5 Ways to Identify Investment Properties in Areas You Aren’t Familiar With
There are several reasons why one might consider purchasing an investment property outside of where they reside. Perhaps the local properties are priced too high, perhaps they are priced too low and riddled with a depressed market, or perhaps you just want to diversify your portfolio or buy where another family member lives (possibly where a child is in college). Buying a property is already difficult enough but the challenges are more difficult when the property is located in an area that you are less familiar with. Here are five quick tips to help you identify investment properties in those areas.
First and foremost, it’s best to identify areas that although aren’t local are areas that you have some familiarity with. It’s better to have some knowledge of the area than none at all. Perhaps it’s a place that you vacation often, your old college town, a town that you grew up in, etc. If none of those places appeal to you, then it’s best to identify areas that are similar to where you currently reside. Evaluate the school system’s, average income levels, proximity to metropolitan areas or other amenities, average lot size, average price per square foot, and other metrics. Previous knowledge or comparable knowledge will help guide you in your search.
The next best thing you can do is to dig in and begin your research electronically. Now-a-days, there’s an abundance of information and data at your fingertips. There are fantastic home search sites such as Homes.com that will show thousands of homes for sale. Many of these sites will also display the history of sale dates and sale prices. The websites most likely are pulling from a local area’s MLS but there are other sources of homes for sale as well. You can also search foreclosure websites such as HUD Home Store. Some properties are still listed in local classifieds and on Craigslist. If you have the availability of cash, you can also consider live auctions conducted at the local courthouses. Traditionally those auctions are publicly advertised through estate trustees. All of these websites are valuable tools to identify properties that are currently for sale but also can give you data about how long homes are on the market, how much they are selling for, what’s selling, and what’s not selling. Dig in and start tracking your research.
After you’ve done your own individual research on your target area you’ll likely want to begin working with local professionals in that area. Real estate agents will likely have additional tools in their belt to help you find a suitable property. They can also run a comparative market analysis and show the most accurate amounts of recent sales including seller paid concessions. A good local agent can also fill you in on what nearby homes are renting for in case you want to explore a rental possibility. A property management company would be another local expert to employ if that’s a route that you’d like to take.
Although a ton of your search can be done remotely, once you’ve narrowed down your search it’s still extremely valuable to lay eyes on the homes and the area. Buying a property sight unseen would be extremely risky. You’ll certainly want to drive around the area and get yourself familiar but it’s also very prudent to walk around the area. Get a feel for the neighborhood, the communities, and the stores nearby. Perhaps even engage in conversations with store clerks, neighbors, waitresses, and/or friends or family members whom live nearby. You may be surprised by how much locals share with you (both positive and negative).
The last tip for identifying properties in unfamiliar areas is to simply understand the risks associated with such a venture. The fear of the unknown. There may be city and/or county regulations that are different than your area. The property taxes may be higher than what you are used to. If it’s out of state or a far distance away, your homeowners insurance premium may be than estimated. Utility expenses and choices in providers may cause an increased expense. The real estate market may be more volatile than imagined. Ultimately, there may be things that are unknown at the beginning that will affect your bottom line. Using the tips above will help eliminate or expose most of these big issues but as an investor you’ll need to weigh the risks appropriately.
Investing in real estate may be one of the best investments you can make to increase your family’s net worth. In fact, a Forbes article states that a homeowner’s net worth is 45x more than that of a renter. So if you’re looking to further increase your housing wealth by buying a property in an unfamiliar area you may want to consider the tips previously mentioned. Identify possible areas, use the internet to research everything you can, select some local professionals to aid in the search, get a lay of the land, and carefully examine the risks. Ready to start your search? Start checking out some homes.