Tips For Investing In Out-of-State Properties

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The beauty of real estate is that it’s quite literally everywhere. It doesn't matter where you are, where you move to, or what’s happening in the larger financial landscape, real estate will always be an option for investors.

If you’re looking for ways to enhance your portfolio, it may be a smart move to look beyond your own backyard and cross a state border or two. 

Pros and Cons of Out-of-State Real Estate Investing

Out-of-state real estate investing certainly isn't for everyone. But for some investors, it can be the perfect piece to balance a strong portfolio.

Pros of out-of-state real estate investing include:

  • Limitless opportunities. When you’re only willing to invest locally, you’re restricted to a limited supply of opportunities. But if you expand to out-of-state markets, the entire country becomes your oyster. Such opportunities for profitable investing are broad and varied.
  • True diversification. You can diversify within a geographical market, but you’re always going to be dependent on the local market being able to hold together. When you invest across different states and regions, you’ll no longer be dependent on the health of a single real estate market.

It must be admitted that investing out of state holds potential disadvantages, as well, such as:

  • Less knowledge. As soon as you enter territory with which you’re unfamiliar, you lose some of the upper hand you naturally possess in your regular stomping grounds. A deal might look good on paper, but if you don’t have the full context, this could put you in a less-than-stellar position.
  • Less control. In the case of local properties, you can drive by and observe whether the grass is getting cut. You may drop in when a tenant has a small problem that doesn’t warrant calling in a handyman. With out-of-state investments, you lack those luxuries. More often, you’re going to have to rely on someone else to do the work. 

Proven Principles for Out-of-State Investing Success

It’s up to the individual investor to decide whether out-of-state investing makes sense for him or her, but if you’re willing to give it a shot, here are a few proven principles for success.

  • Do Your Own Sleuthing

You might not be able to visit every single property in person, but there are still ways to do some online sleuthing and figure out which opportunities are worth pursuing.

Google Street View is an excellent tool. It enables you to see where the property lies, what the neighboring plots look like, and the “vibe” of the neighborhood and surrounding region. (This is information you rarely get when you read a standard property listing.)

You can also derive useful information from accessing census data and demographic details.

  • Order Thorough Home Inspections

Although it’s always a wise idea to get a home inspection regardless of where the property is located, having an out-of-state investment opportunity thoroughly inspected is a must. 

Communicate with your inspector and let him or her know you’re an out-of-town investor, which means you’ve probably never stepped foot on the property. This will encourage the inspector to be more aware of obvious details he or she might otherwise assume you know about, such as odors and stains in the carpet.

  • Secure a Great Property Manager

When you’re a remote landlord, your property manager could very well make or break your investment. Always vet multiple property managers with care before you select one, and remember to go local.

If you’re investing in Houston, Texas, for example, choose a property management company, not a national chain that outsources. This gives you skilled professionals with local experience. 

  • Open Local Business Accounts

You’ll have to decide how far you want to take things, but many successful real estate investors believe it’s prudent to open a local business account in each state where they own property. 

Having a local LLC to hold your properties gives you some tax and asset-protection benefits. Fortunately, it’s fairly easy to open one up. If you need an in-state resident agent, there are even resources available to make this happen. 

You can certainly open up a bank account in that state as well, but it’s probably preferable just to open another account with your home state’s bank. This will give you a branch you can step into whenever the need arises. 

  • Get Boots on the Ground

Though it’s not always necessary, it’s definitely helpful to visit your property on a regular basis at least once in a while. If nothing else, being able to lay eyes on your property should give you the peace of mind of knowing everything seems to be alright. 

Putting it All Together

Out-of-state real estate investing might not be a great idea for the newbie. But if you’re a reasonably experienced investor who’s looking for an opportunity to diversify, and willing to enter new markets, this can be an excellent option.

As always, perform suitable due diligence, avoid emotional decision-making, and wait patiently for the right opportunity to come your way.

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