In the last blog we talked about choosing a market by looking at the job creation, population growth and trends, new deliveries, government planning, tenant affordability and lastly opportunity within a market. Finding a market that hits all of this criteria is difficult, but important when looking out of state.
The key to success with investing out of state is the prep work before the purchase. You may be scouring the internet, calling brokers and seeing properties that look like a fantastic deal that you can’t pass up, but if you haven’t done the prep work before you buy, you could end up getting burned!
The Prep Work
1. Decide on 1 or 2 markets that have the potential that you are looking for. Do you research on those markets in detail and get to know what is going on in the market.
2. You need to know where the market is trending, meaning the areas people are moving into and out of. What is the government’s comprehensive plan? It may be boring reading, but find out what is happening in the area. Along with that find out what companies are expanding or moving in and where most of the employees live.
3. Know and understand the good and bad areas of the city. The last thing you should be doing is investing in the worst area of the city just because the price is right. The price will be wrong and end up costing you money. I suggest printing a map of the city and color coding it or labeling it with letter grades for the areas. This allows you to better understand a city before buying.
4. Get to know Real Estate Brokers. Real Estate Brokers will be key ingredients to your success. Make sure you are calling them, emailing them and clearly communicating your expectations. Also, use them as a resource. They can help map out the city for you, talk about jobs coming in or leaving, talk about new construction, vacancy rates, etc. Some brokers may have detailed reports on the city that could save you a lot of time (just make sure it’s up to date).
5. Get to know property managers. Building relationships with 3-4 property managers is important. The manager will be the most important factor to your success after you close, so choosing wisely is important and having a back-up in case the first choice didn’t work is equally important. Property managers will also be very helpful with your market research, especially knowing vacancy rates, rental rates, etc
6. Work on building the rest of your team. You need a team that will help you be successful. Find a closing attorney, find a mortgage broker, an accountant, appraiser, inspector, surveyor, etc.
After all this is done initial from the comfort of your own home/office, you will need to visit the city.
7. Visit the city. Meet with the brokers and property managers as well as other possible team members. You need to touch the city and get a feeling of the neighborhoods. When I go to a city, I try to book meetings from 8am-5pm or later and possibly a dinner with someone. If my last meeting ends at 6pm, then I jump in the car and drive the city streets (not freeways). I drive until it is dark, taking note of the areas and buildings, When I am back to my hotel, I then process what I learned that day and prepare for the next day. For me, it is not a vacation. I am up early and going until I crash at night. I am there to learn!
With all of the prep work and finally visiting you likely will have to make a few adjustments to you original assumptions, but with some small tweaks, you will be ready to make offers. Be sure to follow up with those that you met while in town and be active right away with offers and feedback. You will quickly be forgotten otherwise.
To your Success!