Whether you are a new or experienced real estate investor, the idea of out of state real estate investing leaves many people puzzled. From legal issues and financing to locating a property and managing the tenants, there are quite a few issues that may seem daunting. Instead of writing off the idea of buying rental property out of state, learn how to overcome these challenges to start making a profit.
Why out of state real estate investing is a smart move
It only makes sense to invest in an area with which you are familiar. There are plenty of rental properties for sale near your home, so why cross state lines to find other investments? Well, there are few reasons why buying a rental property out of state might make sense. We will cover two common reasons why people turn to out of state real estate investing instead of buying a property in their area.
It can save you money
If you live in a high-income state, take California for example, you may earn more than the average resident in a low-income state. However, the cost of living is higher in California, and so are home prices. What might buy you a 1/1 condo in San Diego could get you’re a large single-family home in a different part of the country.
You can avoid legal restrictions
Maybe you want to dabble in the short-term rental market. A common way to do this is with Airbnb. Charleston, South Carolina is a city known for having strict Airbnb laws. The city has mandated that the host must live on the property they are renting. Instead of dealing with these types of regulations, it might make more sense for you to buy a property in another popular destination like Savannah, Georgia.
4 tips for out of state real estate investing
Now that you know some basic reasons why out of state real estate investing might be advantageous, let’s review some ways to make the most of it. By following these five tips, you can protect your interests and maximize your return on investment.
1. Look for hot markets
It only makes sense to invest in an area that is growing, right? If you are looking into buying a house out of state, be sure to look at historical home prices. Compare the appreciate rate to the national average as well as other cities in which you are looking to invest. More importantly, look at rental rates and job reports for these areas. You want steady growth in monthly rent prices and low jobless claims. If you feel like taking a risk, you can try to invest in an area that may become popular in a few years. Just be care that your gamble may leave you with a property that hardly appreciates.
2. Protect Yourself
Buying a property near your home is already complicated as it is. If you use an agent, they will hand you stacks of legal papers to review and sign. When it comes to out of state real estate investing, you are dealing with new forms and state regulations. There are two ways to protect yourself when buying a property out of state.
- Hire a Realtor. Your agent will help ensure that your property meets the specifications to be a good rental investment. They can also connect you with other local professionals to handle financing, inspections, and so on.
- Speak to an attorney. Many people like to form an LLC when buying a rental property out of state. This helps provide liability protection and may reduce your tax burden. Which legal entity your form depends on your home state and the state in which you are investing.
3. Visit the property
This might not be possible in all situations, but you should always try to avoid buying a property sight unseen. Even if your agent says it is good to go, you may see the property in person and realize it is not what you want. While a long drive or plane ride may be a hassle, avoiding buying the wrong property is well worth the trip.
And hey, you can take a friend or family member to make a vacation of it!
4. Hire a property manager
This is a given aspect of out of state real estate investing, but many people struggle with this task. It might be hard to find a property manager in your area as it is, so doing it in another state might be quite taxing. While you can search the web for property managers in the new state, comparing all their services and fees will leave you with hours of work.
A more modern way to find certified property managers when buying a property out of state is to use Burbz. With the Burbz online marketplace, you can submit your property for free and receive proposals from local property managers. Comparing these property management companies is easy since you can see ratings provided by other real estate investors.