Long distance real estate investing can be a highly rewarding strategy. It releases investors from the shackles of their own city and opens up a vast array of new investment options. But out of state real estate investing comes with a big caveat: it requires a whole different set of skills and tools from local investments. Here’s a full rundown of how to invest in real estate out of state.
Pros and Cons of Investing Out of State
Buying an out of state rental property can be very rewarding. But simultaneously, there’s a number of challenges that real estate investors need to keep in mind. Here’s a quick rundown of the pros and cons (plus some great ways to mitigate the challenges.)
Con: You Don’t Have the Local Knowledge
This step alone impedes many interested buyers. Real estate investors will typically spend years learning the ins and outs of their local housing market and mastering the field. Therefore, focusing your investment property search in a distant market can be intimidating. Your years of experience and extensive network suddenly become irrelevant. Read on to find out how you can mitigate this issue.
Pro: You Can Seek a Better ROI
The saying goes that the “grass is always greener on the other side.” In the context of real estate, this phrase actually holds some truth. If your local real estate market isn’t performing very well — whether because of low rental rates, low real estate appreciation or because of low returns on investment — chances are there are better markets. Buying an out of state rental property allows you to seek out the best rental markets in the country. Rather than settling for whatever ROI your local housing market offers, you can make the intentional choice to pursue the highest one possible in the best markets in the US. Reading up on the best states to invest in real estate is a great starting point.
Related: What Is a Good ROI for Real Estate Investments?
Con: You Can’t Visit the Rental Property Often
Buying an out of state rental property means that you can’t personally manage the property. There’s a number of tools that you can use to become a remote landlord, such as online rent payments. But nevertheless, your inability to respond to matters on the ground means you’ll likely have to enlist the help of professional property management. This means added cost.
Pro: You Can Make Passive Rental Income
The flip-side of needing to hire professional property management is that you can make passive rental income from your investment property. By delegating the daily operations of your property to a licensed professional, you’ll hardly ever need to intervene in your out of state investment property. Just sit back and let the income flow! This can be especially feasible in the context of an out of state rental property since you’ll be placing yourself in a real estate market with very high ROI. Thus the added cost of property management may actually be worthwhile.
Since buying an out of state rental property means you’ll almost definitely need to enlist a property management service, be sure to choose the right one. Fully study up on any individual or company you intend to hire since good property management can make or break your business.
Related: Passive Real Estate Investing for Beginners: 8 Strategies
How to Find an Out of State Rental Property
Choose the Right City
The first step to finding an out of state rental property is choosing the city you want to invest in. Although return on investment should definitely be your top priority, there’s a number of other metrics to keep in mind. For example, a market with high appreciation rates would be highly ideal, since it means your investment will increase in value over time. If you decide to sell the investment property in the future, a real estate market with good appreciation means you’ll be making a sizeable profit from that sale. If you intend to invest in an out of state Airbnb, then you should be focusing on cities that boast high demand for short-term stays. Be sure to conduct thorough market research before making a decision.
Choose the Right Neighborhood
The hardest part of finding out of state rental property is the fact that you don’t have the necessary knowledge to pick the right location. If you accidentally select an investment property in a subpar location, you may end up with a low occupancy rate, unable to charge good rental rates and a low return on investment. Doing your research in this phase is therefore crucial.
Thankfully, there are powerful real estate investment tools out there that can make this process a lot easier. A massive innovation in this field is Mashvisor’s heatmap analysis tool. At a glance, this tool can show you the most important trends in each neighborhood. You’ll quickly see the average rental rates, the Airbnb occupancy rates and ROI’s by region. This can be hugely helpful to narrow down which area to search for your next out of state rental property.
Mashviror’s Real Estate Heatmap Analysis Tool
Years of experience can now be set aside in lieu of advanced technology and smart algorithms. This information which was formerly reserved for locals can now be accessed by anyone just by knowing and using the right tools.
Related: Where to Find Neighborhood Data for Real Estate Investing
Analyze the Investment Property
Mashvisor also offers powerful tools that can help you find rental properties and analyze them with only a few clicks. By choosing your city and the specific requirements of the property, you’ll be given listings with advanced rental property analysis that can inform your decision. It’s never been easier to find out of state rental property!
Visit the Investment Property
Buying rental property out of state blindly can often go wrong. Relying on photos alone could leave you with a subpar property, that looks great but isn’t. Before making your purchase, it’s therefore important that you make an in-person visit to the property. This is also a great time to conduct a home inspection and guarantee that everything within the investment property is top quality.
Related: Should You Be Shorting Real Estate Right Now?
Bottom Line
Buying rental property out of state can be highly rewarding and very feasible with the right tools. What you lack in local knowledge, you can easily make up for with cutting edge tools that help you find investment properties for sale. But before buying property out of state, it’s crucial that you study up on your numbers, and know the health of the market you’ll be entering, and the property you’ll be purchasing.