For you as a real estate investor, what’s the ultimate beauty of the real estate investing world? Is it the opportunity to make money with relatively low risk and little effort? Is it the diversity of investment properties, investment strategies, and housing markets? It must be the combination of those two factors, right? The real estate investing world is a diverse and exciting one, offering many opportunities to make money.
What’s the main factor driving return on investment in real estate investing?
As we said, you can make money with real estate investments, no doubt. However, what’s the main driver of your return on investment in real estate? Most if not all real estate experts will agree that location is the key factor determining your return on investment when it comes to rental properties.
The distance from your own home is one of the main aspects of location for real estate investments. While a real estate investor would typically prefer to buy rental properties close to home for convenience and for cutting down on expenses, sometimes out of state real estate investing is the better option. You would say “When?”, and that’s exactly the topic of our article: “When is out of state real estate investing a smart investment choice?”
Related: What Are the Best Real Estate Investments for You?
When the real estate investor lives in a buyer’s market
If you are about to buy rental properties, the first step you should do is to conduct real estate market analysis to determine whether the local housing market is a buyer’s market or a seller’s market. If the results of the real estate market analysis (for which you can easily and conveniently use Mashvisor’s investment property calculator) reveal that you as a real estate investor live in a seller’s market, it will be a smart investment choice to look into out of state real estate investing. Out of state you will be able to find much better, more affordable, and more profitable investment properties for sale. Out of state real estate investing in a buyer’s market could be an excellent investment opportunity.
When the local housing market does not offer profitable investment properties for sale
Another important step in the process of buying an investment property is conducting investment property analysis (once again, you can use Mashvisor’s investment property calculator). It is possible that the investment property analysis shows that your local housing market does not offer any profitable investment properties for sale right now. This doesn’t mean it’s a bad rental market. Maybe actually the local rental market is too good, so no real estate investor is willing to sell his/her rental property. Then, you will have to turn to out of state real estate investing as a smart investment choice.
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
When the real estate investor lives in an overpriced housing market
Maybe your local housing market is approaching a bubble as property prices are rising without any specific reason. Buying an investment property in an overpriced housing market is a bad investment decision as investment property analysis would reveal. Your rental income would have to be unrealistically high to make up for the high property prices in order to get good cash on cash return and good cap rate. So, if you happen to be located in an overpriced housing market, it is a smart investment choice to look for real estate investments opportunities in out of state real estate investing. Focus on conducting real estate market analysis to find a buyer’s market where rental properties would be more affordable.
When your housing market is too expensive
You don’t have to live in a housing market approaching a bubble for property prices to be unaffordably high for you. Especially if you are a beginner real estate investor, you have to consider the local property prices before buying an investment property. If you live in San Francisco, let’s say, and you are a beginner real estate investor, you simply have to turn to out of state real estate investing. Investing in any other housing market would be more affordable for you.
When your rental strategy preference does not align with the local housing market
If you are an experienced real estate investor, chances are you have preferences over your rental strategy. You could be in favor of traditional rentals or Airbnb rentals. If you love working with traditional rentals and can’t stand the idea of Airbnb rentals as a real estate investor but live in a place where the Airbnb rental strategy is much more profitable, you face a serious problem. How to solve it? With out of state real estate investing, of course. What makes out of state real estate investing such a smart investment choice is the fact that you can look for a housing market which favors your preferred rental strategy at all times.
Related: What Are The Best Real Estate Investment Properties?
When the real estate investor can afford professional property management services
The main disadvantage of the out of state real estate investing business are the problems related to property management. It is hard if not impossible to attend to all your tenants’ needs and wishes if you live a few thousand miles away. You will have to spend a lot of time and money as a landlord to visit your rental property regularly and fix any arising issues with it. However, if you are an experienced real estate investor with multiple rental properties, out of state real estate investing becomes a more feasible option. You can hire professional property management services to take care of your rental property and your tenants instead of you.
No matter how many times we say it, it will never be enough: Location is the key factor determining the return on investment in real estate, and every real estate investor should understand and remember that. Thus, it is actually very important whether you go for investing in rental properties in the local housing market or for out of state real estate investing. There is no right or wrong answer when it comes to which one is the better real estate investment strategy. It all depends on your particular situation. What can be said with certainty is that you should always rely on Mashvisor’s investment property calculator to conduct the required real estate market analysis and investment property analysis to guarantee you the most profitable investment properties.