The Do’s and Don’ts of Buying in Out-Of-State Markets
The safest and most profitable bet for most real estate investors, especially novice investors, is to buy and sell in a market with which they are already familiar. If you have lived in an area for a while and are acquainted with local supply, demand, preferences, and the like, you already have a leg up in your home market. But many of those interested in buying Big Island homes are purchasing from out of state. Investing in out of state markets is an excellent option for investors looking to diversify and grow in net worth.
If you are buying Big Island homes or in any out of state market, there are few things to consider before closing on a deal.
Know Your Market
Understanding the market that you are working in is perhaps that most essential component of good real estate investing. But many investors forget just how essential it is to do thorough research on an out of state market—and just how different that market can be from the one in which you are currently operating.
Say you’re looking to invest in homes on the Big Island for buy and hold purposes. You might assume that cheap Big Island homes offer prospects for incredibly profitable buy and hold operations.
Not so fast.
Look at the property. Perhaps that type of property is in high demand in your current market. But if it were in high demand compared to other Big Island homes, why would it be cheap?
Chances are there is something awry if you are looking at a deal that is too good to be true. Perhaps that type of property is in low demand due to demographic differences in the new market. Perhaps the average cost of rent is far lower in the new market, rendering the prospect of buy and hold unprofitable. Or perhaps it is inexpensive due to high crime and poor education in the area.
It’s also possible that the cost of maintaining and repairing Big Island Homes is much higher. Homes in Kona, for example, might be cheaper than high elevation homes. But the fixed costs of cooling an area at low elevation are astronomical in Hawaii, and rent might not be able to cover them.
Be sure to evaluate every aspect of your local market before buying instead of assuming that it operates in a similar fashion to your home market. Don’t just look online. You should also consult with locals and visit yourself.
Leverage Online Tools
When you are researching Big Island homes or other homes in out-of-state markets online, there are several tools available to you that will help you ascertain the profitability of that market.
Say you’re looking at a house in an out-of-state market that appears to be a good deal. First, look at Zillow or a comparable site to gauge local property values. Does your property fall far below average values? If so, assume that there is a valid reason and investigate.
Regardless of the results of your Zillow search, you still want to look into the demographic composition of the market. City-Data is an excellent tool for doing so. Other websites can offer other valuable information as well. In general, you want to gauge crime and poverty rates; quality of the educational system; nature of public transportation; proximity to and availability of goods and services; and the overall reputation of the area.
Take a Personal Visit
Visiting Big Island homes or other out of state deals might be a hassle, especially if it requires an expensive plane trip. But what that trip stands to save you by potentially protecting you from a bad deal is well worth it.
A picture might say a thousand words, but it can’t compose a novel. In other words, you won’t get the whole story on Big Island homes from a picture.
A picture can’t capture the whole area or engage all of the senses. An area that looks great online might be in an unbearably hot climate. Smoking, trash, and poor drainage in the area can create horrible smells. Inside the home, mold, smoke damage, and the lingering smell of pets may compromise the property’s desirability. Perhaps the neighborhood is loud, or nearby residents are in frequently conflict. Or you may find that Big Island homes are far more damaged than their listings would suggest.
In sum, there is a whole array of problems that you simply cannot catch if you don’t visit the home. Never, ever close on a home before seeing it in person!
Talk to Local Experts
It is essential that you speak to a local realtor before purchasing a property outside of your home market. A local realtor can give you information about the local market that might be hard to gauge online, such as buyers’ attitudes, preferences, and values.
But you also want to consult with local experts. And a local expert doesn’t necessarily mean a local real estate expert. Locals can provide you with invaluable information about a neighborhood that may not be available in census data. For example: locals can tell you when community members are engaged in frequent shouting matches or audible domestic disputes; they can tell you about aesthetic and sanitary issues with houses nearby, which may indicate future problems for your prospective purchase. In general, they can provide you with the information you would only know as a community member. Be friendly with them and ask what it is that they like or dislike about the neighborhood. You will likely be surprised by the candid insight they are willing to provide.