Long-distance real estate investing can be a great way to increase your income and build wealth. It offers the potential for higher returns, diversification of your portfolio, and more control over how you manage your investments. However, there are some important things to consider before committing to long-distance real estate investing. Let’s take a look at what you need to know before taking the plunge.
What Is Long-Distance Real Estate Investing?
Long-distance real estate investing involves purchasing properties in other parts of the country (or even the world) without being physically present. This type of investment can be done remotely through online research and communication with local realtors and property managers. It can also include hiring a professional team of advisors who handle all aspects of the investment remotely, such as researching potential investments, negotiating terms with sellers, financing options, and managing the property once it is purchased.
Advantages of Long-Distance Investing
Access to more investment opportunities
One of the biggest advantages of long-distance real estate investing is that it allows investors to purchase properties outside their local market—which can often offer higher returns than their own area. By looking beyond their local market, investors can potentially find more attractive properties with higher returns and greater diversification. This can be especially beneficial for investors in smaller or more saturated local markets, where finding new investment opportunities can be challenging. Additionally, long-distance investing may allow investors to take advantage of emerging or up-and-coming markets, where there may be greater potential for growth and appreciation. Overall, the ability to access a wider range of investment opportunities can help long-distance investors build a more robust and profitable real estate portfolio.
Ability to invest in growing markets
By expanding their geographic reach, investors can take advantage of up-and-coming markets that may have stronger growth potential than their local area. This can be especially beneficial for investors in areas with stagnant or declining markets, or for those looking to diversify their portfolio and reduce risk. Additionally, investing in growing markets may offer opportunities for higher returns and appreciation, which can increase the potential profitability of the investment. Overall, the ability to invest in growing markets is a key advantage of long-distance real estate investing that can help investors achieve their financial goals.
Lower purchase prices
Depending on the market and the investor's location, properties in other areas may be more affordable than those in the investor's local market. This can be especially beneficial for investors who are looking to expand their portfolio and purchase additional properties, as lower prices can lead to greater overall profitability. Additionally, lower purchase prices can offer opportunities for investors to enter the real estate market with less capital, which can make investing more accessible and achievable for a wider range of people. Overall, the ability to purchase properties at lower prices is a significant advantage of long-distance real estate investing that can help investors build wealth and achieve financial success.
Potential for passive income
By using property management software, investors can generate income from their investment without having to actively manage the property themselves. This can be especially beneficial for busy investors or those who live far from their investment properties. By choosing the right property management software, investors can ensure that their properties are well-maintained and that any tenant issues are handled promptly and professionally. This can help to reduce stress and workload for the investor, while also providing a steady source of passive income. The potential for passive income is a key advantage of long-distance real estate investing that can help investors achieve their financial goals.
Flexibility in lifestyle and location
By investing from a distance, investors can choose the best investment opportunities regardless of where they happen to be based. This can offer greater flexibility in terms of lifestyle and location, allowing investors to pursue other interests or commitments while still building their real estate portfolio. Additionally, long-distance investing can allow investors to live in lower-cost-of-living areas while still investing in potentially higher-return markets. This can help to reduce living expenses and increase overall financial flexibility. The flexibility in lifestyle and location is a significant advantage of long-distance real estate investing that can help investors achieve their financial and personal goals.
Risks Involved in Long-Distance Investing
As with any investment strategy, there are risks involved when investing remotely, especially if you are not familiar with the local market or don’t have someone experienced handling your investments for you.
Difficulty in managing the property
When investors are not located in close proximity to their property, it can be challenging to oversee maintenance, repairs, and tenant issues. This can result in delayed responses to tenant complaints, missed opportunities to address maintenance issues before they become costly, and difficulty in finding trustworthy local contractors. Property managers can help to alleviate some of these challenges, but they may also come with additional costs and require a degree of trust in their abilities. Overall, the distance factor can make it harder to effectively manage the property, potentially leading to lower profitability and more headaches for the investor.
In addition to the standard expenses associated with property ownership, such as property taxes, mortgage payments, and insurance, long-distance investors may also incur additional costs like travel expenses and property management fees. These expenses can add up quickly, cutting into potential profits and reducing the overall return on investment. Furthermore, long-distance investors may face higher insurance premiums, as insurers may view them as a higher risk due to their physical distance from the property. In some cases, long-distance investing can simply be too expensive to make it a viable option.
Limited market knowledge
Investing in an unfamiliar market can make it difficult to assess a property's true value, growth potential, and risks. Without a deep understanding of local market conditions, investors may struggle to make informed decisions and may end up overpaying for a property or making poor investment choices. Additionally, long-distance investors may miss out on emerging trends and opportunities in their chosen market, as they may not have the same level of access to local networks or be able to keep as close a watch on market developments. Limited market knowledge can ultimately limit an investor's ability to make smart investment choices and achieve their financial goals.
Lack of personal touch
When an investor is not physically present in the same location as their property, it can be difficult to establish personal relationships with tenants, contractors, and other local stakeholders. This can make it harder to build trust and credibility and may result in difficulties when it comes to finding reliable contractors or resolving tenant issues. Additionally, without regular in-person visits, investors may miss out on important details about the property and its local context that could impact their investment decisions. Overall, the lack of a personal touch can make it harder to effectively manage the property and may hinder an investor's ability to build a strong reputation in their chosen market.
Risk of fraud
When investing in a market that an investor is not familiar with, they may be at a higher risk of falling victim to fraudulent schemes or deals. Scammers may prey on the relative ignorance of long-distance investors and use fake listings, forged documents, or other tactics to extract money from unsuspecting individuals. Additionally, without a personal connection to the property or the local market, it may be more difficult for an investor to detect fraudulent activity or to spot red flags before it's too late. Overall, the risk of fraud can pose a significant threat to long-distance real estate investors and requires extra caution and due diligence to mitigate.
Overall, long-distance real estate investing can be a great way for investors to gain exposure to different markets and potentially increase their returns on investment—as long as they understand the risks involved and take steps to mitigate them. If done correctly, this type of remote investing could be a great way for savvy investors to diversify their portfolios while still maintaining control over their investments from afar. Before embarking on any investments, though, it's always best practice to do your due diligence and fully understand your individual goals so that you make educated decisions about where and how you spend your money.