Out of State Real Estate Investing: What Landlords Need to Know

There are many reasons someone might look at out-of-state real estate investing. For example, landlords (and would-be landlords) who live in expensive parts of the country may struggle to diversify their portfolios due to the high property prices. Similarly, it may not make economic sense to purchase a property if the demand for rentals in your area is low.

Finding a property in another state could be the solution to maximize your ROI — but it’s important to note that out of state real estate investing has its own unique challenges. There are several things you need to know before you take the leap.

1. Out of State Real Estate Investing is Not as Risky as It Once Was

Whereas it may have been unfeasible to own a rental property in another state in the past, today this only poses a few more challenges than owning property near where you live. There is now plenty of software that will allow you to manage your property from any location. For example, with Landlord Studio you can collect rent remotely, track your active leases, and manage tenant applications from within the software.

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2. You’ll Need a Team

Some landlords decide to handle much of the in-person work themselves when their rental property is local, but this is not an option with an out-of-state property. Building a team of professionals you can trust is essential. Your team should include:

• A real estate agent — ideally someone with experience representing landlords. This will be essential for finding and closing on new investments. Additionally, you may need a title company.
• Contractors who are capable of carrying out any repairs or maintenance you may need.
• Either a property manager or a management company. There are some things that need a person to be present, such as showing your rental to tenants, routine property inspections, and dealing with evictions. Hiring a professional for these occasions can help you maintain peace of mind.
• Either certified public account (CPA) or financial advisor. Different states may have different fees, costs, and rules, a CPA well versed in real estate investing tax laws for the location could help you save thousands.

Start by searching for a realtor, as an experienced real estate agent should be able to give you referrals for the rest of your team. Make sure you also do your own background checks, such as asking for references and reading reviews, to ensure you receive a quality service.

3. The Best States to Buy a Rental Property

To find the ideal property for you, start by considering the best states to buy a rental. Some states are much more investor-friendly but may come with lower returns. Factors that make certain states particularly good choices include low property taxes, a growing population, a large number of renters, and affordable properties that are likely to appreciate.

The best states to buy a rental property according to these factors are as follows:

• Idaho
• Florida
• North Carolina
• Georgia
• Texas
• Tennessee
• Indiana

3. The Neighborhood Also Matters

Beyond considering which are the best states to own a rental property, it’s crucial to consider the city and neighborhood — after all, every city has desirable and less-desirable areas. You need to ensure you pick somewhere that has great amenities, plenty of job opportunities, and other features that will attract potential tenants. You can find out most of this information online in places like Niche and City-Data. Additionally, you should look at historical rent trends in the neighborhood (this data can be found on sites like Zillow), as well as new development projects the city has going on. Finally, consider your target market and the kinds of rentals and amenities they are looking for.

4. View the Property in Person Before Closing

Although you won’t be around to manage the property in person, you should still pay it a visit before you decide to buy. In fact, you should treat the buying process just the same as if you were purchasing locally, which includes receiving all the necessary inspections, such as a general home inspection, wood-destroying organisms (WDO) inspection, defective drywall inspection, lead-based paint inspection, and radon gas inspection.

You should also assess how well the property is likely to perform by using key real estate investing metrics. Finally, you’ll need to perform a few basic due diligence tasks, which will include:

• An inspection of the surrounding area
• Checking the seller’s disclosures (if the state requires these)
• Taking out appropriate landlord insurance and owner’s title insurance
• Receiving an appraisal
• Finding out about any HOA covenants
• Receiving a property survey

5. Get Pre-Approval for a Mortgage

You’ll be able to purchase property faster if you’re pre-approved for a mortgage. This is particularly important when you’re buying out of state because of the extra travel time involved. The last thing you want is to invest time and effort only to be rejected in favor of someone else because you lack pre-approval.

6. Local and State Laws

If you’re an experienced landlord, you’re likely well-versed in the laws of your area. However, regulations may be quite different in another location. To avoid fines and mistakes on your tax return, make sure to research all local laws before you list your property for rental. This may sound overwhelming, but certain types of laws vary from state to state. These include those related to the treatment of deposits, notice of entry, rental agreements, and late fees and grace periods.

8. High-Risk Properties Are Rarely Worth It

Sometimes, a high-risk property can be financially beneficial. For instance, a property may have a great cap rate due to its low purchase price — but if this is because it is an older property or is in a poor area, it may need significant refurbishment before it’s fit to rent out or have a high vacancy rate. Purchasing a high-risk property can allow you to reap significant rewards in the right circumstances, but for an out-of-state investment property managing the potential problems can quickly become overwhelming and costly.

Conclusion

You’ll find it much easier to benefit from the opportunities of out-of-state real estate investing when you use the Landlord Studio app. With Landlord Studio, you can easily manage all your important property management tasks remotely, including rent collection, tenant screening, and publishing rental listings. This means you’ll save money on property management company fees.

Plus, when you have a quality financial tracking tool like Landlord Studio, you receive a detailed picture of your property’s financial performance, which will enable you to identify how exactly you’re investing funds to ensure that your property remains profitable.

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