Investing out of state can be a very risky move for any real estate investor who isn’t knowledgeable about the state, city, or area that he/she’s investing in.
In order to invest in an out of state or an offshore rental property and ensure positive cash flow and a hassle-free investment, as a real estate investor, you will need to do a lot of research to learn about the new housing market that you’re getting into.
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So, what are the different aspects of investing out of state that real estate investors need to take into consideration to achieve success on their investment?
Investing Out of State: Know the Location of the Investment Property
Whether you’re investing out of state or in your local housing market, it is well-known in the world of real estate investing that the location of an investment property can make or break the investment. While selecting and learning about the location of an investment property in your local area is a challenge, the challenge only gets harder when you’re considering investing out of state. This means that you will have to learn as much as you can about a remote area that you’re not familiar with, or that you might need to travel to in order to get to know better.
To reduce the amount of time and effort needed to learn about the best location for an investment property in a state, city, or neighborhood, your best option might be to find someone who is trustworthy and knowledgeable in the area that you’re investing in.
The knowledge that you can get from someone that you know and trust and who is familiar with the area can make a drastic difference as it is often recommended to only consider areas that you know you have a good source of knowledge for.
Also Read: What is Location in Real Estate Investing?
Investing Out of State: The State of the Local Housing Market
After deciding on a specific housing market that you want to invest out of state in, it is extremely important to do real estate market analysis and gain more understanding about the market related to the performance of real estate properties and investments in it.
Depending on your motives for purchasing an investment property, such as whether you intend to use it as a secondary residence or an income property, it is generally ideal to understand how properties of each type are performing in the local market.
A certain housing market might be a very good market for investing in a certain type of property, for example, but might perform very bad for the type of property that you’re aiming for.
In order to get a clear idea of how the housing market is performing, you will need to conduct comparative market analysis to see how each property type is performing in comparison to the market’s average as well as to other similar properties in the area.
Investing Out of State: Learn the Laws and Regulations
It is no secret that different cities, states, and counties often have different laws and regulations. This also applies to laws and regulations affecting the real estate market and/or your investment. Before purchasing an investment property, make sure to have a full understanding of all the laws and regulations that might affect your investment, as well as the different taxes that might apply to it.
It is generally recommended to seek advice from a real estate professional or a tax expert in the area. This information can be learned from talking to property managers, real estate agents, and homeowners, as well as other investors who own properties in the area.
Investing Out of State: Target Tenants
Knowing which types of tenants you’re targeting is usually a good idea before you start investing. There are several different types of tenants that you could target for your rental property, but each has its own needs and preferences that you will need to meet.
The optimal type of tenants will determine the optimal type of property that you can invest in. But what determines the optimal type of tenants is the location that you choose.
From the information that you’ve gathered and learned about the city that you’re investing in, you should be able to identify the rental market’s niche and the most profitable type of tenants for your rental property.
A real estate market can perform especially well for a certain type or multiple types of tenants depending on the area’s climate, attractions, and other factors. The different types of tenants can include tourists, business travelers, retirees, and families. Each of these types of tenants will have their own needs that you will have to cater to. For example, if the area is known for its high quality schools, and it attracts a low numbers of small families to move in, you will have to cater for that by looking for appropriate single-family homes with a sufficient number of bedrooms that are also approximate to schools and other related amenities.
Investing Out of State: Type of the Property
The type of the rental property in which you invest out of state relies heavily on your budget and the location, as well as the target tenants. A rental property can be a single-family home, an apartment, a condo, a townhouse, or a luxury home. Each of these property types can perform better or worse depending on the area that you’re investing in and whether that area attracts the type of tenants that are most suitable for this type of rental property.
If you’re investing in a business-oriented city like New York, for example, then it might be suitable to purchase an apartment that is fitted towards business travelers (includes a home office, a desk, etc.).
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However, your budget can also limit the types of rental properties that you can invest in. New York, for example, is known for its sky-high property prices, and your budget might not allow you to purchase an apartment in downtown Manhattan, but it might allow you to purchase a small single-family home in the suburbs.
Investing Out of State: Professional Property Management
Professional property management is one of the most valuable assets available for investing out of state. When investing out of state, it will become more challenging for you to run and manage your rental property due to the distance. Hiring professional property management can save you drastic amounts of time and effort that you would otherwise spend traveling to and from your area of residence to the area of the rental property in order to manage its different aspects, such as tenant turnovers or rental property maintenance.
It is generally a good idea to find and set your mind on a professional property management company before you even start investing out of state, especially if you’re going for a rental property that needs renovation and repairs. A professional property management company will be able to provide a variety of different services that include managing the property and the tenants. It can advertise your rental property, screen the tenants, maintain the property, hire handymen to do the repairs, and tend to the tenants in cases of emergency.
Make sure to research the different professional property management companies in the area and decide on one that can provide you with a complete package of the services that you need for managing the rental property.
Investing out of state can be a very challenging venture for most real estate investors. However, there are a number of great advantages that can be gained from investing out of state or offshore, such as a more diversified real estate investment portfolio, tax advantages, or for simply owning a hard asset in a different area.
If you’re looking to find investment properties to invest in out of state, head over to Mashvisor, and type in the name of the state, city, or neighborhood that you want to invest in to find the best investment properties in that area.