If you’re thinking of diversifying your real estate investments, it’s most likely because you want to increase your returns and protect yourself against real estate blips. That’s why it’s definitely wise to consider different neighborhoods or states as part of your portfolio.  

Still, it’s a little intimidating to branch out into the unknown. How can you ensure that your investment will be a good one, and how can you effectively manage a property (or properties) long-distance? 

It definitely can be done (and done well!), but it’s important to consider certain questions before making an offer in a non-familiar location: 

What are your goals? Different real estate investors have different goals. Some are more interested in the level of monthly rent and others are looking for home price appreciation—so know what you are looking for. 

Familiarize yourself with the area so that you understand the market. Is rental housing stock in this neighborhood or city limited? What are the homes like? Are they outdated and in need of renovations? Is it worth purchasing lower-priced homes and renovating them? Will the area support higher rents for better homes? Make sure to crunch the numbers to calculate the ROI on a renovation before diving in. 

What are the demographics? How do home ownership rates compare to rental rates? What’s the unemployment rate? What is the average annual household income for the area? All of these stats play a big role in understanding what the market and the neighborhood can support. 

What is the average purchase price compared to the average monthly rental? Is the monthly rent enough to justify purchasing the real estate property so that you make a profitable real estate investment? 

Are the jobs mostly skilled labor, trade work or professional occupations? Is the location near a technology, finance or healthcare hub? Professional-level jobs usually dictate higher annual household incomes. But keep in mind that along with higher salaries, typically comes higher purchase prices on homes. Here is another important area to do some number crunching to determine if the rental rate supports the purchase price.  

What are the historical trends in these neighborhoods and cities? How have prices moved in the past? Did they rise each month or each year? If so, by what percent did they increase? What impact did the recession have on home prices? 

How far away are you located? If you're not familiar with the area, it's inherently riskier to invest because you may not fully understand all of the market dynamics. If you are in the same city or state, it could be a little bit easier because all you really need to do is a thorough neighborhood/city analysis. You can drive there and get a better idea of what's going on in the market. It gets more difficult (and riskier)—but is by no means impossible or insurmountable—when you want to enter areas you’re not familiar with. Often, you end up relying on other investors or real estate agents. Make sure you do all the research you can in order to get yourself up to speed before making real estate investment decisions. 

How will you find quality professionals? The right contacts can make the difference between a good real estate investment plan and one that fails. When dealing with a distant location, you may be starting from scratch when it comes to real estate agents, vendors, handymen and property managers. It’s important to find good reliable and trustworthy partners. These people will be the key to your success or failure. 

How will you manage residents, vendors and ultimately your investment? You might also find that you’re spending more than you should for repairs and maintenance. What should have been an eight percent return ends up being a six percent return. The other two percent, you can't really put your finger on because you didn’t have the chance to put your eyes on the problem. Why? Because nobody's advocating on your behalf. After all, vendors are representing their own interests, not yours. 

Will you self-manage or use a property manager? Investors often think it will be cheaper to self-manage. But as we mentioned above, when you self-manage long distance, you have to rely on vendors who don’t have the owner’s best interest at heart. While it may seem like property management would be more expensive, often it isn’t. Good, ethical property managers can evaluate a problem in person and know how much a repair should cost.  

While you may be most familiar with Haven Homes as a property management company, we’ve also invested in thousands of properties and have successfully evaluated new real estate investment areas time and again. If you’re trying to evaluate long-distance investments, we’re happy to have a conversation to help you understand in more detail how we effectively research new locations. It’s definitely riskier to buy in an unfamiliar market because you have more to learn about the area, but it can pay off handsomely both in returns and by diversifying your portfolio.  

If you’d like a better understanding of how Haven Homes’ institutional investing techniques can increase your return on your investment, download our Guide to Fee-Based vs. Performance-Based Property Managers. Learn more now!