It’s a common story. Investors in real estate, loans, or private lenders (collectively called “assets”) find that opportunities are limited in their particular geographic area. They soon hear about opportunities in other markets, but they are scared to purchase assets away from home. The question that often pops up is “should I purchase assets in other markets and how should I go about doing it?” We’re here to take some of the mystery out of that very question.
Buying assets outside of your home market is a big hurdle for most investors to mentally get around. If they can’t personally touch it, feel it, see it, smell it, and taste it, then they usually run in fear. The key to successfully investing in other markets is to put together a great team of those you trust to assist you in the process.
YOUR LOCAL REAL ESTATE AGENT: Real Estate agents are a dime a dozen. They are on every park bench, billboard, and door flyer that you see. Great agents that are responsive and truly know what they are doing….well…that’s a different matter. We struggled to find agents that wanted to actually work in our local market, so we brought the function in-house. We will had to manage the process in other markets. That is where finding the right agent is so important. Over the past several years, investors have been led to believe that you don’t need a great agent, just the internet. I’ve spent 30 years of my life doing thousands of transactions as both an investor and a real estate lender and I can tell you with 100% certainty that having a great agent is a tremendous asset. On the other hand, a bad agent will eat into your profits and can set you up for failure. You will want an agent that knows the market, is smart, works hard, returns your calls in a timely manner, is willing to admit when the don’t know something but will get the answer for you, and is willing to tell you the truth rather than what they think you want to hear. You want someone that is established enough to not need your business enough that they will push you into a bad deal for a commission, but someone wise enough to realize that if they take great care of you and look out for your interests before their own, they can do business with you for years to come. Those agents are hard to find. We’ve been successful by getting referrals from some of the national vendors that we trust. You can do the same by building your network (of course, the Institute is the best way to do that …(shameless plug)).
YOUR CONTRACTOR: The last real estate bubble made a lot of contractors realize that they needed to find a more steady line of work. This has left too few tradespeople to service the needs of their communities. A great contractor can also be very hard to find. Your local agent can often help you find local contractors, but demand that they have certain qualities before hiring them. Make sure to check references and get documentation that they are well insured (including worker’s comp coverage). I am always very clear with my contractors that the first time I catch them trying to pad a bill or if they pull their crews off of our job to go to another, more lucrative one, they will never do business with us again. It has been my experience that even the best contractors come and go. It’s always a good idea to work with more than one. Trust me, you’ll need backups from time to time.
YOUR SERVICER: If you purchase or originate loans, you will definitely need a servicer that is licensed in the states where you do business to manage the day to day drudgery that servicing a mortgage loan demands. If the loan is performing, meaning paying on time, then servicing the loan is pretty easy. It’s when the loan starts to go bad that you need a servicer that has adequate “boots on the ground” to handle everything from evictions, lock changes, maintenance, and even foreclosures. You should have a servicer anyway if you are in the note business, but good ones prove their worth when loans go bad.
YOUR PROPERTY MANAGER: If you are purchasing rental property in another market, then you need a great local property manager that can fill the vacancies, screen tenants, handle repairs, collect from delinquent tenants, and handle evictions. Your property manager is incented to keep good tenants in your properties and to get you the returns you seek. They want you to be happy so you give them more properties to manage. Most realtors, however, do not handle property management. They get paid a smaller amount per lease and/or property, but they make up for it in sheer monthly volume.
YOUR ATTORNEY: I mentioned that property managers should be able to handle evictions, but having your own go-to attorney in a jurisdiction on speed dial to handle legal issues when they pop up is crucial. What if you are trusting your property manager to hire your legal counsel, but your property manager is the one that becomes the problem? You need to have an attorney that handles creditor and landlord rights to handle your business in a local market.
Handling property outside of your local market is not impossible to do, it just takes some preparation and some delegating skill. If you can get over the fear and do your homework, “going national” can be quite rewarding.