When looking for an investment property, there’s no reason for a real estate investor to be confined to the borders of his/her state. Buying a rental property out of state, as a matter of fact, is a strategy many of the most successful real estate investors actively partake in. So, what exactly is out of state real estate investing? What are its pros and cons?
Buying a Rental Property Out of State: In a Nutshell
Out of state real estate investing, as the name suggests, is investing in investment properties outside of one’s state. While this definition is accurate, it can also refer to simply buying rental properties in a real estate market in a different town or city. Whatever the case, buying a rental property out of state is an investment strategy many real estate investors profit greatly from. The practice is among the top methods of making money in real estate for reasons we will now discuss. Still, like any other investment strategy, there are some potential cons associated with it.
The Pros of Buying a Rental Property Out of State
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Cheaper Investment Properties
This advantage of buying a rental property out of state is the most obvious. Why buy a rental property in a state with expensive home prices when you can buy one in a neighboring state? This logic makes sense, of course, if traveling distance between the areas is not an inconvenience.
Investment property price is a justifiable concern when looking to invest in a real estate market. Prices also tend to correlate with location, which is why a real estate investor can definitely save a buck when investing in a different area.
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More Profitable Real Estate Market
The second pro of buying a rental property out of state is having a profitable income property. While buying inexpensive income properties is a plus, earning a profit is the ultimate goal of real estate investing. Sometimes, out of state rental properties are more profitable in terms of return on investment, rental income, cap rate, and cash on cash return than properties within one’s state.
The concept of income property profitability heavily ties in with its location, as is the case of cheap property prices. Location influences many aspects of real estate investing, including rental property profitability.
Some forms of profitability, such as return on investment and cash on cash return, perform better in certain areas. Want to know the best places to buy an investment property based on cap rate? Read this: “Best Places to Invest in Real Estate Based on Cap Rate”!
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Demand for Your Preferred Rental Strategy
The rental strategy of income properties, like rental income and property prices, can be dependent on location. Airbnb rental properties, for instance, tend to perform better in areas with tourist destinations. Single-family investment properties flourish in suburbs and some urban areas.
Therefore, as is the case with property prices and profitability, it’s best to chase a location that is more suitable for your investment property strategy. A real estate investor will need to find out if a certain area has demand for his/her preferred strategy beforehand.
Can’t decide on an investment strategy to pursue? Read this blog post and learn about the most common investment strategies: “Top Six Real Estate Investment Strategies”!
The Cons of Buying a Rental Property Out of State
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Far Distances
Buying a rental property out of state is not all rainbows and sunshine. At its worst, it’s all about gas money and time. Buying an income property in a housing market that is very far away is the most obvious issue that can arise from buying a rental property out of state. The wasted time and money used on the property could have been used more productively, especially on properties in your local real estate market.
Here’s a tip to avoid this con: invest in real estate markets that are not too far from you. If the deal is too good to pass on, and the property is a considerable distance from you, consider hiring professional property management. This will solve many of the issues of being so far away from the rental property.
Not all properties out of state have to be located hundreds of miles away from you. If you use Mashvisor’s investment property calculator and heatmap, you can find properties any distance away from you as you please. To learn more about the incredible heatmap, read this: “Finding Income Properties Using a Heatmap”!
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Cannot Deal with Problems Quickly
This relates to the previous con. Being far away from the property means you can’t deal with any issues that arise in sufficient time. If a pipe bursts, you don’t want your tenant to watch the house get flooded until you arrive. Like the solution to the previous problem, your best bet is to hire professional property management or have a handyman who can arrive on short notice.
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Unfriendly State Laws
Different states have different laws regarding their housing markets. If you aren’t careful, you could get yourself into legal hot water by conducting certain aspects of real estate investing. For instance, Airbnb investing is legal in many cities but is illegal in a few, such as New York City. Find out the legal situation of your rental strategy in your desired area before buying a rental property out of state.
How to Find Investment Properties for Out of State Real Estate Investing
Overall, buying a rental property out of state is among the top actions an experienced real estate investor can take. Provided that the previously mentioned cons are avoided, the deal can add cheap, profitable, and unique properties to your portfolio. Want to get yourself started with finding investment properties for out of state real estate investing? Click here to start your free 14-day trial with Mashvisor! You’ll also be able to conduct an investment property analysis, a comparative market analysis, and so much more!
