Investing Locally Vs. Long-Distance: What’s Better?

Investing in real estate – it’s been done forever, and it’s one of the tried-and-true ways of building sustainable wealth over the long term.

But the property you invest in can make or break any profits you make. It’ll also play a key role in the amount of hassle you have to endure to manage the property. There are a ton of decisions to make when hopping on the real estate investment train, one of which includes determining whether to buy locally, or somewhere out of state, (or even out of country).

The question is, which one are you better off with?

There are a few factors you need to consider before making this decision.

Entry Price

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One of the biggest reasons why people choose to invest their hard-earned cash outside of their local borders is because they can often find a much better deal elsewhere and get a solid return on investment. Many times investing locally means paying a much higher price just to get into the market. This is especially true for large metropolitan centers, where the entry price is often way over may people’s heads.

The most basic question to ask yourself if you’re considering purchasing locally is whether or not you’ve got enough capital to buy there. Tons of markets out there are ridiculously expensive (take NYC or San Francisco, for example), and you might not have that kind of cash to make the investment a viable one in places like these.

Market Fundamentals

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Maybe you live in a booming area that demands high rent prices. Or maybe you don’t. The fundamentals of the market you live in will play a key role in helping you determine if investing locally is a wise move or not. It’s all about the location when it comes to real estate.

If your local area is experiencing a decline in the market or isn’t exactly the most inviting place to call home, it’s probably not the best location to snatch up real estate in hopes of it gaining in value. Or perhaps you’ve already got some real estate where you are, and want to diversify your portfolio to include a variety of markets. Regardless of what your specific scenario is, it’s probably a good idea to move your money elsewhere.

Profit Types

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You’re obviously in the market to invest in real estate to make a profit, or else, what’s the point? But how you profit needs to be determined.

There are essentially two forms of profit – through cash flow (profits made from rent after expenses are deducted), and appreciation (how much property values increase over time – also known as ‘equity’).

Some markets are known to produce a decent monthly cash flow, but appreciation is pretty scarce (take the Midwest, for instance). Other markets don’t allow for much cash flow because of the sky-high expenses, but appreciation is super healthy (like L.A. or Miami). Maybe you can get lucky and find a market that offers both. Either way, it’s good to know what forms of profit you stand to collect on.

Source of Property Management

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Do you prefer to be a hands-on type of investor? Or are you OK with the expense and the level of trust needed to let a property management company do the managing for you? Investing long distance is great if you’re the type that isn’t too concerned about having to visit the place in person on a regular basis, or if there’s plenty of money in the pot to dedicate to property management.

Of course, the quality of the property management firm you employ makes a huge difference here. A crappy property manager can wind up costing you a fortune. If you’re going to be relying on your property manager to make sure your investment remains in tip-top shape, there’s a certain level of trust that is needed for that.

A good property manager can save you time, headaches, and even money if they’re one of the good ones. And if they wind up being a dud, fire them and hire another. There are definitely good ones out there – it’s just a matter of finding them. And probably the best way to do that is to chat up your real estate agent and ask them for recommendations. Odds are, they’ve got some.

At the end of the day, it all comes down to what you’re most comfortable with. That really is a huge deciding factor when it comes to investing locally versus long-distance. No investment is worth losing sleep over. And if you can sleep comfortably at night with you investment decision, you’re golden.