The Ultimate Guide to Out of State Real Estate Investing

Investing in real estate is one of the most secure additions for a financial portfolio. However, real estate isn’t cheap. It requires a substantial upfront investment. Depending on where you live, nearby houses might not be within your budget. 

However, that doesn’t need to keep you out of the real estate game completely. By investing out of state, you can find a lucrative investment property that fits your budget and offers other appealing advantages.

In this comprehensive guide, you’ll learn everything you need to know about investing in out of state real estate. 

The Benefits of Out of State Real Estate Investing

There are many benefits to investing in property out of state. When done right, you can find:

  • More affordable opportunities
  • Better ROI
  • Diverse properties
  • More effective landlord laws 

Also, consider commercial vs residential real estate before investing. Each has its own set of benefits, however, you might find that residential real estate is easier to manage when it comes to out of state investing. 

More Affordable Housing Options

First and foremost, out of state investing helps you find a property you can afford. There are many different types of residential property options, all of which vary by location. By choosing your investment location wisely, you can buy a beautiful home without steep property taxes or exorbitant home prices standing in your way. 

Choose an Up-And-Coming Area

Not all affordable areas are of equal value. Focus on finding an up-and-coming neighborhood. You can spot a promising area by its:

  • Growing employment opportunities
  • Developing local amenities
  • Good school districts

As more people flock to these areas, home prices will rise, and your investment will appreciate.  

Better Return on Investment (ROI)

ROI is a crucial consideration of any investment. 

Expensive investment properties generally offer lower returns. In exchange, their pricing is more stable. When home prices are already quite high, there’s not much room for them to spike upward—but there’s also not much chance they’ll suddenly dip either.  

The rate that real estate appreciates is largely dependent on a housing market’s local income-to-home-price ratio. If the home prices are 10 times that of the average income, they’re probably maxed out already. Conversely, if they’re only 2 to 4 times as high, there’s plenty of room for them to appreciate in the coming years. 

Portfolio Diversification

Every individual real estate investment is vulnerable to unique risks and market volatility. By diversifying your investments, you mitigate this risk. If your local real estate market crashes, you can take some relief in knowing your investment property is not impacted, and vice versa. 

Better Landlord Laws

Housing prices and market conditions aren’t the only things that matter to real estate investing. If you intend to rent out your property, landlord-tenant laws are relevant too.

Some states and counties have less favorable laws than others. For instance, some areas mandate:

  • Eviction restrictions
  • Frequent inspections
  • Rent control
  • Airbnb limitations

These laws are put in place to protect tenants, but they end up burdening landlords. However, not every state or county has these laws. By choosing to invest in a landlord-friendly area, you can save yourself a ton of money and hassle. 

The Risks of Out of State Real Estate Investing

While investing in faraway real estate has its upsides, there are a few notable drawbacks to consider as well. 

Long-Distance Management

Long-distance relationships are hard, even in the world of real estate. It can be challenging to renovate a property, screen tenants, and supervise a building from afar. 

You may have to travel to the rental property every so often to check up on things. Depending on the distance and your schedule, this can be costly and inconvenient. 

Fortunately, there is an easy solution. Just hire a local property management company like Great Jones. Providing services for property management in Gainesville, FL to property management in St. Louis, we’ll take care of everything, so you can stay in your home state and focus on other matters. 

An Unfamiliar Market

When you invest out of state, you’re essentially going in blind. You don’t know the area intimately. You’re probably unfamiliar with the:

  • Best neighborhoods
  • Demographic trends
  • Local politics
  • Local laws

Fortunately, you can get a sense of these elements by doing some research, visiting the area, and consulting with local real estate professionals. 

Improper Home Value Assumptions

Home valuation is complex. While comparing a house with neighborhood comps can help, it doesn’t give you the full picture. As a real estate investor, you need to take into consideration the following factors:

  • Nearby employment opportunities
  • Proximity to shopping and entertainment
  • School district quality
  • Home size, age, and condition
  • Local real estate market volatility

Keep in mind that online listings only show you so much. Not to mention, these listings are often misleading. They’re crafted to show a property in the best light possible. Without seeing a home in person, you have no idea if it’s located in a noisy area or has an off-putting smell. 

Furthermore, most homes require a few renovations and repairs. When you live far away, you’re at the mercy of your contractor. You run the risk of getting taken advantage of and overcharged.

How to Invest in Out of State Real Estate Rental Properties

While out of state investing has its challenges, the upsides still make it an attractive option for many people. If you’re one of them, you may be eager to get started. 

So how can you invest out of state? Here are a few tips. 

#1 Find Your Ideal Neighborhood

With the entire country as your oyster, the first step to investing out of state is narrowing down your options. Start by researching a few areas that pique your interest or the best places to buy rental property

Next, evaluate each area on the following qualifications: 

  • Proximity to a big city – Big cities offer a wide array of employment opportunities, shopping centers, and recreational activities. By choosing a property that’s close to a big city, you’ll enjoy a large market of potential tenants.
  • Market trends – Monitor the housing market trends in the area. Are the home prices going up? How fast are they rising? Is there any concerning volatility? What are the average rent prices? By analyzing this data, you’ll get a better idea of whether this area has potential. 
  • Vacancy rates – Another indicator of a desirable area is a low vacancy rate. This shows that residents enjoy the area. In turn, you can expect to maintain a low vacancy property too, once you get yours up and running. 
  • Favorable landlord-tenant laws – In high-price markets, local governments often employ rent control and eviction restrictions to protect tenants. As you can imagine, these hinder the profitability of your property. Thus, make sure to review an area’s landlord laws ahead of time.

#2 Establish a Trustworthy Team of Local Professionals

Once you’ve decided where you want to invest, it’s time to hire a team of local real estate professionals. 

Take time and review each person’s reviews and referrals. Ask other investors if they have recommendations. You want to ensure that you can trust your team since they’ll be making a lot of decisions on your behalf. 

Find a Realtor

Local realtors have valuable expertise in their area’s housing market. Once you find a realtor you can trust, have them send over a list of properties that meet your specifications.

Find a Contractor

Once you’ve chosen a property, you’ll need to hire a contractor to implement your desired renovations. As with your real estate agent, you need to select a contractor you can trust. This way, you can rely on them to complete the job on time and within budget. 

Finding a reliable contractor is crucial to any real estate investment project, but even more so when you’re a real estate investor operating out of state. Before partnering up with a contractor, review their licensure and referrals. Also, make sure they are bonded. This way, you’ll be protected if they don’t uphold their end of the bargain. 

#4 Create an In-State LLC

If you’re using your property as a rental, it’s beneficial to create an in-state LLC. This will provide you with tax advantages and limit your personal liability. 

Creating an LLC is easy. Once you review your state’s requirements, you can do it all online. While you’re at it, consider opening a separate business bank account for your property’s income and expenditures. This will separate your personal finances and offer a degree of protection should any deal go south.

#5 Choose a Property Management Company

Once you’ve gone through the other steps for investing in an out of state property, you have one last decision to make: self-management or outsourced professional management?

Outsourcing your property management can drastically simplify your life, especially if your property is located far away or if you simply don’t have the time to do it yourself.   

Benefits of Outsourcing Property Management

By choosing to outsource, the following tasks will be placed in the hands of a professional management team:

  • Adhering to local laws
  • Managing contractors as they implement renovations
  • Performing background checks and credit checks on tenants
  • Providing 24/7 resident support
  • Collecting rent and handling evictions
  • Conducting property inspections

Outsourcing saves you the trouble of doing it yourself and ensures your rental property is run well. 

Great Jones: Professional Out of State Real Estate Management 

Now that you know how to invest in real estate out of state, are you ready for the challenge? 

It’s a great way to bolster your investment portfolio and take advantage of diverse opportunities. To make your investment journey a little easier, reach out to the property management professionals at Great Jones. 

Whether you need a team for Orlando property management or Austin property management, Great Jones will make sure your property is renovated appropriately, managed well, and occupied with the highest quality of tenants. In turn, you can enjoy peace of mind and a profitable investment property. 

Sources:

Landlordology. Landlord-Tenant State Laws & Regulations.
https://www.landlordology.com/state-laws/

Open Door. 8 critical factors that influence a home’s value.
https://www.opendoor.com/w/blog/factors-that-influence-home-value

Zillow. United States Home Prices & Values.
https://www.zillow.com/home-values/

Kahala Bonsignore

Kahala works on the Growth Team at Great Jones where she's dedicated to helping more Property Owners learn about Great Jones and how their partnership can increase profitability and decrease rental stress.

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