Let’s dive into the topic of out-of-state real estate investing. As more traditional forms of investing prove to deliver a diminishing ROI, more and more people are turning to real estate as a long-term investment vehicle, and even as a way to supplement their monthly income. According to LandlordStation, there are over 28 million investors in the US.
The challenge for some investors, myself included, is that their local real estate market isn’t conducive for real estate investing. It could be you live in a seller’s market, where properties are flying off the shelf at above-market prices, or perhaps you live in a part of the country where acquiring rental property is simply too costly. Whatever the case, out-of-state real estate investing is something you’re exploring.
However, how does investing in property out-of-state work? Is buying investment property out-of-state a wise move? We’ll answer these questions, and more, in this blog post, so let’s get started.
Is buying property out of state a wise move?
Before we jump into the nuances of out-of-state real estate investing, is it even a smart thing to do? Generally speaking, I think buying local properties or out-of-state rental properties can both be wise moves. The biggest disadvantage to buying investment property out-of-state is that you’re going to have to rely much more on the expertise of others.
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The first 20 or so rental properties I purchased were out-of-state, but I also had a team of “trusted advisors” who were local to the properties.
Your biggest ally is going to be an experienced, trustworthy real estate agent. Ideally, someone who has lots of experience working with investors, who has a keen eye on the kinds of properties that would make good rentals and the ones that wouldn’t.
Furthermore, you’re going to need a contractor who can provide you with accurate renovation estimates. Now, I recommend avoiding general contractors once you’ve made your own contacts in the trades (here’s a why), but in the beginning, you may have no choice.
So, if you have a local team who can help advise you on whether properties are wise purchases or not, then you can certainly grow a real estate portfolio and become a successful out-of-state real estate investor just like you can locally.
How do you find and buy out-of-state rental property?
You can easily find out-of-state properties by doing your own research online via sites like Zillow, Trulia, Realtor.com, etc., but you should also have a real estate agent help pull listings for you. The great thing about working with an agent, as a buyer, is that their services are 100% free since the seller pays all real estate commission.
How do you finance an out-of-state rental property?
I strongly recommend working with smaller banks local to your rental property for long-term financing. Many of these banks won’t mind that you’re out-of-state, and their terms will likely be more competitive than working with national lenders. For an in-depth understanding on real estate financing, check out my post in investment property loans.
When you call on these local banks, ask to speak with a loan officer who handles commercial lending.
How do you rehab an out-of-state property?
Rehabbing an out-of-state property is where you really have to be careful. Not being local obviously means you can’t do regular “check ins” to ensure things are moving forward as you instructed.
This can be nerve wracking. Not only will you need to make sure you have good workers in place, you need to be clear on the work you want to be done. Finding a crew that can be left alone and trusted is hard to find.
Before you start any renovations, you first need to figure out your renovation budget. This should be organized on a spreadsheet with line items for every repair. Here’s a sample spreadsheet you can use. Probably the easiest way to fail as a real estate investor is not having and sticking to a budget.
Keep in mind also that you’re not renovating the Taj Mahal, so be frugal. Not everything has to be updated and new. Maybe you can get by with good used kitchen appliances instead of new ones. Possibly a second layer of shingles will suffice instead of a full roof replacement.
You’ll learn how to renovate more wisely as time goes on. If you’re just starting out, and especially if you’re out-of-state, you’ll just have to rely heavily on the expertise of a contractor, so be very careful who you choose.
What about managing a rental property out-of-state?
Ok, let’s talk about managing rental property out-of-state. When it comes to property management, you have two options. You can self-manage or hire a property manager. When I first starting buying real estate, I was an out-of-state investor, so I hired a property manager not even thinking that self-managing would be possible. I was wrong.
I strongly recommend you self-manage. Check out this post to learn why. It is very possible to self-manage your properties as an out-of-state investor and here’s how to do it.
Promoting your rental property
Don’t worry about yard signs or newspaper ads. I think you’re aware that those days are over. Tenants look online for places to rent, so major real estate sites are where you want to promote your rental properties. Here are a few of those sites:
Now, you may be asking, “How in the world can I show a rental property if I’m out-of-state?” Easy. Use Rently. Rently allows for self-showings. Yes, interested parties can access the lockbox themselves, get the key and and enter your property.
Sound crazy? Check out this post I’ve written about Rently before you knock it. Rently has been a huge timesaver for me, and it works wonderfully well.
Additionally, Rently can also push your rental property listing out to many of the real estate sites listed above automatically which will save you a lot of time.
Rental applications, leases & collecting rent
You’re going to need to invest in property management software. I recommend Buildium. Buildium will allow you to collect online rental applications, do tenant screenings and even collect rent payments, so check them out.
Once you approve a tenant, you can get them to sign a lease electronically by using Dotloop.
Unfortunately, if you’re in the property rental business long enough, at some point, you’re going to have to deal with evicting tenants. As an out-of-state rental property investor, you really need to hire an attorney to help you with this.
The cost to hire an attorney will range between $400-$800 depending on where in the country your rental properties are located. However, the total cost of an eviction is much more than that. Check out this post for more on evictions.
The best way to avoid having to evict a tenant is to screen your tenants well! Don’t be afraid to turn people away. Trust me. It’s much better to have a vacant property than an occupied property with a problem tenant.
Buying rental property out of state can be a wise move, but you’re going to have to rely more on the expertise of others who are local to the area you’ll be buying properties. Additionally, I strongly recommend you self-manage your properties and use software like Rently and Buildium to make managing out-of-state rental properties possible and easy.