One of the best things about investing in real estate is that your options are not limited to your home state. You can take advantage of any market you think is lucrative.
That said, investing in out-of-state properties can be daunting, especially for those who are looking to invest in rentals. After all, how can you take care of your rental business if you don’t live where the investment property is located?
In general, investing in out-of-state properties while challenging, can be quite rewarding when done right. There are a few things that you need to consider before you invest away from home.
Before Buying an Out-Of-State Investment Property
If you’ve decided to invest in an out-of-state rental property ensure that you perform the following duties:
Gain Market Knowledge
No matter how experienced of an investor you are, you may not have the same level of knowledge and understanding of other real estate markets. Having an in-depth knowledge of the neighborhoods, rental trends, demands, and laws related to rentals is vital when investing anywhere, but especially out of state.
Develop a Local Network
As a property owner, you need to have good contacts in the area where you invest to succeed. For instance, you should have a list of reliable local contractors to call in case your property needs inspection, maintenance, and repairs.
Budget for Travel Costs
You need to set aside a budget to visit your property from time to time to ensure that it remains in its best condition. While you can generally deduct the cost of travel from your taxable income, these are still expenses that can eat up your profits over time if you don’t budget effectively.
Understand Tax Implications
If you earn income in more than one state, there is a possibility that you will complicate your tax situation. You may need to work with a professional tax expert to sort through your financial obligations.
Study the Neighborhood
The state you're planning on investing in may offer promising figures, but ensure that the specific neighborhoods you’re looking at offer the same opportunities.
Choose a Place that You’re familiar with
Consider buying in an area you are familiar with—like a college town, or someplace where you have friends or relatives. If not, at least consider a place that is easy to access to minimize the cost of travel.
Inspect the Property
Do not buy a property that you have not seen personally. Do not rely on online information because it may not be up-to-date. Be sure to inspect the property with a knowledgeable contractor to determine whether the property has structural issues that need to be addressed.
Find a Reliable Property Manager
Some property management companies can assist you in finding the best investment property in the area that they service. With their help, you’ll be able to determine the best neighborhoods that can generate the highest returns.
Reasons to Invest Out of State
While there are some challenges that you need to be aware of, there are also several reasons why investing in out-of-state properties can be a good idea. Here are a few reasons why you should consider investing out-of-state:
Your Current Market Isn’t Performing Well
Some investors who live in expensive real estate markets have difficulties in finding an investment property that they can afford to buy and operate. If you want to become a successful investor but have a tight budget, you should consider looking at other lucrative markets where affordable housing is more available.
What’s more, if you live in a place where real estate values are declining instead of appreciating, investing in that area may not be a good idea. It’s best to find other markets where you can expect to see your investment appreciate in just a few years.
There’s More Opportunity for Returns in Other Markets
If you find that other markets can provide a better return on investment (ROI) than your current one could, then it’s best to consider investing away from home. Several factors can affect your returns, and you should do your research thoroughly before deciding which market will most likely generate the best returns.
When doing your research, take into account the following factors as they can greatly affect your ROI:
- Median prices
- Appreciation rates
- Mortgage interest rates
- Housing regulations
- Rental market trends
- Landlord-tenant laws
- Rental demands
- Cost of living
You have the Option of Hiring a Property Manager
One of the reasons why investors are intimidated by the idea of buying an out-of-state investment property is the fact that they’d have to be long-distance landlords. The good news is that you can hire a professional property manager who will handle all the aspects of property management on your behalf.
Hire a property manager that is reliable and has years of experience managing the type of rental property that you own. They should also be knowledgeable about the local market and real estate laws in your chosen area. Moreover, they can communicate regularly to update you on your investment and provide easy access to important reports.
With the right property manager, you won’t have to worry about marketing the property and filling in vacancies. Professional property managers will also take care of your tenants’ needs to retain them long term. On top of that, property managers have reliable contacts and will take care of your property inspection and maintenance needs.
Investing in out-of-state markets can be challenging but not impossible. Make sure to do your research and work with a reliable property manager to help you make the right decision.
Contact the team at Taylor Street Property Management to learn about our services!