Investing in real estate can be a complex process — but when you add in the additional challenges of investing in property out of state, it can get downright confusing.
There are so many unknowns when you’re investing out of state. You don’t know the market. You don’t know the different neighborhoods. You don’t have the opportunity to walk into a property and see it in person. And while the internet is certainly a helpful tool for providing answers to some of these unknowns, it can only take you so far — the internet can never replace physically being in a market or seeing a property with your own eyes.
And once you have the property, then comes the task of managing it. Since you won't have eyes on the ground, you need to be sure that the property management company you’re working with will protect your investment and that you end up ahead.
But just because there are some inherent challenges to investing in out-of-state properties, that doesn’t mean it’s not a worthwhile investing. Buying properties out of state can be an extremely lucrative opportunity for investors — if you know how to overcome those challenges and find the right property in the right area.
Let’s take a look at six real estate investing tips for out-of-state investors so you can successfully navigate the process of finding and managing properties from a distance:
Be Clear on What You’re Looking For
Before you even start looking at potential out-of-state properties, it’s important to be super clear on what you’re looking for.
On one hand, if you don’t know what you’re looking for, it can be easy to get sidetracked and end up buying a property that’s not the right fit for your long-term investment strategy. On the other hand, if you don’t know what a good deal means to you, you won’t know when you’ve found it — and you can miss out on a potentially lucrative property.
List out your goals and what you’re looking for in a property. What kind of property do you want? Who’s our ideal tenant? How much do you want to invest — and how much do you need to rent each unit for in order to get the ROI you’re looking for?
Getting clarity on what, exactly, you’re looking for in an investment property will make the process of choosing a city and process significantly easier, faster, and less stressful.
Do Your Research
Doing your research when investing in property is always important — but it’s even more important when you don’t have any experience in the city you’re thinking about buying in.
When researching potential cities to invest in, it’s important to get a clear idea of the market and economic outlook so you can make an informed decision on your investment. You’ll want to have a clear grasp on crucial information, projected job growth, unemployment, crime rate, demographics, and median household income to determine the viability of the market, who lives there, and whether the area is the right choice for your investment.
You can easily find this information by skimming through the city’s Comprehensive Annual Financial Report; these reports are typically available for download on a city’s website and contain all the demographic and financial information you need to get a clear grasp on the market — which will help you determine if it’s the right market for you to invest in.
Get Multiple Opinions on the Profitability of Your Potential Rental Property
Once you’ve decided on a city, it’s time to start looking at properties. The most important thing you need to know when choosing an investment property is how much profit you stand to make from it.
Going to multiple property management companies will help you get a more objective view of whether a property is a solid investment — and it can save you a ton of expenses and hassle as a result.
But if you want to get a real idea of the profitability of a potential rental property, you can’t just rely on the information your agent gives you. It’s important to shop around and get multiple opinions.
Asking multiple property management companies what they think a property will rent for in the current market before you buy is a great way to get a clear picture of how much you can get each month for your property — and whether that rental cost makes the property a worthwhile investment. If you only rely on your agent’s assessment of what the property will rent for — and they’re either working with inaccurate comps or purposefully inflate the rental potential to make a sale — you can find yourself stuck with a property that will cost you money instead of make you money.
Going to multiple property management companies will help you get a more objective view of whether a property is a solid investment — and it can save you a ton of expenses and hassle as a result.
Get a Handle on the Tenant-Screening Process
You can find an incredible property at a steal in a great city with the potential to make a huge amount of profit for your investment business — but if you rent to the wrong tenants, it will end in disaster.
Tenant screening is, hands down, the most important part of the process of managing a property. And when you’re investing in property out of state, it becomes even more important. The last thing you want is to have to deal with a tenant thousands of miles away who doesn’t pay their rent, destroys your property, and refuses to leave. When you don’t screen tenants properly, you’ll end up spending countless amounts of time, energy, and frustration trying to manage them — all of which can put your investment in the red.
Before you invest in out-of-state property (or really, any property), you need to get a handle on the tenant-screening process. Whether you screen tenants yourself or you pass the responsibility to your property management company, it’s important to know what to look for to ensure the tenants you place in your property are responsible, qualified, and won’t threaten your investment. (For more information on how to find quality tenants, check out our guide on effectively screening tenants.)
Worry About the Price and Condition of the House — Not the Timing
A lot of out-of-state investors think timing is the most important factor to successfully leasing a property; they need to push a property out when the rental market is hot.
But the truth is, timing just isn’t that important. You can lease a rental property at any time of the year — as long as the price and condition are right.
It doesn’t matter how well you market a property or how perfect the timing is in the market — if the unit is priced too high or isn’t in the right condition, you won't attract quality tenants. Before you start marketing your property, take the time to get the property into great shape and research prices in the neighborhood so you can price it competitively.
The more attractive you make your property to qualified tenants by pricing it competitively and making sure it’s in working condition, the more likely you are to get qualified tenants into your property — no matter the time of year.
It doesn’t matter how well you market a property or how perfect the timing is in the market — if the unit is priced too high or isn’t in the right condition, you won't attract quality tenants.
Make Sure You Choose a Property Management Company You Can Trust
Since you’re out of state, you’ll need a property management company to manage the day-to-day operations of your property and protect your investment.
And when you’re hiring a property management company, it’s super important you choose a company you can trust.
Your property management company will act as your eyes and ears on the ground. You need to make sure they’re the kind of company that will keep you in the loop on any issues, manage your tenants effectively, and protect your investment.
When you’re vetting potential property management companies, pay attention to how they communicate. If they’re unresponsive to your phone calls or take days to your request for information about their services, that’s a red flag that you’re likely to run into communication issues in the future — which is the last thing you want when you have an out-of-state investment property.
You also want to make sure they’re on the same page on how to handle your property. What’s their tenant-screening process? What’s their marketing strategy? How do they handle repairs and maintenance issues? How much day-to-day involvement will they need from you to manage the property effectively?
Choosing a property management company to manage your out-of-state investment property is crucial to the success of the investment, so you need to choose wisely. Make sure you choose a company that’s on the same page with how you want to handle things and that understands the big picture of what you need from the relationship.
Investing in property out-of-state can be a challenge. But with these tips, you have everything you need to successfully navigate the process and buy a property that’s the right fit for you — no matter how far away from the property you may be.
