Out-of-State Rental Properties: Where to Invest

Most people know that property investment is a great way to accrue value and make extra income by renting it to tenants. Though it might seem like the obvious choice to purchase property in the same city or county that you live in, there are certain benefits to owning out-of-state rental properties that potential real estate investors should be aware of.

Benefits of Out-of-State Rental Properties

Owning multiple properties is a great way for real estate investors to diversify their portfolios and maximize their earnings, and when out-of-state rental properties are included, an investor’s portfolio can become even more robust.

Spend Less with Greater Potential Returns

As a real estate investor, only considering properties in your immediate area or even within your own state can limit your potential ROI. 

For example, the real estate market where you live may be currently in a state of low inventory and high demand. However, the market in another state may be in a better position for buyers. 

A buyer’s market allows you to spend less on your initial investment while reaping the benefits of accrued value and high rental rates in the area. You can make a larger down payment if the property’s total cost is lower, which means you’ll have a lower monthly cost to manage going forward.

Various Market Options

When you consider all real estate markets to be options for you, you can choose between types of properties. Whether you want to prioritize multifamily properties, larger suburban homes, or college town rentals as an investor, there’s a market out there to suit your exact preferences.

Most importantly, you can choose a town or city where you are likely to earn a high return on your investment. It’s easier to find a high cash-flow rental when you can spread your net and buy an affordable home in an area with a large number of renters.

Drawbacks to Renting Property Out of State

Though there are many significant benefits to investing in out-of-state rental properties, you should be aware of the potential drawbacks. Generally, these drawbacks can be mitigated with proper planning and research into the real estate market you’re purchasing in.

The difficulty of Managing a Property Remotely

Unsurprisingly, the biggest drawback to owning an out-of-state rental property is that you can’t easily visit the property. This can make the purchasing process difficult; after all, you should never buy a property sight unseen. It can also make management difficult as you won’t be able to perform regular inspections or upkeep yourself. 

Many real estate investors with out-of-state rental properties choose to hire a property manager. This individual can perform regular visits, interface directly with tenants, and show the property to potential tenants when you’re between lease agreements.

Unfamiliar Laws Around Rental Properties and Taxes

When you invest in an out-of-state property, keep in mind that the property will be under the jurisdiction of different landlord/tenant regulations and tax laws than the properties where you live. 

Do your research about the tax implications of owning a property in the state you’re looking at as well as what it will mean for your tax returns and property management protocols if you own the property as an out-of-state investor.

Tips for Success with Out-of-State Rental Properties

You may feel overwhelmed trying to find the perfect place in which to invest in a rental property. Prioritize cities with thriving economies, strong population and job growth over the past few years, and low rates of unemployment. 

If you’re seeking a loan to purchase an out-of-state property, plan for more time to be involved compared to property purchases in your home state. Many lenders will ask for more documentation from you when securing a loan for an out-of-state property purchase. 

Since purchasing a property remotely can be risky, consider investing in a turnkey rental property that’s been pre-inspected. Some even have a tenant in place already, which means you’ll begin earning on the property the moment you close the deal. 

When you invest in an income-generating property and hire a great property manager with experience working with out-of-state property owners, you can rest assured that your property will be well taken care of.