Is your market over-saturated or just plain boring? Have the mass migrations of the past three years turned your thriving buyer’s market into a ghost town in the making? There’s good news: you can invest somewhere else even if you can’t move or visit a new market. With modern technology, there’s absolutely nothing forcing you to invest in a declining or dying market.
Now, you can become a long distance real estate investor by leveraging virtual tools, in-depth data, and cutting edge technology to discover winning properties, even if you’re 3,000 miles away. And in this blog, we’re going to show you how to use all of them to your advantage. So whether you want to open the door to new opportunities or cash in on distressed properties, this guide will give you the steps you need to get started.
What is virtual real estate investing?
Virtual real estate investing is the process of using modern technology to identify investment opportunities without visiting properties in person. It’s a relatively new concept, since up until a few years ago, there were a select few ways to find real estate deals. They included driving for dollars, networking with real estate agents, and placing bandit signs in highly trafficked areas.
At that time, if you lived in a market with a limited number of opportunities, you had to get to leads first on a regular basis or you wouldn’t have a chance to build a profitable real estate business. But now you can use data-informed tools like real estate lead generation software to search for properties that meet your criteria in any market you want.
Things you should do
Of course, along with all of the benefits associated with long distance real estate investing, there are still risks involved. Here’s a list of things you should do and things you should avoid to help you find success in virtual real estate.
Harness the power of property intelligence
When you decide to invest in real estate in another market, the first thing you need to do is identify a way to find and evaluate deals. One must-have is a way to search for various kinds of motivated sellers. These include pre-foreclosures, tired landlords, absentee owners, and divorcees.
However, having a way to search for motivated sellers isn’t enough. You also need a way to evaluate opportunities and weed out the properties that aren’t worth investing in or won’t provide an adequate return on your investment. In order to do this, you’ll need accurate and in-depth property data that tells you what a house is worth, what condition it’s in, and gives you insight into potential distress factors.
Another key piece of information you’ll need is a way to see the property. When investors look for properties in their local markets, they can simply drive to a property that interests them. However, if you’re investing out of market, that isn’t an option.
One way that modern property technology has solved this issue is with virtual driving for dollars. Virtual driving for dollars combines the power of property intelligence with street view to give investors a recent, street-level picture of a property while also providing supplemental property information.
These platforms also streamline one of the most important steps in evaluating deals: comping real estate. Comping is the process of finding recently sold properties that are similar to the house you want to buy, and then averaging their price per square foot to estimate the value of a deal. Without real estate tech, it’s almost impossible to find comps in another market, but with this technology, you can get MLS-backed valuations in a matter of seconds. In short, having a real estate platform that you can trust is non-negotiable when it comes to long distance real estate investing.
Put your ear to the ground
The second thing you should do when you’re investing virtually is lean into gossip. This might sound silly at first, but local gossip will tell you a lot about what’s happening in a town or city. You’ll learn about population growth (or lack thereof), economic shifts, opportunity growth, and people’s general feelings about living in the area. It’s also a great way to discover trends that statistical reports won’t show, such as dangerous neighborhoods to avoid, rumored developments, and upcoming population changes.
The best way to lean into these local conversations is to join location-based forums and conversation groups. Facebook is a great source for these, as almost every city has their own groups for locals. Other options include neighborhood apps like NextDoor, city subreddits, and local news outlets. Anything you can do to get a pulse on the local sentiment is going to help you focus your energy on profitable neighborhoods, figure out where people want to live, and avoid wasting your time on the wrong areas.
Things you can’t afford to do
The two most important things you can do when you’re investing outside your market are leverage the right tools and listen to the right conversations. But there are also two things you can’t afford to do if you want to succeed and make money in a different market.
Don’t skip the due diligence
One of the most dangerous pitfalls for long distance investors is excitement. Finding someone interested in selling at your price can make you forget everything you know about sound and safe real estate investing. This is dangerous enough when you’re investing in a market you know on a personal level, but when you’re spending money in a place you’ve never been, it can be disastrous.
In a webinar with agent investor Ryan Zolin, BatchService CEO Jesse Burrell shared a story that explained this danger perfectly. He explained that early in his career, he and his team were wholesaling virtually in the Southeast. When they started their direct mail marketing campaigns, some home owners were willing to sell their houses for around $2,000!
Unfortunately, Jesse and his team didn’t know the neighborhood as well as they thought. The area was a hot spot for gang activity and had become a dangerous place to live. Even though there were houses they could buy for cheap, it was impossible to find cash buyers who wanted to purchase them. In the end, the team had to move on and accept that they’d spent a lot of money on a direct mail campaign that wasn’t going to generate revenue.
Virtual investor Lauren Hardy shared a similar sentiment in our e-book Decoding Real Estate Investing: Knowledge and Advice From Industry Leaders. She explained that in many cities, neighborhood boundaries aren’t well-defined; only locals know where they are. On one side of the street, a house could be worth a fortune, but on the other side of the street it could be much cheaper. That’s why it’s important to network and get detailed intel on a neighborhood before you make a purchase. What may initially seem like a great deal could turn out to be a money pit.
Don’t overlook taxes
Another key factor that you have to remember when you invest virtually is that taxes can differ significantly between cities and states. For example, if your local market is in the Midwest but you want to invest in a beachside condo on the Gulf of Mexico, there are going to be different tax requirements.
Certain cities have additional taxes added onto purchases or rental properties because they are vacation destinations. Other states simply have higher income tax rates, which can quickly put a dent in your profit margin. It’s impossible to list all of the scenarios that you could encounter simply because tax codes aren’t uniform.
So before you start looking for a property to wholesale, flip, or add to your rental portfolio, you need to understand the local taxes. The safest way to do this is to connect with a tax professional or real estate lawyer in your target market.
Long distance real estate investing can be a thrilling and profitable venture. Not only does it open up opportunities outside of your market, it gives you a chance to expand your network and invest in different kinds of properties. However, if you want to succeed, you have to go about it the right way.
The number one key to success in virtual real estate investing is having a lead generation platform that makes it easy to find opportunities. Without robust filtering options and data you can trust, finding and capitalizing on leads is practically impossible. You’ll need to get involved in local conversations so you can learn about the area. Thankfully, social media has made this easier than ever before.
However, you should be very careful when you invest long distance, because it’s easy to make mistakes. Never jump at an opportunity just because it seems like a great deal. Take your time, evaluate the comps carefully, and don’t be afraid to ask for local advice. Then make sure you know about all the taxes you’ll be responsible for before you sign a contract. Surprise taxes aren’t something you want to factor into your budget.
Regardless of the dangers that come with long distance real estate investing, it provides unbeatable opportunities. Whether you’re looking to break out of a dying market or you just want to scale and find new opportunities, investing in a new market is a great way to build positive cash flow and long term success. Just remember these simple dos and don’ts and you’ll be well on your way to succeeding as a long distance real estate investor