Some real estate investors are more comfortable investing in their geographical area while others don’t mind investing on the other side of the country. No matter where you decide to invest, your due diligence process should be the same.
How do you decide if you should invest in your own backyard or expand your search to other areas/states? Forbes magazine says it’s all about knowing the factors that contribute to any area’s local real estate economy. “Location, location, location proves a timeless axiom. This is why your market, team, and property manager are altogether more important that your investment property itself.”
According to Forbes, “an economically viable market supports price gains, rent growth, occupancy and population expansion; a depressed market does not.” What does this mean for an investor? It means that before you decide on the property, decide on the area. It means that researching an area before you research available properties is key to your success. Before you jump into a long distance investment, you need to fully understand the market in that area. A property can be turn key ready, fully and tastefully updated with a gorgeous yard and curb appeal BUT (there’s always a “but”) if the market in that area won’t support the price or the rent that you need in order to make this property work for you, then you need to walk away.
Researching the area before looking at available properties can limit the emotional connections that investors sometimes make when looking at available properties. I think every investor, especially in the beginning, has found a property that just “spoke” to them. You know the property. It’s the one that is low in price but big on looks. Easy money, right? Maybe not. The old adage “If it looks too good to be true, then it probably is too good to be true” is spot on 99% of the time.
So what are some of the contributing factors that lead to a depressed area? The top few reasons are:
- High crime rates (both violent and property) in that area
- High unemployment or high numbers of underemployed in that area
- High vacancy rates both in commercial and residential properties in that area
It should be noted that different areas within the same city or county can exhibit different market conditions. Just because one area is depressed doesn’t mean the entire city or county is in the same condition. The real estate market can not only vary within areas of a city or county but even as specific as within city blocks. A great investment property can oftentimes be found within blocks of a bad investment area. If your heart is set upon investing in a certain city or county, move your search around a bit. Chances are, you’ll be able to find an area that meets all the right criteria.
It’s all about due diligence.