Why People Invest In Real Estate
There are three main reasons Canadians invest in real estate.
Low bar to entry. Real estate investing is so popular primarily because it requires such little knowledge. Almost anyone can figure out how to buy and sell a property and rent it out. There are even firms specializing in managing investment properties, which takes away a large portion of the headache. In contrast, investing in the stock market tends to intimidate people. .
The power of leverage. Banks are willing to lend out piles of money for real estate at near-historic low interest rates. Mortgage debt reached nearly $1.44 trillion in 2018, almost eclipsing our GDP. But mortgages, a burden on principal residences, are a boon for income properties. Leverage is an extremely useful, albeit risky, tool in investing. Gains are magnified, and so are losses. They allow investors to use very little of their own cash while getting someone else to pay their debt and build their equity. You can use leverage in any kind of investment, but the banks will lend much smaller amounts at higher rates. This factor alone makes real investing attractive.
Tax benefits. Nothing eats away at returns like taxes. And like most businesses, real estate investing has several tax advantages. Investors can deduct mortgage interest, just like any other sort of investment loan . Investors can also defer income taxes by claiming property depreciation, not to mention write off any expenses for maintaining and running the property.
You Dont Know The Market
The first challenge in purchasing rental properties out of state is that you dont know the local market. In short, you dont know the best neighborhoods . You also dont know the economic trends, how the population has changed , or the local politics that might influence further development. Simply put, unless you are pounding the pavement, you dont have an intimate understanding of the local market.
Real Estate Factors To Consider When Deciding Where To Invest
There are countless factors to consider when going into real estate investing, but these are the four that I focus on when searching for a new city. This is not a comprehensive list of every single thing you should look into. However, these are the factors I start with.
With my search, I start by considering these four macroeconomic factors. Macroeconomic factors refer to large scale trends and characteristics of the area, as opposed to microeconomic factors.
Several publications list macro trends they believe will shape the real estate market in a particular year. The Urban Land Institute is a good source that typically puts out solid research on an annual basis. The four macro factors I start with when considering a metropolitan statistical area are:
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Use An Online Real Estate Investing Platform
If youre familiar with companies such as Prosper and LendingClub which connect borrowers to investors willing to lend them money for various personal needs, such as a wedding or home renovation youll understand online real estate investing.
These platforms connect real estate developers to investors who want to finance projects, either through debt or equity. Investors hope to receive monthly or quarterly distributions in exchange for taking on a significant amount of risk and paying a fee to the platform. Like many real estate investments, these are speculative and illiquid you cant easily unload them the way you can trade a stock.
The rub is that you may need money to make money. Many of these platforms are open only to accredited investors, defined by the Securities and Exchange Commission as people who’ve earned income of more than $200,000 in each of the last two years or have a net worth of $1 million or more, not including a primary residence. Alternatives for those who can’t meet that requirement include Fundrise and RealtyMogul.
» Ready to start investing?Best real estate crowdfunding platforms
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The Cons Of Buying A Rental Property Out Of State
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Far Distances
Buying a rental property out of state is not all rainbows and sunshine. At its worst, itâs all about gas money and time. Buying an income property in a housing market that is very far away is the most obvious issue that can arise from buying a rental property out of state. The wasted time and money used on the property could have been used more productively, especially on properties in your local real estate market.
Hereâs a tip to avoid this con: invest in real estate markets that are not too far from you. If the deal is too good to pass on, and the property is a considerable distance from you, consider hiring professional property management. This will solve many of the issues of being so far away from the rental property.
Not all properties out of state have to be located hundreds of miles away from you. If you use Mashvisorâs investment property calculator and heatmap, you can find properties any distance away from you as you please. To learn more about the incredible heatmap, read this: âFinding Income Properties Using a Heatmapâ!
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Cannot Deal with Problems Quickly
This relates to the previous con. Being far away from the property means you canât deal with any issues that arise in sufficient time. If a pipe bursts, you donât want your tenant to watch the house get flooded until you arrive. Like the solution to the previous problem, your best bet is to hire professional property management or have a handyman who can arrive on short notice.
You Probably Wont Get The Best Deal
The second thing is you will not get the best deal. Everyone I talk to says they are awesome at conducting due diligence online, looking at all the stats and demographics and all of that mumbo jumbo. Do you really think that youre going to find a better deal for a better price than someone like me who is in the office 14 hours a day, who has done over 500 deals? I know everyone in town, Im a cash buyer, and I know every rock to look under. The likelihood of anyone out-of-state or country finding a better deal than me is once again next to none.
So when you are investing out-of-state, you have to understand that youre probably going to be paying more than you should for the property, and hopefully youre not going to be paying more than market value if youre investing through a turnkey company. But like I said, I just dont think that you are going to get the best deal, and thats something that you have to add into your calculations when looking to buy the property. Another thing is youre going to get nickel-and-dimed with miscellaneous costs because again, the cat is not in town. So you also have to take that into consideration when calculating your return on investment. You have to remember to underestimate your income and overestimate your expenses.
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How I Started Out Of State Real Estate Investing In Rental Properties
When I first started investing, I was living in California.
In 2007, the housing prices were ridiculous, so I started looking in Ohio, Texas, and Illinois. I ended up starting buying my first property in Ohio.
There were a lot of things I learned about what to do and what not to do when looking for a new area of the country to invest.
Why Cheap Things End Up Being Expensive
Knowing how to invest in real estate overseas means knowing when its worth paying a little more for a better investment.
Of course, within a city itself, there are low-cost opportunities that people are drawn to. Dont make the mistake of going somewhere that seems inexpensive, instead of something with longevity.
Using Bogota as an example, there are cheap apartments all the way up in , and I guess there is some potential to rent out property there. But those properties are far removed from downtown.
Id rather buy in the 80s or 90s numbered streets where youre essentially in the Beverly Hills of Bogota. This area has a core demand because of its businesses, malls, and the like. Its where everyone wants to be.
Here in Latin America, theres an expression that I think is very applicable in this situation, translated its: Cheap things end up being expensive. Budget items are often that price for a reason because nobody would buy them otherwise. Dont allow yourself to be lured into buying something low-cost when you could buy into something great instead.
There is, of course, a place for personal lifestyle choices. For example, I have a house in Tivat, Montenegro, which is a coastal town. I bought it to be as close to the yacht club as I could and it also has a view. All these things help give it the best fighting chance for retaining value and appreciating.
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Myth #2 It’s Important For You To Be Nearby To Deal With Maintenance Emergencies
Ahhh, the proverbial 2 a.m. toilet break. A landlord’s worst nightmare, right? Personally, I’ve never run into anyone who has had this actually happen to them. This is one of the anecdotes that is shared around the dinner table from a friend of a second cousin’s brother’s uncle.
Some real six degrees of Kevin Bacon story right there.
When it comes to maintenance, the reality is often very different. Chances are, the stereotypical issues that people causally associate with landlording will be completely different from what you experience.
HVAC issues and freezing pipes were the soup du jour of common problems that we faced last year. This year, who knows what it will be.
Systems and teams are what will make or break you in being successful. Set them up no matter where you are located.
I’ll talk more about property managers below, but they are so helpful with maintenance. They handle the calls for you and have the Rolodex of contacts who can get things fixed ASAP. With the right team, fixing these things from a distance is no big deal.
> > Related: The role of the residential property management company
Plus, the toilet does not care where you physically are or who is going to fix it. If it breaks, it breaks at the most inopportune time, and that is that. And even if you do live near your rental property, that doesn’t mean you know how to fix something or know someone who can hop over in a jiffy.
Alternatives To Real Estate Investing
Real estate investing is just one option if you want to build wealth. Securities like stocks and bonds offer a much more liquid place to stash and grow your money and dont tend to rise or fall with the housing market. And dont worry: You no longer have to be an expert at understanding p/e ratios or spend time pouring over annual financial statements. Automated investing takes out all the hassle and the guesswork.
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How To Find The Right Contractor When Investing Remotely
Finding the right contractor to join your team is the next step of the remote investing project. Managing multiple subcontractors remotely may not be as efficient as looking for a general contractor. Time is money. Having a general contractor simplifies the remote rehab process with one point of contact.
Search the BiggerPockets Forums for contractor recommendations. Utilize the experience of your team, and check with your real estate agent and property manager for their suggestions. They may have people to recommend, as well as companies to avoid. Contractors that specialize in fix and flips may have suggestions that lower your expenses.
Looking For Rental Investment Properties Heres Why Investing Out Of State Could Be Your Best Bet
Dave SweyerDoing Your Investment HomeworkResearch the AreaBuilding a Team of Real Estate Professionalsproperties that are in high demandpreparing the property for the rental marketthrough our websiteSweyer Property Management is a full-service professional property management company that specializes in all aspects of rental management. If youre an investor or property owner looking to learn more about our services and what a professional property manager can do for you, reach out to us today at 910.256.3031 or via our website.Sweyer Property Management has exhibited continuous growth throughout the Wilmington, Leland and Hampstead areas while maintaining an excellent rating for customer service. To inquire about the companys full-service management services or to take a tour of homes for rent in the area, visit them online at WilmingtonForRent.com. Please Like and Follow the Sweyer Property Management and Pages for property management tips and to see properties available for rent.
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How Do You Manage Your Properties If They Are Located Out Of State
This is one of the most challenging parts of real estate investing. Nobody will ever take as good care of your property as you will, but managing yourself from across the country is not a good idea. Especially when you do not have a strong team on the ground .
I currently work with a manager or management company in each market, and I self-manage in California. It is different in every market, as some states require that you are a licensed real estate agent in order to manage, and other states dont.
I prefer working with someone that allows me to be a bit more hands-on, but recommend a larger management company to newcomers, as it is easier to have someone more experienced, should problems arise
Learn More:
Before You Buy Out Of State
If you’re still intent on buying out-of-state, be sure to heed these additional warnings. Do not buy sight unseen. Online information on a property can be out-of-date or incomplete. A local real estate agent or property owner might lie to close a sale.
If you unwittingly become the owner of a nuisance property that violates health and safety laws, you can be on the hook for code violations that are time-consuming and expensive to fix. If a property has been vacant for long enough, it can develop maintenance issues that can be solved only with a bulldozer, and you might be on the hook for the demolition bill.
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Get Started On Your First Investment Property
When it comes to choosing an investment property, there are several things to consider in terms of how the home can provide a return on investment. Now that you have a few methods for making that decision, it may be time to start your real estate investment journey. Speak with a Home Loan Expert today to find the best financing solution to get you on your way.
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How To Invest In Real Estate As A Foreigner
From a historical standpoint, even before becoming its own independent country, the US has always been the exception when it comes to land and real estate. It used to be the case that settlers received a land grant upon crossing the Atlantic, assuming that they didnt owe anyone money.
Hence, from before its foundation, the US has been overly centered on real estate.
Compare that with the likes of Europe, where it was mainly aristocrats and merchants that controlled the land. Then, when communism came along, the bureaucrats were the power that divvied up the real estate.
In other words, in the US there has always been a culture of trading and selling real estate on a much freer basis. Whereas in places like Eastern Europe, most sellers have been living in the house theyre selling for their entire lives.
Because this land speculation culture does not exist, there just hasnt been a need to develop the necessary infrastructure to buy and sell a property quickly and transparently in many countries overseas.
For the most part, you have to depend on real estate agents who, in turn, have mediators that go into their communities and find deals for them. Each and every single one of them gets a piece of the pie.
Because properties have historically been so difficult to acquire in these locations, the assumption is that the one with the property is the one that controls the negotiation. Hence, all these little add-ons will be tacked onto your bill.
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