Investing in rental property means approaching real estate opportunities as they arise. While it may not be ideal, sometimes the best option might be to invest in a property out-of-state. Investing in such a property might offer you a chance to diversify your portfolio or acquire an under-valued property.
To make the process easier, the team from True Nest Property Management has put together some advice for potential property investors looking to go this route.
Why Invest in Out-Of-State Property?
The main reason that pushes individuals to invest in out-of-state properties is the price point, as local properties might be above a new investor’s budget or financial capabilities.
Another reason why individuals might invest in out-of-state properties is depreciated property markets. The goal of property investing is to enjoy consistent returns. So, if your local real estate market hasn’t been doing great, it may be best to invest out-of-state, where the demand is reliable and you are assured steady returns in the long run.
How to Invest in Out-Of-State Property
Conduct a Physical Inspection
Due to the distance and the cost implications, it’s likely that most of your property search will be conducted online. This includes looking up listings online and making phone calls to sellers.
However, once you have identified a property that meets your requirements, it’s recommended that you conduct a physical inspection of the property. While online listings can be extremely helpful in the property search, they may sometimes leave out or over exaggerate certain qualities of the property.
Additionally, we recommend you get a home inspector to assess the condition of the property. A home inspector is a professional with the necessary expertise, training, and experience to detect defects in a property. They will be able to advise on any maintenance issues that the property might have.
The inspector will also provide you with an inspection report. Depending on the details of the report, you may be able to bargain the property’s asking price.
Keep an Eye Out for Investment Returns
Before buying a property and investing in real estate, make sure you have done sufficient research on its return to investment. There are a number of key elements that contribute to the ROI, including the initial purchase price, the appreciation of the property, the turnover rate, the cost of maintenance and management, and the mortgage expenses.
All these factors play a big part in the viability of your investment, so it’s best to be well-equipped before making a commitment.
Factors to Consider When Investing in Out-Of-State Property
Locating Market Information
If you’re investing in out-of-state property, it’s understandable that you might not have an intimate knowledge of the real estate market you plan to invest in. As such, it will become very important for you to research and understand the market’s driving factors, as well as its well-performing sub-markets.
Should you have any difficulty locating this information, you may need to rely on the experience and expertise of a reputable professional. Given their experience in the market, they should be aware of the well-performing areas in their local market.
There are few assets or investment options that are as regulated as property. You will need to familiarize yourself with the relevant local ordinances, state regulations, and federal rental laws regarding property ownership, taxation, and leasing.
In most cases, property investors don’t move or change residences to be closer to their investment. If you don’t seek to relocate, you will need to set up good and reliable contacts in your investment area.
That way, should any maintenance issues arise on your property, you won’t need to travel and take care of it yourself; you could simply call upon a trusted contractor in the area to help you resolve it.
For comprehensive management of your investment property, consider outsourcing the management of your rental to a property management company.
Even if you find and hire a quality property management company to oversee the daily management tasks of your rental property, you should still make occasional visits to the property.
This will allow you to assess the situation on the ground, touch base with the management company in person, and establish a stronger relationship between you and your tenants.
Long-distance landlords should always take into the account the cost of traveling to their investment property in their annual budget.
Applicable Laws and Taxes
State rental laws govern the purchase, leasing, and management of investment property. Property laws and legal provisions in your home state might not be applicable in the next state. You will need to have a good understanding of all laws to create an adequate budget, remain compliant, and avoid any potential fines or penalties.
The tax situation will also change significantly depending on the state. A reliable and experienced property management company should be able to guide you on how to stay on top of your out-of-state property taxes.
Investing in an out-of-state property could be a great decision to get ahead in your investment journey, as you may be able to take advantage of affordable options and better returns.
Outsourcing the management of your rental to a property management company will help you maintain the property and maximize your returns. If you plan to invest in Broward County real estate, TrueNest Property Management is the leading service provider in the area.
Get in touch with us today and receive a quote for our property solutions!