While out of state investing can be a lucrative opportunity–especially in comparison to your local real estate market. If you are looking into investing in a rental out of state, there are some unexpected pros and cons that you will need to take into consideration. Here are some potential complications that you may run into when investing out of state, and a few ways to overcome the issues.
CONS OF INVESTING IN A RENTAL PROPERTY IN ANOTHER STATE:Investing in an out of state property may be tempting, but overlooking the downsides can leave you in a difficult position. Ensure that you understand the pros and cons before jumping in.
Landlord-tenant laws vary state-to-state. Moreover, each county and city may have its own local laws. While every landlord or management company should have a lawyer versed in real estate to consult when making policies, you can still risk missing something new. New laws are being passed constantly which can create a big headache to try to keep up. If anything requires a vote to be passed, tax levy increases, for example, you are not a resident and will not have input. Distance is a big barrier, and when you don’t follow local news or routinely check for new laws in the state(s) you own property in you can end up unintentionally on the wrong end of the law.
Assembling the perfect team is hard under the best of circumstances. It can feel impossible when you aren’t local. Finding a great real estate agent, reliable vendors, and an excellent property management team can be significantly more challenging when you don’t have local connections who can provide you with references.
Even if you decide to have a property manager handle your property’s day-to-day management tasks, it is important to periodically assess your property and ensure that your management team is properly caring for your rental.
PROS OF INVESTING IN A RENTAL PROPERTY OUT OF STATE:Rental and real estate markets may trend as a whole, but each state will have local factors that directly affect the market in that area. Keeping your portfolio diverse can mitigate losses. Having properties in more than one city, and even in multiple states, can help protect you against a recession or a large local employer facing layoffs in a specific area. Furthermore, issues like property damage due to natural disasters, or new laws that make an area less landlord-friendly will not affect you as much if all of your properties are spread out.
The promise of a better deal is the main reason that investors will seek to purchase properties in another state. If you live in an area where purchasing properties is highly expensive, you may find that your margins are significantly higher if you invest in a rental property out of state.
If you hope to be a first-time landlord, but you live in an area where property values have skyrocketed, becoming a landlord can feel impossible. Finding better deals in other states can be an option for would-be investors who don’t have the financial backing to invest in a property in their area. If you still want to invest in a local property later, you will have more experience investing in a lower-stakes opportunity.
If you are interested in buying an investment property contact me today! (315) 405-6744