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Guide to Out-of-State Real Estate Investing in 2022

Real estate investors enjoy the benefits of diversified portfolios, appreciation, and passive income, among other perks. But what if you don’t currently live in one of the best markets for real estate investing? The good news is that state lines don’t have to end your investing career before it truly begins.

If you’re not interested in investing in your local real estate market, an out-of-state locale might offer lower prices, higher demand, or otherwise better fit the bill. In other words, modern real estate investors are no longer limited to their immediate geographical area and can find success buying investment property out-of-state.

Reasons to Buy

While there are countless reasons that investors choose to explore real estate, particularly out-of-state, some of the primary benefits include:

  • Passive income. Investment properties can bring in revenue with little work on your part, through both monthly rental income and home appreciation. 
  • Diversification. Spreading your investments around can minimize risk, boost profits, and reduce volatility. This includes diversifying your portfolio (stocks, rental properties, etc.) as well as your real estate markets.
  • Appreciation. Real estate values and rent rates historically rise year-over-year. 
  • Tax benefits. Qualifying real estate investors can take advantage of various tax write-offs and deductions.
  • Increased choice. With the right team, you can explore, evaluate, and purchase investment properties in diverse markets across the country.

Challenges to Consider

Buying rental property out-of-state isn’t always a cakewalk. You’ll want to develop a thorough understanding of the unique challenges you might face as an out-of-state investor. These include:

  • Oversight. You likely won’t be around to manage the day-to-day operations of your rental property. You’ll need to find someone you can trust, ahem, to ensure your investment stays in tip-top shape. 
  • Residents. Some markets offer more highly-qualified renters than others. Because profit relies largely on finding the right residents, you’ll also want to ensure there’s plenty of demand.
  • Local rules and regulations. Each state has its own set of laws, customs, and norms when it comes to real estate investing. You need to develop a thorough understanding of each investment market’s rules and regulations, or work closely with a local expert.
  • Risk. There is always a degree of risk that comes with investing in real estate, out-of-state or otherwise.

Like any investment, you may encounter a few road bumps. Luckily, a little research and self-reflection ahead of time can help you approach out-of-state real estate investing with the confidence to overcome.

Suggested listening: Getting Started in Out-of-State Investing

Choose the Right Market

Location, location, location! When it comes to out-of-state real estate investing, finding the right market is critical. 

The ideal market depends on each individual investor’s goals and preferences. Do some research on current and emerging markets for out-of-state investors, then consider factors like:

  • Your budget
  • Price-to-rent ratios
  • Supply and demand
  • Landlord-tenant laws
  • Neighborhood classes
  • Applicable fees and taxes
  • State of the local economy
  • Crime rates and other public statistics

Your market of choice should align with your goals and buy box, and may be different from the norm. If you would like to talk through potential markets with an expert, we can help.

ROI is Key

Return on investment (ROI) plays a critical role in any investment. Before you purchase a property, you’ll want to develop some insight on potential ROI.

To do this, subtract the cost of the investment from the total expected return. This figure is considered the net profit. Divide the net profit by the original cost to determine a property’s ROI.

ROI Graphic

Keep in mind that this figure doesn’t factor in applicable fees, interest, or maintenance costs, and that it’s only a projection. Speaking with an expert can further clarify what you could expect to earn from a specific investment.

Networking Out of State

In real estate, it’s not what you know, it’s who you know. Networking from another state can be a challenge, but speaking with local experts can help set you up for success.

To connect with other investors in your market of choice, consider online forums, virtual or in-person networking events, and good, old social media. Real estate investing is a highly social industry, and many people are more than willing to share their successes, failures, and recommendations. All you need to do is ask!

Choose a Realtor and Property Management Company

Once you’ve done some networking, it’s time to decide on partners. When your investment property isn’t down the street or across town, assembling the right team becomes the name of the game. Your real estate agent and property manager play a large role in the success of your out-of-state rental property.

You’ll want to consult a local agent who can provide specific market knowledge, expert communication skills, and, potentially, even off-market deals. Ideally, this person will have extensive experience in brokering investment transactions and a portfolio of out-of-state clients.

Suggested Reading: What Should I Look For in a Real Estate Agent as an Investor?

In the same vein, your property manager will be your eyes and ears on the ground. Their job is to regularly inspect your property, interact with your residents, and report back to you. You want a property manager with high standards, extensive experience in single- or multi-family investment properties, and clear, frequent communication.

If you’re interested in an all-in-one solution, we can help! Evernest provides a local team of real estate professionals, from agents to property managers, in investment markets across the country. We can help clarify your buy box, find potential properties, make offers on your behalf, get property management in place, and place highly-qualified tenants, all while you sit back, relax, and profit from a successful rental portfolio.

Get Pre-Approval

Unless you’re a cash buyer, you’ll need to consider financing when purchasing out-of-state investment properties. Like any real estate deal, getting pre-approved can streamline the process. Research applicable lenders, consider asking an expert for advice, and work with the lender to determine just how much you’re approved for. Completing the pre-approval process before you begin the official search can help clarify your buy box, guide your strategy, and make your offers more competitive

Get an Inspection

Successful real estate investors live and die by property inspections. This step provides priceless information on the home in question, and should never be downplayed or ignored once you’ve found a property.

If you’re buying an out-of-state rental property, odds are you don’t want to be intimately involved in the day-to-day. If you receive a negative or shoddy inspection and decide to move forward without any adjustments, you’re asking for trouble. Not only could you spend valuable time, energy, and resources fixing issues down the line, it could be an unenjoyable or even dangerous place for residents to live.

In addition to a professional property inspection, great property managers (like ours) perform regular, thorough inspections to keep your property in tip-top shape. Extensive notes, photos, and prompt repairs all help ensure residents and investors alike remain happy.

Final Thoughts

Out-of-state real estate investing is an ideal way to take advantage of hot markets, tap into favorable price-to-rent ratios, and overall grow your real estate investment portfolio. While the process may initially seem daunting, taking it one step at a time or partnering with an all-in-one solution, like Evernest, can help.

Now, where to? Birmingham, Alabama, or Denver, Colorado?


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