Out of state real estate investing is becoming increasingly popular with many investors. People who practice long distance real estate investing usually do so to own a vacation home or second home, but there are also other reasons to look to other states when buying a rental property. Here are some of the reasons why out of state real estate investing is a good idea:
- Diversification – It is not wise to have all your rental properties in the same state or city. If a natural disaster or any other catastrophic event occurs, it could have a detrimental effect on your portfolio. Therefore, it is advisable to diversify your real estate portfolio through out of state real estate investing.
- Affordability – Investors buy rental property with the aim of making a good return on investment or passive income. If the real estate markets in your town or city are too expensive, buying a rental property out of state would make sense.
- Investor-Friendly Laws – Every city or state has laws and regulations for the real estate market. If the property laws in your city are not investor-friendly, consider out of state real estate investing.
Whatever your reason for purchasing investment property out of state, here are some steps which will ensure a smooth process:
6 Steps to Out of State Real Estate Investing
1. Develop Your Investment Strategy
Having a proper investment strategy is very crucial for success in out of state real estate investing. The kind of strategy you choose will be determined by your financial situation, risk profile, age, and location choice. Here are some strategies you could consider:
- Renovate and sell/hold – This involves buying a rental property and renovating or repairing it to add value. You could then sell the investment property immediately to make a quick profit, or hold on to it for the long, medium or short-term.
- Buy and hold – This is when you buy a ready-to-move-in property and hold it for the long or medium term.
- Buy and flip – You could purchase a low-priced property and immediately list it at a higher price.
2. Find Investment Property in the Right Location
When it comes to out of state real estate investing, location is a very crucial factor. The investment location you choose will have a significant effect on the potential return on investment or cash flow of the investment property. The good news is that there are tools that can help you find locations with suitable properties within minutes. Mashvisor’s heatmap analysis tool is very effective for carrying out neighborhood analysis. You can use this tool to analyze different properties in a neighborhood based on parameters such as traditional cash on cash return, property price, Airbnb cash on cash return, traditional rental income, Airbnb rental income, and Airbnb occupancy rate.
Related: Using a Heat Map Tool to Analyze a Real Estate Market
3. Narrow Down Your Options
In a typical neighborhood, you will probably find multiple rental properties listed for sale. After finding an area that would provide a high return on investment, you should then decide what kind of investment property you would want to purchase. It would be advisable to go for a property type that is sought after in that location. For instance, if the area is a popular college town, purchasing a single family home or condo would be ideal. You could also consider investment properties with features such as a garage, basement, more bathrooms, and more bedrooms.
Mashvisor’s property finder is the ideal tool for narrowing down your search based on your out of state real estate investing goals. You can look for investment properties using filters such as type of out of state rental property, rental strategy, distance from the city, and the number of bathrooms/bedrooms. For instance, you could decide to search for multi family homes with four bedrooms and three bathrooms. The results will not only eliminate properties that don’t meet your goals, but they will also be the local properties with the highest return on investment.
Mashvisor’s Property Finder
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4. Perform an Investment Property Analysis
After narrowing in on a few properties, you need to carry out an investment property analysis to check the viability of the properties based on their performance. This analysis can be done easily using a real estate investment calculator. Mashvisor’s rental property calculator, which also works as an Airbnb calculator, is a powerful tool that you can use to analyze properties using a wide range of metrics including cash on cash return, cap rate, and cash flow. It will also reveal the best rental strategy that will produce a good return on investment (traditional or Airbnb) for each individual property.
Related: How to Do Investment Property Analysis
5. Work with a Real Estate Agent
Real estate agents can come in very handy for finding suitable properties for out of state real estate investing. This is especially vital for beginner real estate investors. An experienced agent will not only help you find positive cash flow properties but will also help you negotiate the best terms. Having someone on the ground floor can make buying a rental property out of state much easier.
You can find good agents by searching online for agent listings. You could also get recommendations from other real estate investors, title companies, home inspectors and local contractors.
6. Get Financing for Your Out of State Real Estate Investment
Choosing the kind of investment property you want to buy is the easy part. The challenging part is finding financing for out of state real estate investing. Property financing could be through conventional bank loans, fix-and-flip loans, home equity loan, rent to own, private money lenders, seller financing, real estate partnerships, and cash financing. Choosing the wrong financing option can have an adverse effect on your investment goals. You should compare your financing options based on the type of loan, your eligibility, loan amount, loan terms, fees and costs, and interest rate.
Related: Investment Property Financing: What Are the Best Options for Real Estate Investors?
Conclusion
Out of state real estate investing is one of the most viable real estate investment opportunities. Finding the right properties for investment is easy using real estate investment tools. Still, this process requires finding a real estate agent that can not only help find the right properties but also provide guidance through the paperwork. You should also find a property manager or property management company that can help with managing rental properties out of state.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
