Investing in RE Remotely--Step 1: Choosing Your Overall Market

Choosing an overall market to enter remotely can be tricky to say the least.  In a down market, there seems to be so many choices.  Everything is a "steal" compared to 3 years ago.  Do you grab a couple of properties in an area that has high appreciation potential? Do you focus on depressed areas and go after purely cash flow?  I have seen investors be successful in these markets, with various strategies, but not by investors that have no experience in investing remotely.  The answer is not as straight forward as you may think, but I have a serious recommendation.

Consider sticking to the middle of the road.  Investing in property remotely inherently carries more risk than owning rental property around the block from home.  You want to make sure that the moves you make in this type of investment do not close off any exit strategies available to you and also have a good enough ROI to make the extra work worthwhile.  Consider this, give yourself as diverse selection of exit strategies as possible just in case this particular investment is not for you, or you find a better one to pursue. 

This means that I would focus on metro areas that have as good of an economic outlook as possible.  Look at economic diversity first.  I recommend staying away from areas that are largely dependent on a single economic sector or employer unless you have considerable experience in making good decisions remotely.  Money can be made in these markets, but it is much riskier of an investment and not for first timers.  In relating that to my personal selections, I would rather own property in Indianapolis, IN during a downturn than the same property in Ft. Wayne, IN.  Indianapolis is a much more diverse economy, while Ft. Wayne is heavily dependent on manufacturing.

Home affordability is important too.  You want an area that you can eventually capture as much of the equity you bought with and built as possible.  This means that you will most likely selling to a homeowner.  (Hopefully after collecting a fair amount of rent.)  You at least want to have that as a likely option.  If homes aren't affordable to the average person, you are more likely to resell to an investor, or hold it very long term (Not the end of the world if you are getting a good return).  One word of caution, if a market is so affordable that any decent rental prospect is now a homeowner, then you may be setting yourself up for hassles from tenants.

I also like to look and see if the area is garnering much interest from other serious investors.  If the area is so attractive to you, perhaps there are other investors sucessfully implementing a similar strategy.  If so that means that your strategy is most likeley viable.  If not, be very careful.  This is a sign that you are stepping MAY be dangerous territory.  I am all about minimizing potential risks in this type of investing.

Finally, I like to pick a Metro area that has a good mix of renters and homeowners.   This means that there should be a good supply of good tenants for the property in question.  Once again you minimize your risk of long term vacancy as well as limit the risk that you will have to settle for less than desireable tenants.  There are strategies that lower your risk of hassels even more and I will cover those in a future article.   

Coming Next: One Stop Shops- To Use or Not? AND Step 2: Identifying Your Submarket