Is it better to invest long distance for price to rent ratio?

Question

I am looking to just start out in investing.

I live in a high priced market (Boston)

I’d like to start investing in real estate but am wondering if it would be better to invest somewhere that is more affordable with better price to rent ratios, for example, fort Myers Florida.

Obviously, I would need to pay for property management, but if returns are much better and out-way property management costs,wouldn’t this be even better than being more “hands on” close to home in the worse performing area? It Negates having to do any maintenance yourself  as well..

Why isn’t this the better route to go, why isn’t this the default of most investors? Looking for an area with best possible returns.

Thanks

Stetson Miller · Answer

Hi @Bob Ross,

I work exclusively with investors, a large majority of them being out of state, and a good portion of them are first time investors as well. Like you, they most often are seeking a market that allows them to purchase more units, with better returns, than their current market would allow. Although some people do get nervous making these investments out of state, many people enjoy not having to watch over these properties, as the distance will keep you from feeling like you have to check in on them all the time.

As others have mentioned, having a skilled and trusted team in place is critical in making this work, and I would be happy to provide recommendations for each operating component for the Fort Myers area. Please let me know if you have any market-specific questions, and I would be happy to help!

Tina Tsysh · Answer

It all depends on your risk appetite and many investors don't have the courage to go through with long-distance investing. I would recommend reading David Greene's book "Long-Distance Real Estate Investing" before making any decisions.

It sounds easy to buy in another market and have your property management do the work and that works for a lot of people. The risk is much greater though - you might get stuck with a horrible property manager or if you are doing any rehab work without being there physically to monitor contractors, the deal can become a disaster.

I would say that you really have to do your due diligence on the team that you are building. It also might help to have someone you know in that market (or talk to a realtor) to get an opinion on neighborhoods etc. As long as you have a good team in place long-distance real estate investing is amazing!

Cody Benedetto · Answer

I live in CT and have property in both CT and FL for the exact reason. I've always liked the idea of investing where you live to some extent but if the numbers don't work, go out of state. As others mentioned, you need to manage others at this point. You need to have trustworthy property manager and if possible, go down to the area before you buy, see the property in person, understand the market, and then buy. Having the right "team" is critical.

Filipe Pereira · Answer

Hey @Bob Ross, welcome to "the game". There's a LOT of markets between Boston and Florida that will outperform Boston (where last I checked the 1% rule is basically unattainable). If you can stomach being that far away from your property, go for it! If not, Connecticut and western MA has a lot to offer as well, depending on what your investment criteria is.

Drew Sygit · Answer

You might want to read our series about how to “Screen a PMC Better than a Tenant”: https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

It's the first step in building a local team you can trust.

Nicole W. · Answer

@Jay Mersfelder

I totally understand. I was only answering this for the gentleman asking as he was saying his area is very high priced. That happened to me in my area and I went out of state and it worked very well for me. Before it was out of range I knew my area better as well and was able to find something that worked here. It just got harder for the range of pricing I was willing to deal with later one when I looked elsewhere.

Jay Mersfelder · Answer

@Nicole W.

I'm new to investing so for me think of best to stick to area I know best.. so much easier for me to run the numbers I can just about tell good deal before even running numbers knows the areas values and rates..

Karolis Braciulis · Answer

That is an interesting question, Bob Ross. Many people usually recommend first-time investors to invest locally so you are able to have more of a hand in the whole process and be close by if anything happens. Tina brought up a good point on the risks you face by being further away from the property. I most definitely understand the Boston market may be tough to invest in but I still believe it is possible. At the end of the day, all that matters is your risk tolerance, most invest locally but if you manage to find a long-distance one and you are able to fly out there to check it out or on it from time to time then go for it.

Nicole W. · Answer

I would. You just need to ensure you have a great property mgr and to ensure all your reserves are there above a cash flow for you.

Brian G. · Answer

@Bob Ross maybe, maybe not. Depends on your goals, investing strategy, resources, overall financial position, skillset, etc. It may be right for you. Just remember the rent to price ratio is only one metric. Make sure you include the potential for price and rent appreciation in your underwriting, ie be mindful of the IRR.

Is it better to invest long distance for price to rent ratio?

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