As technology company employees with high income, investing out of state real estate has become an attractive option. Out of state investment can help diversify your portfolio and allow you to tap into markets with better cash flow or appreciation potential. However, it also comes with higher risks and requires more research and use of property managers. This article will analyze the pros and cons, provide an overview of strategies like buy & hold, REITs, and syndication, and give recommendations for those starting out.
Out of state investment spreads your risk but requires more research
Investing out of state expands your possibilities beyond just the local market you live in. Each state and city has its own economic conditions, so you can target areas with positive trends and cheaper property prices. However, this diversification comes at the cost of less familiarity with distant markets. You need to thoroughly research factors like jobs, infrastructure, school quality, and local regulations before deciding on an area.
Utilize property managers to overcome the distance barriers
Physical distance makes hands-on management of out of state properties difficult. Traveling frequently to each property is impractical. Instead, you can hire local property managers to handle tenant screening, maintenance issues etc. However, you still need to vet managers carefully and implement proper oversight systems.
Passive investment options like REITs and syndications reduce workload
Actively managing many out of state buy & hold rentals takes significant time and effort. Passive alternatives like REITs and real estate syndications involve pooling funds with other investors, so you don’t have to directly select and operate properties. This greatly reduces your responsibility while still providing exposure to real estate returns.
Concentrate on just 1 or 2 core markets when starting out
While investing in 5-10 different states might seem attractive for diversification, analysis shows returns often decrease after the 3rd or 4th market. Restrict yourself to just your local market plus 1 or 2 others you can thoroughly research. As you gain experience, you can gradually expand if desired.
In summary, investing out of state offers technology professionals increased diversification but requires stepping up research, leveraging property managers, and considering more passive options. Limit yourself to 1-2 core markets when starting out then slowly expand reach.