Do you want to learn how to profit from long distance real estate investing? If that’s the case, you will find this article of great help.
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If you’re a newbie in the real estate business, many successful property investors will advise you to invest where you live. It is good advice because it’s challenging to gain a thorough knowledge of a real estate market if you aren’t living there.
For an experienced real estate investor thinking of growing their portfolio, however, long distance real estate investing is a good option. If you have any doubts about this strategy, just consider that many multi-millionaires made their wealth through owning various types of investment properties nationwide (and even worldwide).
On the other hand, purchasing a property from out of state might be tricky. Houses may have leaking toilets, unpleasant tenants, and sudden vacancies—and dealing with these issues from out of town may be challenging without the appropriate help.
And now, how can you start making money with long distance real estate investing, too? We’ll break down everything you should know about real estate investing out of state with the help of Mashvisor.
Is Long Distance Real Estate Investing for You?
Long distance real estate investing, as the name implies, is analyzing markets in another town or state, then purchasing and renting out homes to diversify a portfolio of investment properties geographically.
For example, out of state investing can make sense if you reside in a high-cost-of-living area, such as California, Hawaii, or New York. It is because it might be difficult to locate real estate deals in your local market that suit your needs and budget.
Long distance investing can technically match any investment plan, such as selling, rehabbing, or wholesaling real estate. Nevertheless, due to the time and distance required, a long-term buy-and-hold approach makes the most excellent financial choice.
It is because long distance investing is the ideal approach to reducing risk via diversification. At the same time, you are able to maximize profits from a broader range of rental properties in fast-rising regions where prices are still reasonable.
Now, let’s see some advantages and drawbacks of this out of state investing.
Pros and Cons of Out of State Investing
Long-distance connections, you’re probably thinking, might not always last. Thus, how would the procedure for investing work? On this, we agree with you. Investing and maintaining properties remotely might be a difficult task, but it is absolutely achievable and offers the potential to provide remarkable returns.
Let’s start with some pros:
Pro #1: Chance to Profit From a Low-Cost but Lucrative Investment
Long distance real estate enables landowners who live in costly areas, such as New York or San Francisco, to locate better offers elsewhere. Furthermore, property taxes in other states and countries may be lower.
Pro #2: Local Economy Diversification
Different cities provide various economic chances. While some locations may have more jobs concentrated on heavy industry, others may have more opportunities focusing on health care, tech, or automobile manufacturing.
Basically, location diversification helps mitigate the influence of economic ups and downs in one sector of the local real estate industry.
Pro #3: Invest in Better Neighborhoods
In Los Angeles, California, an old home in a good neighborhood with excellent schools, a low crime rate, and favorable amenities may cost an astonishing $3 million. However, you might be able to find a comparable property and setting in the Midwest for a few hundred thousand dollars less.
An upscale neighborhood tends to draw long-term residents who want their children to attend good schools. A few hundred thousand dollars, on the other hand, will get you into a less attractive Los Angeles area. However, it is not something you should be concerned about.
Pro #4: Ability to Purchase a Foreign House
Although out of state investing helps with cash flow and covers the mortgage, the landlord may also use the property in between renters. For example, it may be a good place to vacation or house college-age kids, among other things.
Now, let’s see some cons you should be aware of:
Con #1: Little Familiarity With the Market
Different places will have quite different characteristics than those in your local real estate market. In certain cities, the neighborhood varies by street, which affects the price of the property, rent, and type of renters.
While the majority of the above issues can be handled by employing knowledgeable and reliable realtors to educate you, making the proper choice still requires effort on your side. Similarly, you want dependable property managers—but locating such individuals or firms involves effort and study on your behalf.
Con #2: Fixing and Reparation Problem
Owning a home in an unknown place presents the issue of locating contractors and maintenance services. You can’t be present to monitor the contractor’s activity, so you have to trust their word for it.
Although the contractor may give photographs, they do not replace an in-person inspection. So, focus on finding a good property manager with the relevant contacts to assist you with long distance investing and the new place.
How to Invest in Real Estate Long Distance
Rental property ownership can provide consistent income, but it is not for everybody. The addition of long distance real estate investment complicates matters. However, investing in long distance property may sound right, particularly if:
- The rental income to house value ratio in your area is weak.
- You lack a distinct advantage that allows you to locate great local deals.
- You desire to own and manage actual rental real estate as part of your portfolio.
- You’re prepared to put in the effort to identify a group of people who can assist you in managing your property from a distance.
If you believe that out of state investing is suitable for you, there will be various steps involved. Here’s how to identify the ideal property, buy it, then fill it with tenants so you can start generating rental money.
1. Research the Real Estate Market
Location is always an important factor that influences your investment decisions. There are certain elements that make an area attractive for owning an investment property, such as a strong economy, job availability, and population growth.
Favorable elements indicate profitable investment opportunities. Thus, if you’re considering long distance real estate investing, you need to do your research to find the right location that offers such elements.
In addition, property investors need to keep up with the latest market trends like laws and regulations, property prices, interest rates, taxes, etc.
Study what your target tenants are looking for to determine the best rental property in that area and in which neighborhoods people are moving to. Overall, do your due diligence to find the best location for long distance real estate investing.
The most crucial initial step in purchasing a property from a distance is determining where you plan to invest. Real estate investors will want to grasp the overall real estate climate while researching places for investment. They should learn about topics like:
- What are the main reasons people visit the area?
- Who leases in the neighborhood?
- Is the area stable, expanding, or shrinking?
- What are the employment rates for the majority of the residents of the area?
- How do real estate taxes compare to property prices?
You may increase your confidence in finding lucrative deals that will endure the test of time by analyzing market dynamics. Evaluating the market might also save you from buying an $80,000 property just to discover that it is significantly overpriced for the neighborhood.
2. Pay Attention to the Numbers
Being a member of the real estate club means you need to do some calculations before making an investment decision. While you’re researching the real estate market where you want to invest, analyze the potential rate of return of rental properties in your selected market. Check out the key metrics like cash on cash return, cap rate, occupancy rate, and positive cash flow.
Don’t do the numbers only on the rental property you’re considering—you should also understand how they fit into the housing market. In other words, perform a real estate market analysis.
This is important because you want to make sure that long distance real estate investing is, in fact, worthy and more lucrative than investing in your local housing market.
Moreover, suppose you’re wondering how to rent out your investment property (traditionally for the long term or on Airbnb for the short term). In that case, the numbers will help you see which rental strategy yields a better return on investment.
To recap, real estate investors use the following financial metrics:
- ROI (return on investment)
- Cash flow
- Total return
- Net cash flow
- Cash on cash return
- IRR (annualized return)
- Cap rate
- Gross yield
Finding ideal real estate properties in a market and evaluating them to discover a good investment is a long and difficult process. However, Mashvisor saves your time and can perform the required calculations and analysis in 10-15 minutes.
3. Use Real Estate Investment Tools
When you own property from afar, you’ll need a team of experts to assist you in finding, purchasing, and maintaining your property.
Finding reliable connections from a distance might be difficult. Mashvisor, for example, makes it simple. However, you may always create your own network. But now, let’s see how real estate platforms can help in out of state investing situations.
To start with, today’s technology is the main contributor to making long distance real estate investing an option. Now, property investors can easily access online tools that help them obtain all the information they need regarding real estate—like the investment property calculator.
The tool calculates the potential cash on cash return, cap rate, occupancy rate, and rental income (among others) on your selected properties. Thus, real estate investors can analyze and compare different locations in the comfort of their homes.
Additionally, there are other real estate investment tools that allow you to search for and find properties online as well. Take Mashvisor’s Property Finder as an example.
If you have a free Mashvisor account, you can simply select any city in the US, and you’ll be given a list of the best rental properties available in that market. You can also play around with different filters to control your search results and find the perfect match in no time.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes.
4. Consider Finding a Real Estate Partner
Even with the help of online tools, long distance real estate investing is still challenging. Maybe you’re interested in buying an investment property in a city or a country that you can’t access for one reason or another.
In such a case, entering into a partnership is simply the most convenient solution. In addition, real estate partnerships are generally beneficial because they bring together resources, including capital, experience, knowledge, and networking.
Not to mention, they can help decrease the overall risk of investing in real estate. Thus, a partner can make your life as a real estate investor much easier.
For example, other investors in the same area may seem like competition. But on the other hand, fellow investors possess the right connections to service providers, such as plumbers, electricians, cleaning teams, pest management, HVAC repair experts, health insurers, and other service providers.
Likewise, a reputable property management firm will answer tenant calls and send service personnel as required. They may be in charge of components of the hiring process, such as conducting tours.
When it comes to connections, there are several online platforms where you may communicate with and meet other investors who share your interests. You can also visit the city in question, attend open house meetings, and interact with local landlords, investors, and realtors.
For more information, read our guide: How to Use a Real Estate Investment Partnership for Long Distance Real Estate Investing.
5. Hire a Professional Property Management Company
Of course, with long distance real estate investing comes the question of how to manage rental properties that are miles away.
To make your investment idea a success, you’ll need solid relationships in the neighborhood. It does not simply refer to a real estate agent. You may soon require the services of a property manager.
Finding and employing an outstanding property management business is the key to several out-of-state investors’ prosperity. The property management firm will be responsible for filling vacancies, charging rent, fixing problems, and dealing with emergencies.
On the other hand, you might handle the property yourself if you’ve lived in the region and know your way around. And if you reside far away, a quality property management firm is a significant extra cost to protect your investment.
Such companies will do all the work, including screening tenants, checking on the investment property from time to time, conducting necessary repairs, etc. However, remember that hiring a professional property management firm comes at a price. Thus, property investors need to find the right one they can trust with their rental properties.
Final Thoughts on Long Distance Real Estate Investing
Building a network and acquiring a property need a significant amount of upfront effort when purchasing real estate. However, hard work might pay off, even if you must leave your market to search for a suitable house.
If you can’t find profitable investment properties in your local housing market—long distance real estate investing is always an option. If you’re prepared to put in the effort, you might be able to build a small portfolio of investment homes that provide enough revenue to support your lifestyle.
Thanks to today’s technology, thousands of property investors buy rental properties from a distance every day—many are from other states, and some are even foreigners investing in the US. There is no reason you can’t do the same thing.
Finally, searching for lucrative out-of-state homes is best accomplished with the assistance of a website like Mashvisor.
For starters, you can gain access to a massive database that covers nearly the entire US real estate market. Second, it is incredibly simple to use, making it suitable for both novice and expert investors. Third, its tools make it simple to identify the ideal investment properties that match your objectives.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.