Smart investors know that diversity is essential to the preservation and growth of a financial portfolio. When it comes to real estate investments, diversity means ownership in some form of various types of real property, including commercial, residential and real estate-related securities.
Investing in real estate outside your home town is a diversification strategy. Local economies differ given the same time frame, so it makes sense to consider buying in those areas where real estate prices may appear poised for an upswing.
Real estate is all about location, and each location would have specific factors that affect the present and future value of the property. Investing in out-of-town real estate is like hedging your bets. If the local economy and other developments adversely affect your investments in one place, real estate values in other locations may be protected from the downturn.
Finding Niche Opportunities in Real Estate
Being open to buying opportunities outside of your home base expands the investment possibilities. For instance, if you live and work in an urban area, it would make sense to stock your investment portfolio with office buildings and urban rentals because these are familiar to you.
When you start investing outside of your comfort zone, assuming you do the necessary research and perform due diligence, you will be introduced to fresh opportunities. In the process, you will add to your experience and strengthen your risk-taking capacity as a real estate investor.
Niche opportunities may be location specific and linked to local developments. A prime example of a niche opportunity in real estate are vacation home properties. These properties would be located in resort areas and other vacation hotspots.
Another reason to jump on out-of-town investments is that owning property in another city or state gives you an incentive to travel. It will keep you active and more involved with the world.
Taking Advantage of Better Returns
If you live and work in an area where the real estate market is in a state of flux, it may make more sense to rent here and sock away your house money on a property in a city with more stable prices. Rental income from this property can pay the rent on your current home, but you would also be building equity in the property you own.
Ease of Management
Admittedly, managing real estate investments in different places is a tricky proposition if you hope to perform the property management tasks yourself. Rental properties require day-to-day oversight to make sure that routine issues are addressed in a timely manner.
Some property problems, such as plumbing issues, require immediate attention. These are the types of minor problems that do not seem like much at the outset but can quickly turn into a major disaster without prompt attention.
How to Manage Out-of-Area Investments
If the property is within driving distance, managing out-of-area real estate may be doable. Keep a list of dependable local contractors that you can contact to act on your behalf in case of emergencies.
For real estate investments that require a plane ticket to visit, it is best to partner with a local property manager to handle rentals, security and maintenance issues.
Investing in out-of-area real estate is worth the risk provided you have a plan for managing and maintaining the property.