What You Need To Know About Investing Out of State

posted on : July 2, 2024 0 Comment

Written by Emily Koelsch

Investing Out of State

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.

Rental Market Research & Property Analysis

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:

Housing prices
Recent housing appreciation rates
Economic growth
Employment rates
Rental demand

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:

Target purchase price based on comparable sales
Estimated rent amounts
Taxes
Maintenance expenses
Overall operating expenses

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.

Create a Network & Local Team

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:

A real estate agent with expertise in the area and investment properties
A contractor and/or handyman that can help with big and small projects
An HVAC professional
A plumber

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.

Become Familiar With Local Landlord-Tenant Laws

Each state has its own Landlord and Tenant laws. These laws can impact how you manage your property. For example, state laws control:

What has to be included in a Lease Agreement
The collection and handling of security deposits
Late fees
Notice requirements for entering for a non-emergency
Lease renewal notice requirements
Landlord and Tenant responsibilities

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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Consult a Tax Professional

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.

Tips for Getting Started as an Out-of-State Investor

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:

Consider locations you’re somewhat familiar with – for example, where you went to college, have family members, or used to live. Some knowledge of the area will give you a great head start. Plus, it usually means you already have some contacts to help start your local network.
Never buy sight unseen. Pictures, videos, and virtual tours are increasingly popular in the real estate industry. While these are helpful tools, they’re not a substitute for seeing the property yourself. Before buying a rental property, always look at it in person. This will ensure you’re making an informed decision about the property and the location.
Schedule regular in-person inspections. While you can do most of your property management digitally, you still want to periodically inspect the rental property. Plan for this from the outset and prioritize annual property inspections.
Take advantage of tools that make it easy to be a remote or digital Landlord. For example, Tenant Screening Services, online Lease creation and electronic signing, online rent collection, and a digital system for Tenant maintenance requests.

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