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5 Tips for Out-of-State Commercial Real Estate Investing

Recently, my partners and I purchased a number of commercial properties outside of Minnesota. We’ve expanded to Cleveland, St. Louis, and Wausau, Wisconsin. Investing out-of-state has pros and cons, but for us, the affordability, diversification of markets, and faster portfolio growth were big draws. If you’re thinking about buying properties in another state, here are my tips:

 

1.      Make sure deals align with investment goals. By expanding your commercial real estate portfolio out of state, the pool is larger with more variety. You may want to spread out asset locations to guard against natural disasters or economic troubles. Or you may have prior ties to the community. Regardless, to increase buying power and to take advantage of higher returns, you need to be smart about which areas work and which won’t. Have a set of guiding principles that drive your deals. It’s important to always circle back to how you want your money to work for you.


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2.     Look for areas that are economically sound, show growth, and have lower property prices than you could purchase in your current market. Analyze vacancies rates along with overall community and market trends. Compare them to your investment goals and guiding principles to see if they’re a match.

3.     Research to find communities that have favorable tax benefits and real estate laws. Calculate effective tax rate (a percentage of the property’s market value) to examine state by state benefits. Then dig into city and county regulations, landlord laws, property and real estate laws, and taxes. How do they align or impact your investment goals and guiding principles?


Two men stand on a rooftop under a clear blue sky. One wears a blue jacket, the other black. Trees and HVAC units are in the background.
Jeff and Brian in Cleveland

4.    Plan a trip. It’s best to see the property with your own eyes and definitely during due diligence inspections. The law does not require disclosures in commercial sales, so your presence is vital. It’s also a good idea to have a property manager available during inspections. If you haven’t connected with a local one, make sure someone on your team has property management experience. Use that time to make connections and build your network in the area.

5.     Seek help from a coach or mentor. Commercial real estate deals can be complex when done locally. Adding an out-of-state layer of logistics makes them even more complicated. Having a person who has experience and knows the ins and outs is a definite plus. A good coach or mentor has a successful track record and will want you to thrive. Their guidance is invaluable.

 

Conclusion

My tips for out-of-state commercial real estate investing are things I have learned through experience and with the guidance of mentors (shout out to Rafik! 😀). I suggest prospective buyers align deals with investment goals, locate beneficial markets through analysis, and research communities for favorable tax benefits and real estate laws. It’s also best to visit the property in person and build connections in the area before closing the deal.



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Jeff Salzbrun is the owner/broker of Commercial Equities Group (CEG). As a veteran-owned real estate brokerage, CEG has been involved in thousands of sale and lease transactions, ranging from single offices to 250,000+ square foot buildings. At CEG, we get your deal done. We know space, and we know the CRE business.

 

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