A controversial topic in real estate investing is whether one should only buy and own investment properties close to home or whether out-of-state real estate investing is also a viable option. To answer this question, let’s remember what the most important feature of rental properties is: To generate positive (preferably large) cash flow through rental income because that’s the way to make money in real estate investing. This means that eventually a real estate investor should look to buy the best investment property (the one with the most cash flow) regardless of whether it is within a 20-mile radius or across the country. While location is a crucial determinant of how good a real estate investment is, location here does not mean how close or far the income property is to you. Thus, you as a real estate investor should never ever underestimate the opportunities which income properties in other cities or even other states could offer. To help in the process of becoming a successful out-of-state real estate investor, here are some tips on how to invest in rental properties away from home:
1. How to invest in rental properties away from home: Study the local real estate market
One of the main advantages of investing in your local real estate market is that you are already somewhat familiar with it. Just from living in a certain location you see the prevailing types of real estate properties (single family homes vs. multi family homes vs. condos), the people living there (tenants vs. homeowners; single individuals vs. young families with kids vs. retirees), the property prices, the rent (i.e., rental income from the perspective of a real estate investor and landlord), the prevalent rental strategy (traditional vs. Airbnb), etc. These are all very important factors which should shape your real estate investment decisions.
On the other hand, when you go to a new real estate market, you are not aware of any of these features. Thus, you should perform a diligent real estate market analysis in order to answer the many important real estate questions before you decide whether it is a good idea to invest in this particular location or not. So, if you wonder how to invest in rental properties away from home, the first thing you should actually do is to conduct a lot of research to get yourself as familiar as possible with the local real estate market and real estate investing environment.
Related: How To Perform A Real Estate Market Analysis
2. How to invest in rental properties away from home: Learn all about the local real estate investing laws
In the US laws differ not only from one state to another but also from one city to another. There are many legislations and regulation related to investing in real estate covering a wide range of issues including financing, property taxes and other fees, landlord-tenant relations, renting out, eviction processes, Airbnb rentals, etc. In order to be able to make a smart real estate investment decision, you should be well aware of all these laws. Moreover, after you have bought an investment property and are already renting it out, you should always make sure to stay updated with legislative and regulatory changes. Remember that some of these are quite dynamic. For example, currently the Airbnb laws across the US tend to change often, up to several times a year in some real estate markets. So, if you want to know how to invest in rental properties outside your location, make sure to study the local real estate investing laws and keep up-to-date with them.
3. How to invest in rental properties away from home: Use a real estate agent
Using a real estate agent, or a real estate broker, when buying a rental property has its pros and cons, and it’s sometimes hard to say which ones prevail. Well, in the case of investing in real estate in an unknown market, it is quite safe to assume that it is best to go with a real estate agent. Make sure to choose a reliable person with a good reputation who will work to achieve your best interest rather than care simply about his/her commission. That’s why a real estate investment network is so important and should include as many people – from the local real estate market and beyond – as possible. It is always recommended to consult your network before you hire a real estate agent, especially if it will be someone outside your own location. While a real estate broker will charge you the usual commission fee, he/she will save you lots of time by searching for and visiting potential income properties for you, which might be located a few thousand miles away. Moreover, this real estate professional will be much more knowledgeable than you of the local real estate market and the best places to find investment properties. Thus, if you wonder how to invest in rental properties far away, your best option is to go for a real estate agent.
Related: How to Find a Real Estate Agent for Investment Properties
4. How to invest in rental properties away from home: Consider the additional costs
Your current city is not always the best place to invest in real estate, particularly if you live in such an overpriced location as San Francisco or New York. Buying a rental property a few hundred miles away might actually offer you much more affordable options and higher return on investment in terms of rental income, cash flow, cap rate, and CoC return. For example, according to Mashvisor’s rental property calculator, purchasing a $553,000 income property in Anaheim will bring you a CoC return of 5.1% compared to a CoC return of 0.8% in the case of a $1,047,000 in Oakland though they are both in the State of California.
However, there is something important to factor in when you wonder how to invest in rental properties away from home: the additional costs which you will definitely accrue. First of all, you will need to travel more to visit properties, close the deal, and eventually keep an eye on your investment property. Second, you will need to hire a real estate agent and even hiring a real estate lawyer is very encouraged in order to take care of all the various legal aspects which you might not be aware of. Third, if you go for a rental property at a considerable distance from your location, you will have to rely on professional property management. You cannot just pop up when a tenant calls you at 2 A.M. that a pipe has leaked if you live 500 miles away. So, when you budget for your new rental property, make sure to include all these extra costs. Otherwise, you run the risk of ending up with a negative cash flow property, and that’s the last thing you want in real estate investing.
5. How to invest in rental properties away from home: Use Mashvisor
Last but not least, if you wonder how to invest in rental properties far away, use Mashvisor. Through the platform you will get instant access to thousands of available real estate properties within the entire country. Moreover, Mashvisor’s investment property calculator will provide you with highly reliable estimates of all key metrics including: median property price, rental income, cash flow, cap rate, CoC return, occupancy rate, one-time costs, recurrent costs, and mortgage options – all divided by traditional and Airbnb rental strategy. This will save you lots of time as it will eliminate the need for detailed real estate market analysis and investment property analysis.
Related: How to Use Mashvisor’s Rental Property Calculator
As a real estate investor, you should always keep the option of investing in income properties outside your location viable. After all, they might constitute much more profitable real estate investments than properties in your neighborhood, city, or state. The 5 tips above will help you learn how to invest in rental properties away from home.