A decision over investing in local real estate vs. out-of-town is full of strong preferences as well as great unknowns. Investors seek multi-family properties, wanting to generate steady income and steadier equity. However, choosing the right location for these properties proves all too difficult, with small local markets contrasting sharply with distant options. Which is best? Let’s examine them both.
Those choosing to invest in multi-family properties within their own towns will experience several advantages, including:
Enjoy a deep understanding of the area, its rental market, and its demographics.
Areas near you and well known by you may be less appealing to out-of-town investors, with many declining to consider smaller local regions which you know have great potential. Less competition means more opportunities for multi-family dominance and creates an open market pool.
Create a network of in-town tradesmen, including contractors, electricians, landscapers, and plumbers, and develop long-lasting relationships.
Investing in local markets can be valuable. However, there are distinct disadvantages to this choice:
Less Economic Growth
Your area may be experiencing lower economic growth than farther away markets. Employment rates stagnate, and fewer residents arrive. Growth limitations impact a multi-family property’s overall value.
You didn’t plan for a leveling off in job growth, and now fewer renters respond to your vacancies. Is it worthwhile holding a property in a low/no growth market? Or would it be worthwhile to manage an out-of-town property, delegating the work, communicating with professional property managers, knowing that their market is growing where yours is not.
Local loyalty is a virtue. However, investing out-of-town may prove fruitful, with multiple advantages waiting in another state:
Increased Renter Pool
Large areas have large renter pools. Filling a multi-family property is far easier in larger markets, with potential tenants found in all economic demographics.
Job availability increases out-of-town if you have taken the time to choose your market well. This ensures a consistent stream of new arrivals, as well as a stable market.
Wider Property Range
Larger regions deliver a diverse range of homes. This allows investors to choose the right properties, the right neighborhoods, and the right prices.
Investing out-of-town promises increased value, but with that value comes a bevy of complications:
Lack of Knowledge
Venturing out-of-town leaves investors struggling to identify the best neighborhoods, vendor partners such as property managers, and property types. It also forces them to master new market trends.
Larger areas generate high competition, which can then lead to multiple bids placed on every property and fewer properties secured.
Need for Property Managers
Overseeing an out-of-town property is difficult. Property managers are usually needed to ensure successful day-to-day operations. This takes time identifying the best partners and property managers are expensive. Choosing the wrong property manager is even more expensive!
The question is simple – do in-town or out-of-town properties provide the best results for you? The answer has many considerations so investors must thoroughly examine their individual property needs, determining which option delivers the best ROI for their individual business model. Consider and compare the advantages and disadvantages with care before making a decision.