Any real estate investor who has spoken with me or read any of my work knows I am a major proponent of Real Estate being a local business. I like it when my investment property and property management are local. So what if an opportunity or market presents itself outside of your backyard? Should you stay away from it?
No. Absolutely not. Real Estate needs to be managed, leased, and handled locally, it doesn’t mean that YOU need to be the one doing it! This is one of the best pieces of real estate investing. As long as you can set up the right team, you can achieve rental income and return on investment anywhere in the country.
That being said, I firmly believe, whether you own an apartment building in your backyard or single-family homes on the moon, you or your organization needs to be the point person on all asset management and leasing oversight.
If you think that you can just buy an asset and let a third party run it and clip a coupon every month, I am here to tell you that it probably won’t work out that smoothly. Your property manager doesn’t care about your commercial property the way you do. It’s not their cash flow, only a small piece of it.
But if you are going to run the asset as if it sits in your backyard, oversee it properly, and give guidance to an additional individual or team who can be your “boots on the ground,” going into other markets can be a total home run.
There are a few keys to doing this successfully:
Market Knowledge – You need to know the real estate market like the back of your hand. You need to understand it like YOUR own current backyard. It essentially needs to become “your” market. Each market has subtleties that need to be understood to be successful in real estate investment in that market. Are the property taxes higher there? Are there different commercial real estate ways of working? Do multifamily rental properties favor the tenant or the landlord? Is it exceptionally hard to find a property management company for office buildings in that market? If you don’t have the time to do your due diligence of that market, somebody in your organization who is economically aligned with your interest better understand it.
Leasing Expertise – Hand in hand with understanding and studying the market comes your leasing game-plan. Who are the players in the market? Who’s expanding and doing deals? Certain asset types can be leased over the phone and via email, other more mom and pop spaces or apartments require much more of a local presence.
Scale – The more net operating income you have on a deal or in a market, the more economies of scale you will have. If entering a market for the first time, be sure your first deal supports the additional local professionals you will require. If you can add more assets in a market it certainly helps as well.
Bottom line, if you are able to recreate the same leasing and asset management team and processes in another market and understand that market thoroughly, there is absolutely no reason you cannot successfully open up your deals geographically.
The keyword here is team. Commercial real estate investing is a team sport. Your real estate agent, real estate broker, property manager, etc. Your purchase price and potential cash flow are only a small piece of the puzzle. Yes, there are more real estate deals for affordability, a better cap rate and lower down payment in secondary and tertiary markets around the country. However, if you are a commercial real estate investor looking to invest outside of your backyard and leverage off of 3rd party managers without intense oversight and direction, you will most likely fail. If you are interested in investing out of state but do not have the time to learn the market implicitly, there are always Private Equity commercial real estate firms or real estate investment trusts (REITS) that you can place capital with as a part of your investment strategy for your investment portfolio.
If you have any questions regarding the real estate investing industry, the team at First National Realty Partners is just a phone call away. We’re here to answer your questions and provide guidance about your investment opportunities. If you would like to know more about the benefits of private equity commercial real estate investing, please don’t hesitate to reach out. Our team is built with the best industry leaders, utilizing proven strategies that create great investment opportunities for you. Contact us any time when you are ready to learn more about the possibilities of investing in commercial real estate.
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