Not all buyers can afford or want to buy rental property in their “home” state. Here are some of the pros and cons of investing in out-of-state rental properties.
Why Invest in Out-of-State Rental Property?
Once you and/or your clients have decided to become investors in rental property, here are some reasons to invest outside of your home state:
- Rental property in your home state may be unaffordable.
- Another area/state may have higher demand for rental properties.
- You/your clients may want to diversify risk by investing in multiple markets.
- Some areas/states have lower property taxes/expenses.
- You/your clients may have chosen an out-of-state retirement property to rent out until you’re ready to retire.
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Benefits of Out-of-State Investing
After doing the due diligence on both the rental property and the state in which the rental property lives, you/your clients may find that you’ll save money due to more affordability on the property price, property taxes and the inherent costs for maintenance and repair.
You might also find that the area offers you more potential for your investment returns if the area is trending upward in population and job growth. In other words, an out-of-state rental property could offer more opportunities to increase rents, have more cash flow and more sale profits.
Diversifying your real estate investments in various areas/states may offset the risk of one market collapsing/performing poorly while another market is performing quite well.
By investing in rental properties outside of your home state/area, you/your clients may decide to hire a property manager. Though property management costs money, property management can actually save money over the long haul in terms of screening in only qualified tenants and/or negotiating with local vendors for maintenance and repair services.
Downsides of Out-of-State Investing
Due diligence on out-of-state markets requires time. If you don’t have or want to make the time to do necessary due diligence, forget it. Investors in any market need to become knowledgeable about job trends, school quality, demographic trends, legal requirements and/or restrictions, etc. involving any specific local market.
If you/your clients are “hands-on” investors, you will need to rely on a trusted third party to tell you what’s going on with the property as well as the tenants living in the unit. If you/your clients aren’t interested in relying upon a third party, forget it.
If you/your clients are “seeing is believing” investors, it may be difficult for you to make a “sight-unseen” offer on a property in a hot real estate market.
What to Look for in Out-of-State Rental Properties
- Rental demand
- Job growth
- Market growth
- Average home price compared to middle income
- Proximity to desired amenities
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Thanks to HousingWire.