Written by Emily Koelsch
Out-of-state investing is an increasingly popular strategy for real estate investors. Property values vary significantly from one state to the next. For investors who live in expensive markets, investing out of state often means a lower entry price and an increased rate of return.
In addition, there are lots of tools available to make it easier to manage rental properties from out of state. This means that investors can still self-manage their properties to further improve returns.
The combination of these factors has made out-of-state investing an increasingly popular choice. That said, it presents some unique risks and challenges for investors. To help you decide if this strategy is right for you, here’s a look at some things you need to consider before investing in out-of-state real estate.
Research is one of the keys to successfully investing in new markets. Before picking a location, you want to do plenty of research to ensure it’s a good option for the short- and long-term. Look at a variety of different data points, including:
Once you’ve found a market that you’re comfortable with, you’ll also want to do a full financial analysis of any properties you’re considering. This should include:
This analysis will give you an estimate of your monthly cash flow and your return on your investment. Doing this analysis is important in all markets, but it’s particularly important when entering a new area or market.
Once you’ve found a market and property you like, the next thing to do is build a local network and team. This should include:
This is the core team you need to purchase and manage a rental property remotely. You can also benefit by having a network of local real estate investors or by connecting with neighbors who can help keep an eye on your property.
Each state has its own Landlord and Tenant laws. These laws can impact how you manage your property. For example, state laws control:
Before entering into a Lease Agreement, Landlords need to be familiar with the laws of the state where their property is located to ensure that they comply with all applicable laws.
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Out-of-state rental properties can make taxes more complicated for investors. Because you’ll be earning income in a new state, it can impact how you run your business and file taxes. Before investing in a new state, talk with your CPA or tax professional about the tax implications of expanding your portfolio in a new state.
Despite the unique challenges that can come from investing out of state, many investors decide it’s the right choice for them. If you decide to move forward with this strategy, here are some tips to help you get started:
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