources
  • Property prices are very high

Conditions may be discouraging if you are in a high-cost market, with the average home priced at more than a million dollars. Fierce competition to land deals doesn’t help, either. What’s worse, the market might seemingly be declining at the same time, yet you still don’t have the cash on hand to even put a 20 percent down payment on one property. 

But don’t give up! There are workarounds—even in these conditions.

Related: Looking to Invest Out-of-State? Here’s How to Pick and Analyze a City

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When Does It Makes Sense to Invest Out of Your Area?

There are opportunities everywhere, all the time, if you can be creative and are willing to work for them. However, there is also a lot to be said for investing with common sense, going where you can get the volume of deals you need, ROI on your time and investment, and geographic diversification.

Just because you can do a deal locally, doesn’t mean it will offer the best return—especially not for the amount of work and risk required. If you can find better value with better returns and lower risk in another city, then it’s definitely something worth exploring.

At a minimum, you have a responsibility to yourself to get the best results you can, even if you have no one else relying on you. If investing elsewhere seems intimidating at first, consider doing a couple of deals close to home, and then make up the volume by investing out of state in a more affordable destination.

You might find you can pick up dozens of rental apartments in another city for the price of just one home down your street. That diversification can help balance your portfolio for the long run, too.

Also, if you are in a high-priced area that may have peaked, it just makes sense to look to markets that are at less risk of taking a deep dive right after you buy. Otherwise, you’ll find yourself in that new car situation, where you can lose half your money as soon as you drive off the lot. You’ll always be upside down.

Where to Look & What to Look for

It remains true that cheaper isn’t always better. So just because a market has a lot of properties available, doesn’t mean it is better, either.

Here are some of the factors you need to consider:

  • Basic economic fundamentals
  • Affordability of housing
  • Price to rent ratios
  • Direction of the market
  • How much diversification you can get for the dollars you have
  • Degree of investor friendliness

Related: 4 Must-Haves When Investing in Out-of-State Rental Deals

How to Evaluate a New Market

Obviously, it is optimal if you can visit new markets yourself and be the actual boots on the ground instead of finding others to serve this role for you. It will give you a much better feel for what is going on and the value you can get in the area. 

But if you don’t want to be flying all over the map for months, running into dead ends, then begin your research online. Electronically connect with real estate professionals local to the market you’re looking—or pick up the phone and call them. BiggerPockets is a great free resource at your fingers tips to help you locate these people. Travel once you have created your shortlist. 

After that, test the waters. Invest, evaluate, and repeat.

The Bottom Line

It can be frustrating and discouraging to get started in real estate if you are in a tough market in a rough part of the property cycle. Don’t give up though. There are opportunities if you look and are creative.

Yet, you may find it far easier and more profitable to at least temporarily engage in other markets. It’s all about the numbers. Where will you get the most value, take on the least amount of risk, and find the volume you need to hit your financial goals?

Considering investing elsewhere? Have you chosen an area? Have you visited? How is the process going for you?

Share your experience or questions in the comment section 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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    Vaughn K. from Coeur d'Alene, ID
    Replied over 1 year ago
    One of the things is many people seem to think “I live in CA/NY/etc, there are NO deals anywhere around here! I’ll have to buy something half way across the country, and I don’t want to deal with that.” But it’s really not true. Even CA and NY have deals within a couple hours drive of insanely expensive cities. I live in WA, and am investing away from the craziness that is Seattle. I am also planning on moving the direction I will be investing in, but even if I weren’t once you get a couple hours away from here the deals start getting dramatically better cash flow wise. If you’re planning on going big, maybe investing in some ULTRA high cash flow midwest city is where you want to be… But if you want a happy in between, better cash flow than local, but not too far away, everywhere has such areas.
    Susan Maneck Investor from Jackson, Mississippi
    Replied over 1 year ago
    One advice I have is avoid Turnkeys. You pay a premium for those. If you are going to invest out-of-state make sure it is a state you know, an area you know, and people you know to work with. I own properties in two states, California and Mississippi. While those two areas are worlds away I understand how real estate works in both places. In fact I live in both places at least part of the year.