What if you're in NYC but heard of the strong growth markets of Chicago real estate and want to get in on the action for higher returns in an up-and-coming suburb? Or perhaps you want to start a property investment portfolio but are priced out of your current market.
Do you give up, or is it worth trying a different approach?
Fortunately, commercial real estate investors aren't restricted to their local vicinity. While it carries some inherent risk, long-distance investing can solve many initial roadblocks that turn many off real estate investing. When done correctly, it can be a powerful diversifier and source of cash flow.
What are the crucial keys to success when investing out of state? Today we talk about the basics of long-distance investing and how partnering with the right team is fundamental for long-distance investment success.
An Introduction to Long-Distance Investing
Long-distance investing is when an investor purchases an asset outside their local area. Due to this, the success rests heavily on research and partnerships.
Some of the benefits of long-distance investing include the following:
Portfolio diversification: An inherent benefit of long-distance investing is the diversification of your portfolio. When free from the confines of your local area, you can open your portfolio to the best deals regardless of geographical location.
Access to more value: After research, you can find a hot market with a growing population, strong demographics, and a booming job market— all factors that might not exist in your local market. You'll also have the capacity to access areas with higher rents.
Lower barrier to entry: Investors can often find cheaper deals making entry into the market much more accessible, affordable, and less restricted by capital requirements.
Scalable: Once you're established in the market and understand its ins and outs, it's much easier to add to the portfolio—especially when working with a trusted property management group.
Looking for commercial property opportunities outside of your local area can help you build more wealth! However, as with investing locally, long-distance investing comes with some challenges.
Be Aware of Challenges
There's plenty to get excited about when considering commercial properties in Chicago or other areas outside your hometown, but it's crucial to be aware of the challenges. Some of the difficulties can include:
Lack of market knowledge: Your knowledge will be limited to market conditions, trends, and growth indicators. This knowledge gap also spills into the unknown of local and state laws and mandates that may differ from your local area. However, this limitation can be overcome through partnerships with local commercial real estate experts.
Issues with property management: The physical distance can strain communication between the investor and property managers if not managed with the proper channels and methods.
Harder to de-risk: It's more challenging to de-risk the property as you cannot monitor the property condition, manage tenants and make upgrades more efficiently.
Savvy investors know that almost any investment comes with risk. With the right mitigation strategies and partnerships in place, the biggest risks can be successfully overcome!
3 Critical Steps to Success with Long-Distance Commercial Real Estate Investment
So, what steps can investors put into place for success when investing long-distance? Here are our top three recommendations!
1. Research and Choose the Right Market
You've decided you're ready to invest outside your local market—but that leaves an entire country of commercial real estate investment opportunities to choose from and research.
Start by exploring the fundamentals of a solid market by looking for a growing market, demand for rentals, good school districts, low crime rates, and good amenities.
Additionally, look at some online property websites, listen to podcasts, follow trusted property advisors, and find out where the money and value-focused investors are heading. Look for appreciation and trends. For example, when considering if you should invest Chicago real estate, suburbs are booming due to the work-from-home trend and strong e-commerce industry.
Once you've narrowed your search, reach out to local property management groups. The best experts are always available to talk with investors locally and at a distance.
As a final point, examine any projected investment in the area that could impact value. For example, if a community is building an extensive research center, then multifamily properties might be a good option for the flow of high-income workers migrating to the area.
2. Crunch The Numbers
The investment must be commercially viable, so running a fundamental analysis is paramount. Running 'comps' on the area and determining key figures such as the cap rate is a great starting place.
Undertake a thorough assessment of the projected finances, including rental income minus costs, maintenance, legal fees, utilities, insurance property management fees, and more.
Commercial property owners must pay special attention to location-specific costs, such as local and state fees that might not exist in your area for an unexpected bill!
3. Link Up With Experts
Much of the success of long-distance commercial real estate investing deals lies with the partnerships and agreements you put in place. Working with a property management group with excellent relationships with vendors and auxiliary professionals, historical consistency in the area, and experience working with long-distance investors can be your ticket to success.
For example, at Brian Properties, we know the Chicago and suburban areas extremely well, meaning we can offer an unmatched level of expertise to facilitate remote investment success in this zone.
Long Distance Success Is Possible With Commercial Chicago Real Estate
Long-distance investing can be a great strategy to find better deals, create more value, and access strong markets. However, the inherent risks of this strategy mean research and building trusted relationships with partners is fundamental to success.
To help you get started, get your free copy of our "Ultimate Guide to Investing in Commercial Real Estate" and contact our team here at Brian Properties. We're a trusted CRE team in the Chicago area, here to help local investors or those choosing properties here from other areas!
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