Marketplace Homes 3-Step Guide to Making Smart Cross-Country Investments
Written by: Mike Kalis CEO Marketplace Homes
There’s an old adage in the investment world: If you can’t see it or touch it and it’s more than 20 miles from your house, don’t invest in it. For decades, this was logical advice. After all, at the time, investing in real estate where you managed properties from afar could quickly turn into an absolute nightmare.
But thanks to modern-day technology and clever companies — like Roofstock, which links investors to occupied properties and national property management firms like mine — cross-country investing is not only feasible, but can also offer the potential for the best ROI. With an arsenal of tools like Google Maps, Zillow, and Yelp readily available to help locate, research, and restore properties around the globe, why should you settle for 2 percent returns in your area when you can yield 12 percent returns elsewhere?
Making Smart Choices on Cross-Country Investments
There’s no doubt we’re living in the golden age of real estate investment. We have access to more real estate tools and information than ever before. Still, the prospect of investing in properties outside your immediate vicinity can feel risky and overwhelming.
Don’t let uncertainty hold you back from going all-in on the right opportunity. Instead, assess potential properties according to these three important categories to ensure a smart investment:
Ninety-nine percent of the time, I advise people against investing in properties in urban, rural, or lakefront locations if you are investing from afar.
In major cities, like Boston and Detroit, it’s extremely difficult to assess how safe or desirable a particular property is without extensive knowledge of the surrounding neighborhoods. What can look like a great deal from afar may turn out to be a black hole for profits.
You’ll also run into similar issues in rural and lakefront settings. Zillow’s automatic valuation models aren’t as accurate when there are increased intangibles or few data points connected to a property. So if you’re looking in an area where, say, only four homes sell each year, you don’t have enough data to guarantee a sound investment.
In general, suburban properties tend to be the easiest to assess in value from afar, especially when they were built in the past 20 years by production builders. Fifty percent of such properties on Zillow sell within 5 percent of the Zestimate.
2. Surrounding area
It’s crucial to research an area’s schools, crime rates, and commute times before taking the plunge on a property. All three factors can issue a significant impact on ROI. Luckily, there are useful resources that can help you conduct research from afar.
For example, GreatSchools rates and reviews school districts around the country, making it easier to determine how the schools by properties line up to others. You can also use the app Life360 or the website City-Data.com to reference sex offender maps or monitor burglaries and violent crimes in focused areas. Surely, the better the schools and the lower the crime rates, the more profit you’ll be able to earn on a property.
A prime property will also be close to businesses (think jobs), public transportation, and major highways to larger cities — reducing commute times all while appealing to future tenants. Keep in mind that these amenities provide convenience to tenants as they plan out how moving to your property can better their lives. The more removed a property is from such amenities, the less likely it is that you will attract and keep tenants.
3. The fundamentals
Several fundamentals of real estate investing ring true regardless of the location. First off, properties at or below replacement value are most desirable. To find these, assess the value of the land, and determine what it would cost to replace the house if a total loss occurred. If the sale price of the property is less than the number you come up with, it’s worth a closer look.
Secondly, properties with favorable comparables will yield better returns. If you come across a $150,000 house sandwiched between a few $300,000 homes, chances are you’ll be able to fetch more for rent based on the location alone.
Finally, if the cap rates — the property’s value divided by its cash return — is 10 percent or above, it’s generally a sign of a sound investment. This is the case because even if the home falls in value or the area isn’t the best, the house will sell simply because of its return potential. In turn, if you’re planning to rent the property, ensure you can get a 1 percent (or better) return.
Modern-day technology has reinvented the real estate industry and opened doors for cross-country investment opportunities. With well-tested principles, such as the three above, you’ll be able to quickly and easily find the best properties across the country and maximize your potential for profits in locations you may have hardly considered before.