What’s better — local or out-of-area real estate investing?
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.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
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.
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.
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.
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!