As an investor, it is very tempting to stay within your comfort zone. You can limit your purchases and holdings to cities and towns that are within driving distance. It is reassuring to think that you are in control of the property, its management, your capital and all the risks involved in this project because you have the ability to physically inspect the site and interact with tenants and vendors. However, if we have learned any lessons from the latest crash and recovery of the housing market, it is that niche opportunities exist everywhere regardless of market conditions. With research and planning, savvy investors can expand investment strategies to include long distance investing to take advantage of fresh opportunities in new locations.
These are some of the ground rules for building your investment portfolio based on real estate especially when you venture into investing out of state.
Why Invest Out of State
Affordability
Some people live in cities where home prices are sky-high and still rising, but this should not be a deterrent to becoming a real estate investor. With the help of local representatives, identify niche markets where properties meet your price points, preferred features and other measures of affordability and return-on-investment potential. Various locations in the U.S. offer buying opportunities coupled with viable returns due to a dynamic rental market.
Tax Advantages
Property taxes are determined by local governments and their constituents. If you live in a high-tax state such as New York, investing out of state can help mitigate the tax burden. Consider building your real estate presence in states with low or even zero state taxes such as Nevada, Texas and Florida. Some localities will have lower property taxes than others because millage rates are largely determined by local initiative. Property insurance is another significant expense for investors, but due diligence prior to buying real estate will help identify places where insurance rates are affordable.
Better Investment Environment
Some cities strive to be business-friendly to encourage investments and growth. These places are ideal for growing your portfolio of income-generating and self-sustaining properties. Regulations and stringent enforcement of zoning and building code regulations may have both positive and negative impact on acquisition and management of properties when investing out of state.
Higher Demand for Rental Units
Housing market trends are subject to local conditions such as growth or decline of the economic base, population movements and local legislation. Some places may have a high demand for rental units at mid-level rental rates while other places may have a market for luxury units at higher lease rates. Consider these factors when reviewing out-of-state investment properties.
Portfolio Diversification Strategy
Long distance investing is a smart way to diversify and balance your portfolio. It is a smart strategy to diversify your assets to avoid tying up your investment dollars in only one city or type of housing. Real estate is cyclical. Buying property outside your home state will provide a hedge against market downturns and other socioeconomic events that may affect property values and maintenance costs.
Challenges of Long Distance Investing
Inadequate Knowledge of the Local Market
It is understandable that investors will balk at committing a significant portion of their capital in out-of-state investment property. Property values are affected by local conditions, and property management strategies are subject to local regulations and control. In this case, consider using the services of local professionals who are experts on local conditions.
Laws are Different
Be aware that real estate, property investment laws and regulations differ from one locale to another. Be prepared to adjust your expectations and misconceptions of local standards and practices. Once again, work with local professionals who are familiar with the area to do due diligence. Before buying an investment property in an area that is not familiar to you, find out if restrictive local laws will limit what you have planned for an income-generating property. For instance, if you plan to use the property as a short-term rental through Airbnb or a local realtor, make sure that this is not a prohibited use of the property.
Price-to-Rent Ratios
The price-to-rent ratio is a measure of the affordability of renting compared to buying. As a property investor, this number will give you an idea of the earnings potential of your rental investment. Given a choice of properties for acquisition, note that the higher price-to-rent ratio indicates that the area is favorable to renters and a lower price-to-rent ratio favors home buyers. using this statistic as a relative measure will pinpoint which out-of-state opportunities complement your investment goals.
Maintenance Issues
Property management, including security and all forms of maintenance, may become challenging when the real estate asset is not accessible due to distance. Maintenance management is particularly vexing because some issues need to be addressed quickly and efficiently while complying with various regulations. These issues may range from a leaky faucet to a leaking roof. Some maintenance issues need to be addressed quickly to prevent damage to the property. Fortunately, this is an issue that can be resolved easily by working with a local property management company and local vendors.
How to Find Out-of-State Investment Properties
The real estate sector has transformed into a technology-driven enterprise, making it much easier and more efficient to find available real estate online. Identify real estate websites that are credible by reviewing their listings for timeliness and accuracy. Some resources may use sleek video presentations and animations to showcase the features of a property, but make sure to verify the information provided by reaching out to the listed contacts.
Auction.com is one of the leading resources for listings of bank-owned and foreclosed houses. These properties are located in different parts of the U.S. in bustling cities and laid-back suburban towns. Investors can bid for distressed properties at live or online auctions, making this the ideal way to acquire real estate in different parts of the country. In the state of Texas, Auction.com holds a massive auction, dubbed as Super Tuesday, on the first Tuesday of the month.
When it comes to investing in real estate, it is important to conduct due diligence on every property especially on long distance acquisitions. Internet resources have made these tasks easier because information on most titled properties are available on property appraisers’ databases as well as industry sources such as the National Association of Realtors. Search foreclosure and bank-owned home listings on Auction.com to have an idea of the out-of-state investment opportunities available to investors like you.
