5 Ways to Manage the Unique Risks of Out-of-State Investing

Investing out-of-state is one of the best things a passive real estate investor can do for their portfolio. After all, investing beyond your local market comes with some distinct advantages, such as:

• Access to high-demand rental markets
• Relative affordability
• Portfolio diversification and risk mitigation
• Better economic conditions

At the same time, investing out-of-state comes with its own unique risks. While this strategy is absolutely worth your consideration, you must know the challenges accompanying this path. If you expect it to be the same as investing in your local market, you’re in for a rude awakening! 

Knowing and effectively managing these risks opens the door for unprecedented success as a passive SFR investor. Your whole world will open up – so what are you waiting for?

How to Handle 5 Distinct Risks of Remote Real Estate Investing Risk #1 – Misleading Listings

The rise of AI makes it all the more challenging to tell reality from fantasy. We really can’t afford to take anything on faith. Fraudsters are out there and will take advantage of the investor as much as the average homebuyer. Don’t believe everything you see in the property description or photographs. 

Risk Management Strategy: Verify claims and take a virtual tour.

Ask to verify details, such as property ownership with a title deed. Always work with reputable platforms, agents, and companies. Because you may not be able to see the property in person yourself, request a property tour via video. While it’s not the same, it’s better than nothing! You want to be sure what’s being advertised lines up with reality. It’s not uncommon for sellers to make things sound better than they are. 

We remember a property on the MLS advertising a “library” that was, in reality, a single built-in shelf in a den.

Risk #2 – Market Unfamiliarity

Many inexperienced investors prefer to stay local because it’s the market they know. They don’t feel confident in their ability to learn the intricacies of an area from a distance, whether it’s neighborhoods, economics, or local sentiments. Market unfamiliarity can present a risk, but it doesn’t have to be an obstacle.

Risk Management Strategy: Make connections on the ground.

The best thing you can do to get familiar with a market is to connect with people who do. Hunt down real estate agents, fellow investors, and industry-adjacent professionals. Get their insights. Ideally, you find a turnkey partner that knows the market inside and out – allowing you to leverage their expertise. 

Want to know how to spot a not-so-good market from a mile away? Read this!

Method #3 – Home Equity Loan

Putting together a team is hard enough when you’re there in person. Contacting and connecting all the professionals – the management team, the contractors, the legal experts – isn’t always easy. It can lead to big issues if your team isn’t on the same page and communicating with you. 

Risk Management Strategy: Utilize a turnkey provider.

One of the greatest advantages to working with a turnkey real estate company is that they’re usually (but not always, so double check) a one-stop shop for centralized services for passive real estate investors. They not only help broker the deal but also often have in-house management, established relationships with lenders, and go-to contractors and professionals. This streamlining and centralizing of operations is worth its weight in gold!

Risk #4 – Legal Variations

Different markets see variations in laws and regulations that can impact – or limit – your ability to succeed as an SFR investor in the area. There may also be tax implications that are not present in your local market. 

Risk Management Strategy: Know what you’re getting into.

Consult with a real estate law professional in the market you wish to invest in. While you may be able to find cursory information with a Google search, we’ll always recommend getting the scoop from a pro.

Risk #5 – Environmental Factors

The West Coast has earthquakes and wildfires. The East Coast has hurricanes. The Midwest has tornadoes. Each market will have its own environmental risks, whether it’s a natural disaster, harsh winters, or high humidity. These risks may demand additional maintenance tasks, weatherproofing costs, and potential property damage.

Risk Management Strategy: Avoid high-risk markets and get insured.

Understand the weather and climate risks associated with your investment markets. Beware of typical humidity, seasonal conditions, frequency of extreme weather, and proximity to places prone to flood or fire. Mitigate this with your location as much as possible. Then, make sure you secure adequate insurance coverage. Read the fine print – even coverage that seems total might not cut it.

 

No one is equipped to handle SFR market risk like REI Nation. Consult with your advisor today!

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