Creative Real Estate Investing
Means Out-of-Town Investing

In the context of creative real estate investing, one of the questions I am asked most often is, “Why are you such a strong advocate of buying out of state property?”

My answer: “Because the numbers work!”

As creative real estate investors our chief concern, with very few exceptions, should be profitability. If one is committed to holding rental property, it should be bought and held in markets that will provide the greatest return on investment.

This is the lynchpin of creative real estate investing. Of course, I am not the first to voice this opinion. Savvy investors have been doing it for years.

It never ceases to amaze me that so many investors are fixated on the idea of only buying property near where they live. Unfortunately, many of these individuals live in high priced markets where the rental income cannot support the debt service. Subsequently, most of these individuals never get started investing because they are waiting for the perfect deal. I find there are three reasons why most investors don’t look to out of state property to achieve their financial goals.

It Never Crossed Their Minds

The first reason is exposure. Oddly enough, many investors have never been presented with both the idea and the opportunity to invest outside of their immediate area. For many investors, the thought of investing outside of where they live has never crossed their mind.

Many people who live in higher priced markets are shocked to find out that there are many parts of the country where property prices are affordable and rental property has a positive cash flow.

They are even more amazed to find out these conditions exist in cities like Dallas, Phoenix, and Denver. Many of these markets are big-time cities with diversified economies that are experiencing significant growth.

Leave It to the Pros

The second reason is unfamiliarity. Investors who have never bought out of state property are fearful about the process because it is a new method of purchase and they are no longer within close proximity to their investment. Someone may be very comfortable buying a duplex in Los Angeles near their home, but suggest purchasing a duplex in Dallas and all of a sudden they get nervous. The funny thing is the transactions are almost identical with the exception of some minor paperwork and the distance.

It is the distance that scares people. It stifles their ability to engage in creative real estate investing. They feel this tremendous loss of control by not being able to drive by and in some cases manage their investment. Yet, the same person will invest his or her money in mutual funds that are invested around the world and managed by someone they do not know.

Management Concerns

The third reason is management concerns. My experience has taught me it makes sense to buy property outside of your local area when the opportunities are much better elsewhere, even if you feel a perceived loss of control.

Often investors will say to me, “The property is just too far away.” Creative real estate investors from other nations have always invested in this country. If they are comfortable investing across the seas why are so many people in this country concerned about investing across city or state lines?

Another question I routinely hear is, “Who is going to take care of my property?” Just as professional money managers manage stock, bond, and mutual fund investments so too do professional property managers handle residential property.

I have always fared well with properly selected professional management companies and firmly believe the passive investor is far better off leaving it to the pros. Most good management companies are equipped to handle the day to day operations of your investment including lease-up, collection, maintenance, and eviction if necessary.

When you get ready to make your next buy, rent, and hold investment consider “Going Where the Deals Are.” If you live in a high priced market that is limiting your ability to purchase or a market that is not appreciating, look elsewhere.

Double in Value

Remember property purchased in the right target markets will double in value every seven to twelve years. Buying out of state makes sense because the target markets are affordable.

One to four family dwellings in good rental neighborhoods can be purchased for $125,000 or less. Properties in these markets have an immediate cash flow because of favorable price-to-rent ratios. These markets are experiencing solid growth and appreciation. Remember an area that is experiencing a true appreciation of 10 percent will double in just over seven years.

Having made the decision to invest in out of state markets, the next big hurdle is developing a network of people to help facilitate the process. In other words, we are looking for individuals or organizations that can make the process of creative real estate investing much easier. The following are some specific strategies to help the creative real estate investor develop his team.

Since creative real estate investing is deal driven, the first step in investing is finding some good deals in the market you have decided to invest in. Real estate agents or brokers are best suited to help the novice out of state buyer find suitable property and learn about the area.

The local Board of Realtors can be a big help in locating the right agent or broker. Stick to agents who actively work with investors and preferably have some experience in dealing with out of state investors.

Often times, real estate agents advertise themselves as relocation specialists. These agents are very familiar with out of state buyers and can be an invaluable source of information and deals. If they are not able to find suitable investment property for you, they always work hand in hand with another agent who is active in the investment property arena.

The Property Management Company

Furthermore, having found an agent who can supply you with both information and deals, the next crucial step is finding a property management company. Again, the novice out of state buyer is better sticking with a management company than an individual. I have found using a national real estate company and a reputable property management firm is your best bet in helping navigate the waters for your first few out of state investments.

The property management firm you select must currently have a number of out of state investors they manage property for. Ask to speak with some of these clients. Do they manage property for any investors from your area?

If they do not handle property for any out of state owners or they will not refer you to a couple of investors from out of the area look elsewhere. Managing property for absentee landlords is an entirely different dynamic and you do not want to be the test case for a budding property manager – trust me!

Choose the city you want to invest in, develop a solid team to help you, and reap the rewards of affordable markets that offer cash flow and appreciation. In certain cases creative real estate investing may mean unloading property in one part of the country to achieve spectacular gains elsewhere.

Note: copyrighted information for this article supplied by tactical real estate.com, Arlington, Texas. (Copyright 2008, Tactical Real Estate, Arlington, TX)

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