In a perfect world, an amazing real estate opportunity would exist close by in an area that you were already intimately familiar with. For many people this simply isn’t the case, but it doesn’t mean you can’t invest in real estate. In fact, to limit your real estate investment opportunities based on geography is like limiting the stocks you purchase to companies headquartered in your state – it unnecessarily decreases your options and can cause you to miss out on many great investment opportunities. Remote real estate offers many people the opportunity to invest outside of high-end markets and invest instead where there’s a better chance of a higher rate of return. Though it may seem intimidating, as long as you work with a trusted professional, the process can actually be quite simple.
Real Estate vs Other Investing Options
If where you live isn’t ideal for real estate investing, you may consider scrapping the idea of purchasing property entirely and instead making other investments. While a diversified portfolio is always important, real estate can be a great investment and is often worth the extra effort, even if you have to invest remotely. Real estate is a popular form of investing for a reason. Historically, real estate has had solid returns (even accounting for 2008). Compared to many other investments, real estate has also historically had lower volatility, which means more price stability. Finally, if the property you purchase is a rental property, you’ll have a steady cash flow coming from your investment in the form of monthly rental payments.
The Appeal of Remote Real Estate Investing
You may want to take advantage of all the opportunities of investing in real estate, but where you live may make it difficult to purchase locally. Two of the reasons you may choose to invest remotely are the lower cost of properties in other cities and the higher potential rate of return.
Lower Property Costs
An inability to purchase in high end markets is one of the most common reasons people choose remote real estate investing. This is often the case for those living in more urban areas. In markets where property is cheaper, the capital needed for an initial investment is obviously lower. This opens up investing opportunities to people who otherwise may not be in a position to make a real estate investment.
Rate of Return
When investing in real estate, the 1% rule can help you decide if a property is a good investment or not. According to the 1% rule, the monthly rent should be 1% or more of the purchase price (plus any necessary repairs or renovations required after purchase). The point of the 1% rule is to ensure that the monthly rent earned on a property is more than the monthly mortgage payment. As an investor, this is ideal, because it means you are at least breaking even from month to month.
You’ll want to consider the 1% rule, but also take other factors into consideration that effect your rate of return. If choosing to invest remotely, working with a larger organization can help minimize your risk, and potentially increase your rate of return. Many larger organizations offer higher end renovations, protections such as six-month maintenance or mortgage guarantees with extended vacancies, and in-house property management and maintenance teams.
Remote Real Estate Investing and Technology
In recent years, technological advances have helped people feel less wary about remote real estate investing. Today, you have the ability to do things like “walk around” a neighborhood on Google Maps, use the internet to look up relevant information about a neighborhood, and find reviews of local agents or turn-key companies prior to working with them. With all of these capabilities, it’s not surprising that many people feel more comfortable with remote real estate investing.
Though technology can help you feel more comfortable purchasing remote properties, this is not to say that you should skip the due diligence process when investing in remote real estate. Purchasing a property is still an investment and all investment involves risk. The key to smart investing is reducing any unnecessary risk, and that includes doing your due diligence to make sure you’re make a responsible purchase.
How to Purchase Remote Real Estate
Investing in real estate isn’t as simple as investing in many other commodities, such as stocks or bonds. If you’re unfamiliar with the area you’ll be investing in, you’ll want to work with a professional. Even though technology can help you feel more at ease about investing in real estate remotely, if you’re not intimately familiar with the area you should absolutely get some outside help. You have two main options here: a real estate agent or a turn-key property manager.
Real Estate Agent
If you decide to go this route, you’ll need to work with someone you can trust. You are putting a lot of faith in this person, and you should take the time to both do your due diligence on his or her reputation as well as build a relationship with this person. If you go this route, you should also be prepared for more work on your part. The real estate agent can help you find an appropriate property, but the responsibility for any required rehab and finding renters is on you.
Turn-Key Company
A lot of investors believe they must be very involved in the management of their properties, but with a turn-key property this is not the case. When you purchase a turn-key property, all rehab has already been completed. There is also usually a property manager in place and potentially even renters. This means you have the potential for cash flow from day one. This approach involves less risk and considerably less effort on your part. A turn-key property is a more passive investment, to the degree that it is often more like a long-term investment in the stock market.
Turn-Key Investing in Alabama
If you’re considering a remote real estate investment, there are a couple of reasons why Alabama is a good option to explore. No matter what you’re investing in, you should always consider the tax implications and property taxes in Alabama are some of the lowest in the country. Alabama also has some amazing emerging markets with room for job growth. This means there are many markets with a strong potential of appreciation. Alabama has so many real estate investing opportunities that in some areas, such as Birmingham, the majority of people investing in local properties are from out of state.
The Takeaway
People often mistakenly believe that purchasing local real estate is better, but this isn’t always the case. There are plenty of circumstances in which remote real estate investing is the better option. The key to successfully investing in remote real estate is to work with someone local that knows the area and that you can trust to help you make good decisions.