Purchasing investment property out of state is an attractive option for many real estate investors due to potentially higher returns and greater affordability. However, buying property in another location also comes with risks such as lack of familiarity, difficulty managing remotely, and hidden costs. When considering out of state real estate, investors should research markets thoroughly, use property managers, start small, and budget for travel and legal fees. With proper planning, buying investment property out of state can diversify a portfolio and expand income streams.
Out of state investment property offers higher potential returns but also higher risk
Buying investment property out of state often offers higher potential returns compared to expensive coastal markets, especially in up and coming cities throughout the Sunbelt and Midwest. Population and job growth in these areas is fueling demand, leading to rising rents and property values. However, less familiar locations also come with greater risk. Investors may struggle evaluating different markets and neighborhoods. Hiring property managers is essential but adds costs, tenant turnover may be higher, and maintenance issues cannot be handled as easily from a distance.
Proximity is still an advantage for managing issues and assessing markets
Despite the connectivity of the digital age, physical proximity still offers advantages when investing in real estate. Investors who can drive to their properties can spot issues more quickly and have contractors resolve them faster. Seeing an area regularly builds market knowledge and relationships with locals. Though traveling to remote investments is possible, it adds time and costs. Investors should factor this into their expected returns.
Legal and tax issues must be researched before buying out of state
Each state has its own real estate and landlord-tenant laws that determine investors’ rights and responsibilities. Tax implications of owning property over state lines can get complicated as well. Investors may need to file taxes out of state and deal with issues like double taxation. Working with professionals familiar with the target area is essential to navigate regulations. Investors should also beware of scams that target out of town buyers.
Starting small reduces the risks of remote real estate investing
Jumping into purchasing large multifamily properties or entire developments out of state should be avoided, especially for newer investors. Beginning with a single-family home or small multifamily building enables learning the local market. Investors can expand within a market once establishing competent property management and reliable contractors. Conservative lending standards also help limit risk exposure when buying out of state investment property.
Though out of state real estate investing has risks like lack of familiarity and remoteness, targeted research, using property managers, understanding laws and taxes, starting small, and budgeting for travel can lead to a successful investment. Weighing costs versus profit potential across different markets is key.