Related: Out-of-State Real Estate Investing: The Good and the Bad
Step 1: Find a Market
First things first, find the real estate market you would like to buy a rental property in. There are many things to consider when evaluating an unknown housing market. For starters, the area’s population and economy are strong indicators of the location’s need for rental real estate. Another obvious factor is the median property prices. Since the plan is buying a house out of state for rent and not for residency, you should also know the price-to-rent ratios of the area.
There’s much more data to know when deciding to invest in a new area. Examples include Airbnb occupancy rates, cash on cash return, average price per square footage, etc. If you were to compute or search these data on your own, it could take you a lot of time. If you want to save time and improve your efficiency, use Mashvisor’s investment property calculator! It will tell you everything you need to know about an area’s performance in real estate.
Step 2: Search for an Investment Property
Finding an excellent area will make finding an excellent property so much easier. This is especially true if you continue to use Mashvisor’s investment property calculator! Not only does it break down neighborhoods, it analyzes properties with constantly updated predictive analytics.
Related: How Should You Use Real Estate Analytics in Your Investment Decisions?
If you aren’t sure which type of property to invest in, Mashvisor will inform you which property type will be most successful and profitable in the area. Property types, like single-family homes and condos, are important to consider when buying a house out of state for rent. What may be more important, however, is the rental strategy. And, lo and behold, Mashvisor will help you through this as well! Even if you are investing in an unfamiliar housing market, Mashvisor will help you choose the best investment property possible!
Step 3: Get Your Finances Ready
Another challenge when buying a house out of state for rent is financing it. There may be differences in obtaining mortgages in certain areas. Interest rates on the mortgage can also vary. The qualification process may also have differences compared to that of your area.
These differences are slightly more often than not. Still, there are other financing considerations that will certainly impact your ability to buy an income property out of state.
For instance, regardless of the area, obtaining a mortgage as an outsider is harder than doing so as a local. Banks see out-of-state investors as riskier. This often translates into a higher down payment and higher mortgage payments. Even with these higher costs, though, there are plenty of great deals in out of state real estate investing that you don’t want to miss out on!
Step 4: Learn the Laws
Tangling with real estate laws in your own community can be messy. Imagine doing so in an area completely unknown to you.
All the steps on this list are vital, but this one may be the most important. Laws can differ considerably on the state, county, and even town level. For this reason, you NEED to be aware of the area’s laws.
Common real estate laws concern zoning limits. This is especially true with Airbnb investment properties. Other Airbnb legal concerns include obtaining the proper licenses, building standards, taxes, and regulations whether short-term rentals are legal in the first place. To learn more about Airbnb’s legal status in the city you plan to invest in, visit Airbnb’s Help Center.
Step 5: Set Up Management
Property management is an absolute necessity for the success of any investment property. Normally, when investing in your area, you can opt to self-manage a rental property. When buying a house out of state for rent, self-managing becomes nearly impossible.
So, your best (and practically only option) when investing in a rental property out of state is to hire professional property management. The extra costs might be a burden, but professional property management will save you time and headaches when buying a house out of state for rent. If you purchase an income property with a company, like a turnkey property, property management services are already included.
Related: Why Investing in Turnkey Real Estate Investment Properties Makes Sense
Step 6: Stay Familiar with the Area
Even after you’ve completed the process of buying a house out of state for rent and the property is running successfully, be sure to become familiar with the area. Most importantly, visit your rental property from time to time. Checking up on the property will reveal any problems, and whether the professional property management company or individual is keeping his/her end of the deal. If there are any problems present, be sure to solve them immediately, especially if the property is occupied.
Being familiar with the area can help you get in contact with other real estate investors there. Networking is key in real estate investing success, and expanding your network is never a bad idea. This is doubly useful in out of state investing, since it helps you establish contacts in the area. You might also learn about more real estate investment opportunities through these contacts!
Buying an investment property is challenging in it of itself, buying a house out of state for rent magnifies these challenges and presents new ones. The trouble is worth it, though, as many out of state investments can be lucrative sources of rental income.
Have you ever invested out of state? Let us know about your experience, and be sure to use Mashvisor to search for future investment opportunities!