Ask a successful real estate investor where he or she owns rental property in the US. Most of the time, the answer won’t be the hometown of that investor. Why? Because many investors prefer long distance real estate investing.
Live in an expensive real estate market? Or perhaps your hometown was slow to recover from the 2008 housing crisis? That doesn’t put real estate investing out of the question. Instead, consider buying a rental property out of state or even in a different city within your home state. You may find higher returns, greater real estate appreciation, and more affordable investment properties for sale in other housing markets.
But note that there are many risks of long distance real estate investing. You cannot just go online, choose the first appealing property for sale, and email the seller with an offer. If you want to experience successful long distance real estate investing, these are the 7 mistakes you absolutely need to avoid.
7 Mistakes to Avoid for Successful Long Distance Real Estate Investing
Mistake #1: Not Researching the Location
Just because you live in, say, the California real estate market, that doesn’t mean that any market that is more affordable is automatically better. You have to do your research on real estate markets to find a suitable location.
So where should you start? If you’re sure you want to go with out of state real estate investing, start your research by looking at a list of the best states to invest in real estate. Here’s one from Mashvisor: Best States to Buy a Rental Property Investment in 2020. Mashvisor provides data like the listing price, average rental income, and return on investment. That way, you can automatically narrow down your choice to one top state.
Next, research what the best cities for real estate investment are in that state. For example, if you choose to invest in the Florida real estate market in 2020, check out this list: The 10 Best Places to Invest in Real Estate in Florida in 2020.
Check out Mashvisor’s real estate blog to conduct more research and choose the best real estate market to invest in.
Finally, do some research on the city. Find out the following through an online search:
- Population growth trends – Are people moving to the city? Or leaving for other places?
- Renter population vs homeowner population – Is there a high enough renter population to drive demand for rental properties?
- Price to rent ratio – Do residents find it more affordable to rent or buy?
- Economic and job trends – Is the economy diverse and growing? Are there plenty of job opportunities to keep attracting new tenants?
- Property taxes – Are local property taxes too high?
- Crime rates – Will your tenants feel safe? Will your out of state rental property be safe?
- Landlord-tenant laws – Is the eviction process made difficult for landlords? Do the local laws favor tenants?
- Buyer’s market or seller’s market – Will you or the seller have the upper hand in real estate negotiations?
- Rental property performance – On average, how do rental properties perform?
All of this info is key to have before choosing a city for long distance real estate investing. Otherwise, you may end up investing in real estate in a location worse than where you live.
Mistake #2: Skipping the Neighborhood Analysis
One of the major real estate mistakes long distance investors sometimes make is neglecting to conduct a neighborhood analysis. The Orlando real estate market, for example, may check all of your boxes, but there are some not-so-great neighborhoods in the city.
So before starting your investment property search in a certain city, research top neighborhoods for investment. When you find a list that helps you narrow down your choices, conduct a full neighborhood analysis on the neighborhood/s of your choice. This consists of two parts: looking at some of the local trends and looking at the average investment metrics.
In terms of the trends, research the rate of real estate appreciation, local crime rates, the Walk Score, as well as the nearby amenities. Do some online research and make sure you choose a neighborhood that is generally a desirable place to live and own property. You can even look at photos on Google Street View to scope the neighborhood out. Such technology makes long distance real estate investing more convenient in 2020.
Next, you need to get into the numbers – how do rental properties perform in the neighborhood? This is a little tricky to find out by doing a plain Google search. Rather, it’s best to turn to real estate investment tools that were designed for neighborhood analysis. Try Mashvisor’s Real Estate Heatmap. This tool will allow you to find out how the listing price in a neighborhood compares to other areas in the city, what kind of rental income you can get, and whether or not you can earn good cash on cash return in the neighborhood.
Mistake #3: Looking at Pictures and Not Numbers
You’ve found a neighborhood and there are maybe a dozen or so investment properties for sale. So you start looking at the pictures available online, right? With long distance real estate investing, what the property looks like tends to be very important to real estate investors who cannot visit the property themselves. It’s definitely important to know what the property looks like to ensure it will attract tenants and that it doesn’t require an extensive makeover. However, it’s even more important to run the real estate numbers.
Be sure to conduct an investment property analysis before moving any further in the buying process. This will help you know whether or not you’ll be making money with a certain property. For long distance real estate investing, it’s recommended that you use online real estate investment software to conduct your analysis. The right software will ensure you don’t have to worry about talking to local landlords in another state to get rental expense estimates or trying to find rental comps in a location you’re unfamiliar with.
Try Mashvisor’s Investment Property Calculator. This tool provides all the data you need like rental income, rental expenses, cash flow, cap rate, cash on cash return, and real estate and rental comps. And you can even analyze all the investment properties for sale in a single neighborhood during one session. That way, you can compare the rate of return on a rental property to another down the street and choose the most profitable one. Mashvisor is the easiest way to find cash flow properties for long distancing real estate investing, without a doubt.
Learn More: 3 Tools for Long Distance Real Estate Investing
Mistake #4: Not Hiring a Local Real Estate Agent
While you can get this far without help, long distance real estate investing typically requires that you hire a local real estate agent. It’s best to have a man or woman on the ground floor who can actually go to the investment property for you and virtually show you around. A local real estate agent will also know all about the local neighborhood and housing market trends. This will mean someone on your side will understand how to negotiate and what to use for leverage. An agent can also help you hire a local home inspector and even advise you on applying for a mortgage out of state if you don’t plan to pay in cash. Remember, a buyer doesn’t pay real estate agent fees, so there’s no reason to avoid hiring one at this stage.
Mistake #5: Believing You Have to See the Investment Property in Person
This particular mistake keeps many people away from long distance real estate investing. They factor in the costs of traveling back and forth to see properties and be present during inspections. And having to do it multiple times until you find the right investment property for sale will really add up.
However, buying a house sight unseen is not uncommon, especially in 2020 with the COVID-19 pandemic. With the help of a real estate agent and a smartphone, you can easily take a virtual tour of the investment property, any land it sits on, and even the neighborhood. Because of social distancing, most home inspectors are going into properties alone. So you don’t have to worry about that today either. An inspector may call you and walk you around virtually or provide a detailed report of everything you need to know afterward.
While you have to be cautious, it’s definitely possible to dive into long distance real estate investing without physically seeing your future rental property before purchase.
Mistake #6: Not Researching Local Property Management Companies
Don’t settle on a location or property without first researching local property management companies. While you may choose to become a remote landlord, managing a rental property out of state can be difficult, especially if this is your first rental property. Hiring a property manager will make out of state real estate investing much easier. You’ll be able to earn passive income and you won’t have to travel so often whenever your tenants or rental property needs your attention.
Do some research on the top property management companies in the area. You may even choose to get in touch with a few of the ones that have positive online reviews and interview them further. You can also ask your real estate agent for some recommendations if an online search turns up nothing useful.
Mistake #7: Forgetting to Check the Potential of an Airbnb Rental Property
The last mistake you should avoid making with long distance real estate investing is forgetting all about Airbnbs. Owning an Airbnb investment property may be illegal in your hometown or simply not profitable. But if you’re investing in real estate out of state, you now have the option to invest in Airbnb anywhere in the US.
Research local Airbnb regulations in the city of your choice as well as zoning regulations for the neighborhood. If you really want to invest in Airbnb and it’s not legal in the area, then start your search for a city all over again. Check out these best cities for Airbnb rental income in 2020.
If it is legal, be sure it’s profitable. Take all of the same steps outlined above – conduct Airbnb market research and an Airbnb investment analysis. Be sure to use Mashvisor’s tools which allow you to find and analyze Airbnb investments without the need for Airbnb spreadsheets. An out of state Airbnb investment may turn out to be more profitable than a long term rental property.
These are the 7 mistakes long distance investors absolutely must avoid in order to succeed. What other mistakes would you warn real estate investors against? Let us know down below in the comments.