One of the most wonderful things about investing in real estate is the endless options and opportunities which you can choose from. Nonetheless, rental properties have proven to be one of the best real estate investments as they allow you to make money both in the short term (through rental income) and in the long term (through appreciation). Still, many investors constrain themselves and their chances for success by limiting their scope within their own state and even their own city.
That’s a major mistake as oftentimes state real estate investing has the potential to bring a significantly higher return than investing within your location.
To help you figure out whether you should invest in an out-of-state rental property or not, let’s have a look at the cases when it makes sense to invest away from home.
When Should You Consider Out of State Real Estate Investing?
1. When your local housing market is not optimal for rental properties
There could be dozens of reasons why it is not a smart choice to buy a rental property in your hometown. For example, if your market is too small, and there is barely any demand for rentals, it just doesn’t make sense to invest in it. On the contrary, if you live in a huge market with ridiculously high property prices, then both properties will be unaffordable, and returns will be low.
So, conduct careful real estate market analysis in your location and if you decide that it’s not right for investments, don’t miss on the opportunities which other markets could offer.
2. When you find a good market away from home
The first step to any successful real estate investment is doing a lot of research. Location is key, as we all know, so you should never spare efforts in finding the best location for a rental property. If your research shows that a certain market – which could just as well be located a few thousand miles away from you – is doing great and has strong future prospects, you should know that this is the right place for you.
3. When you are a full-time investor
For most people, real estate investing is a part-time job. However, there are those who also do it on a full-time basis. If you have made owning and managing rental properties your career, then you can easily go for out-of-state rental properties. Of course, you will still need to make certain accommodations and arrangements to deal with urgent issues, but you will have the ability to travel to your rentals regularly and make sure that your business is running smoothly.
If you are starting to think that out-of-state real estate might be the best investment choice for you, keep reading to find out what you should keep in mind when engaging in it.
Things to Consider When Investing Out of State
1. Study the housing and rental market well
Market analysis is the first step of any real estate investment, but this process is even more important when you go into a market that you are not familiar with. Make sure that you gather enough information and real estate comps to assure that you will make money in this location with your rental property.
2. Work with an Agent
Many investors don’t want to work with a real estate agent as they don’t want to pay the associated feed. If you are a seasoned property buyer, maybe you can skip the agent in your local market. However, working with a real estate agent is a must when going into a market you are not an expert on. Your agent will help you find the best property and pay the lowest possible price for it.
3. Hire a professional property management company
Once again, investors and landlords are hesitant to use professional property management services as they see them as something that will eat into their profit. In most cases, such companies optimize the process of managing and maintaining rental properties to a degree that the extra income you generate will more than pay for their fees.
When you buy a property close to home, property management is an option. But when you invest a few hundred miles away, it’s a must. Indeed professional property managers make investing out of state feasible and achievable for everyone, including part-time investors. Plus, that’s a straightforward entry into passive real estate investing.
4. Consider short-term rentals
Depending on where exactly you decide to buy an out-of-state rental property, you should investigate the option of renting it out on a short-term basis. Vacation rentals have gained incredible popularity since the emergence of Airbnb, and they don’t seem to be slowing down any time soon despite efforts from local governments to impose restrictions on them.
If you are going out of state, you are already hiring a property management company, so you don’t have to worry about the extra work related to renting out on a nightly or weekly basis. Indeed, there are many companies that specialize in vacation home management.
5. Factor in a budget for your travels
Even if you hire a professional manager for your rental property, you should still visit it on regular basis to make sure that everything is going well and that the manager is actually doing his/her job as expected. Depending on how far from you your property is located, the travel expenses might amass a significant amount of money. Thus, you should make sure to calculate these expenses into your investment property analysis even before you buy the property.
As a real estate investor, you will have to make many decisions, and one of the most important ones is the location of your rental property. Don’t be afraid to venture into out-of-state real estate investing. It is totally feasible and many times offers a much higher return on investment than properties close to home. Simply make sure to do diligent research, budget smartly, and plan carefully – just what you need to do when buying rental property in your hometown anyway.
About the Author: Daniela Andreevska is Content Marketing Director at Mashvisor, a real estate analytics tool that helps real estate investors quickly find traditional and Airbnb investment properties. A research process that’s usually 3 months now can take 15 minutes. We provide all the real estate information in easy-to-understand visualizations.