Owning a rental property is a very lucrative type of real estate investment. There is a lot of potential for landlords to generate positive cash flow and passive income when renting out their properties. Of course, generating passive income does not mean that real estate is entirely passive. You need to be actively involved in managing your rental property. This is especially true if you’re managing a rental property out of state.
Often, the best real estate investment opportunities are found in places other than your local real estate market. This is especially true if you live in an area where home prices are over the top. The question that remains and that typically affects investor’s perspective towards out of state investment properties is whether or not managing a rental property out of state is possible.
Related: What You Need to Have in Mind When Buying a House Out of State as an Investment Property
Managing a rental property out of state IS possible and can be done if you follow the right strategy. Before we dive into the best tips for managing a rental property out of state, let’s take a look at when investing out of state is a smart decision and what the advantages that come with investing in out of state properties are.
When is out of state investing the right decision?
1. When you live in a seller’s market
If you are planning on buying a rental property, your first step should be to perform a real estate market analysis to see if your local housing market is a buyer’s market or a seller’s market. If you live in a seller’s market, then buying out of state investment properties is the right decision for you. Other states will likely be more affordable and you can find profitable rental properties for sale. You can use Mashvsior’s rental property calculator to conduct a real estate market analysis and figure out what type of real estate market you live in.
Read Also: What Are the Best Tools for Real Estate Market Analysis?
2. When your local housing market is overpriced and too expensive
Buying a rental property in a housing market that is overpriced and too expensive would not be a smart investment decision. If your rental income is not high enough, then you won’t be able to make up for the high property prices. This would mean that you will be missing out on an opportunity to get good cash on cash return and high return on investment. So if you are living in an overpriced housing market where property prices are too high, then you need to consider out of state investing. To find a buyer’s market where rental properties would be more affordable, you need to conduct a real estate market analysis.
Related: How Can I Find Cheap Houses for Sale Near Me for Real Estate Investing
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3. When you can afford professional property management
Why do real estate investors hesitate when they think about investing in out of state real estate properties? Because managing a rental property out of state can be costly. If you live far away from your rental property, it’s hard to attend to all your tenants’ needs and demands. You can’t visit your rental property on a regular basis and solve every single problem that arises. That is why hiring professional property management is a huge must for out of state properties. Professional property management companies can take care of your rental property and your tenants instead of you. So if you can afford professional property management then investing in out of state rental properties is for you!
Read Also: Your Guide to Professional Property Management Fees
Benefits of investing in out of state rental properties
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Diversification
Even if you’re a beginner real estate investor or an experienced one, you should always have a goal in mind to diversify your real estate investment portfolio. Having investment properties out of state and in different locations is smart because if for any reason your local market collapses, you will have a spare rental property to rely on. You can make up for any losses from the rental income that your property is generating.
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Affordability
Location is the key factor that affects every investment property’s overall price. That is why if you live in an area like San Francisco, for example, where buying an investment property is too expensive, then out of state investing is your answer. You can find areas all over the US that are cheap and affordable. That is of course if you have the right real estate investment tools.
Mashvisor has all the necessary real estate investment tools to make your property search easier in a matter of minutes. With Mashvisor’s property finder tool and heatmap analysis tool, you can locate the best-performing properties in the city/cities of your choice.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
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Match your preferred rental strategy
Every real estate investor has a preferred rental strategy. Whether it’s investing in short-term rentals like Airbnb rentals or long-term rentals, both investment strategies need the right location. Airbnb rentals tend to perform better in tourist destinations whereas long-term rentals, like single-family homes, tend to perform better in suburban areas. The cool thing about investing out of state is that you can choose any location to match your preferred rental strategy.
Best tips for managing a rental property out of state
Tip #1: Familiarize yourself with the local market
When it comes to successfully managing a rental property out of state, the key is to study the local environment and the state of the market very well. You also need to understand and familiarize yourself with the legal framework regulating real estate investing. Every market has its own conditions and regulations, so you can’t just assume that you’re going to be successful in out of state investing just because you know a thing or two about real estate investing in your local market. So do your homework and study the local market for your chosen state.
Tip #2: Organization is the key
Organization is the key to success not only for managing a rental property out of state but for life in general. You have so many responsibilities as a real estate investor like making mortgage payments, paying property taxes, checking up on your property, choosing your tenants, and managing your property. Now imagine all these responsibilities, only for a rental property out of state! If you don’t organize and stay organized then you will never be able to handle managing a rental property out of state.
Related: Investing in Out of State Rental Property: How to Manage Multiple Out of State Properties
Tip #3: Get your calculations right
Getting your calculations right and in order is very important in real estate investing. A smart real estate investor should be able to make all the necessary calculations even if they are just based on estimations. You need to take into consideration both the costs and rental income. Underestimating the costs or overestimating the rental income can drastically affect your ability to generate positive cash flow. When managing a rental property out of state, you need to know how to calculate all the related costs. For example, sometimes you may need to travel to visit your property or you may need to pay for hiring a professional property management company. You need to get organized and get your calculations in order!
Tip #4: Make use of technology
Managing a rental property out of state has become easier due to the widespread use of technology. Making use of high-tech resources can ease your work and will save you lots of time and energy. For example, there is plenty of online options for landlord software that allow you to handle the process of screening tenants and accepting payments electronically all from your own home.
Tip #5: Make use of neighborhood homeowners associations
Make sure the neighborhood you plan on investing in has homeowners associations (HOAs). HOAs make sure all the residential properties within specific boundaries are kept clean and maintained. So if you’re managing a rental property out of state, you can check with the HOA board regularly and they will let you know if something is wrong with your property.
Tip #6: Plan occasional trips for inspections and showings
Even if you have a professional property manager overlooking your property, it is highly advised to visit your rental property every once in a while for inspections. The visits don’t have to be on a regular basis, so don’t worry about the added extra costs of traveling.
Tip #7: Have a home warranty
Having a home warranty can be a huge helper when it comes to repairs. These are great for landlords who don’t live close to their rental property.
All in all, managing a rental property out of state does not have to be a daunting task if you plan carefully and organize well. Keep in mind these tips and you should be off to a good start with turning your out of state rental property into a successful real estate investment.
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