Most real estate investors start by investing in local property, but what if buildings in the area are overvalued, or if there are good deals in another city or state?
Investing outside your local area takes a different mindset than buying property in your hometown. Here are some tips to help.
Study the new region.
To get a sense of an area’s well-being, look into area statistics like crime, schools, population growth, median income and the municipality’s finances.
Growth demographics are key, says Mathieu Rosinsky, principal of Belmont Associates in Delray Beach, Florida. He looks at growth demographics going back 15 years to get a sense of trends. Some of the fastest-growing areas are Boise, Idaho; Denver; North Carolina and parts of Florida and Texas.
When looking at demographic growth, review the trend of income per capita growth, says Eduardo Gruener, co-founder and chief executive officer of Momentum Real Estate Partners in Miami. Rising income per capita means an investor’s net operating income will likely rise as residents’ income increases.
Think about taxes.
When looking at residents’ income, keep an eye on taxes. States with high income taxes or high property taxes (or both) eat into a real estate investor’s profits, Rosinsky says. Changes in the federal tax code last year limit how much people can deduct from both income and property taxes, he says. That makes investing in states like New York and California more expensive compared to a place like Texas, which has low taxes.
Follow the jobs.
If you want to invest outside of your area, look to regions that are seeing strong job growth, says Los Angeles-based Kathy Fettke, co-chief executive officer of Real Wealth Network and author of Retire Rich with Rentals. That will draw people and stir housing demand. However, she says investors need to consider affordability, too.
“San Francisco has job and population growth, but it’s not affordable,” she says.
Look for a diverse employment base, and watch for new businesses opening, Gruener says. Good signs include news stories about office complexes breaking ground or companies moving headquarters to an area.
“Look for things that are going to happen,” he says.
When Gruener’s firm bought a property in Dallas, they narrowed their search to an area with good schools and a good employment base. Then they learned Toyota Motor Corp. planned to open a major office complex close to their property.
“We knew Toyota was going to open a new office complex, but they still needed to buy the land and build,” he says. Eventually “they would move employees there. You always want to look at areas of new opportunities and new employment.”
Areas that are experiencing revitalization can be good places to invest, but buyers need to be cautious. Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan, says investors