Real estate investment remains one of the most popular ways individuals generate income. In 2021, 75% of all single-family rentals were owned by individual investors. So, why not you?
However, the challenge of low housing inventory means investors might consider buying rental property out of state—but that strategy brings its own unique challenges and opportunities.
Whether seeking higher returns, diversifying your portfolio, or finding more affordable properties, navigating this process requires careful planning and consideration.
Here are the eight best steps to help you successfully buy rental property out of state.
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Step 1: Define your investment goals
Before entering the out-of-state market, it’s essential to clearly define your investment goals. Is your main target long-term appreciation, cash flow as soon as possible, or a combination of both?
Narrowing down your objectives will guide your property search and decision-making process.
- Cash Flow: Focus on areas with high rental demand and favorable rent-to-price ratios
- Appreciation: Look for markets with strong economic growth, job opportunities, and population influx
- Diversification: Spread your investments across different geographic locations to mitigate risk
While finding rental properties that match your criteria in your local area is possible, it isn’t always the case.
Economic diversity is just one great thing about the U.S. market, and strengths vary from state to state.
However, the key is researching and recognizing the markets where you could succeed.
Step 2: Research potential rental markets
Start by evaluating various markets based on factors like:
- Economic stability
- Population growth
- Rental demand
- Property prices
Luckily, great online resources, market reports, and local real estate websites are available to gather data.
Here are vital aspects to consider:
- Economic indicators: Employment rates, income levels, and major industries
- Population trends: Growth patterns and demographic data
- Rental market analysis: Vacancy rates, average rents, and rental yield
- Property values: Historical price trends and future projections
However, you can collect a limited amount of data and insight from a distance. Valuable resources can be found in the location you’re considering if you know which professionals to seek out.
Step 3: Build a reliable network
Having a reliable network in your target market can significantly impact the overall investment experience.
Establish connections with local real estate professionals who can provide valuable insights and support.
- Real estate agents: Choose agents with experience in the local rental market who can help you find and evaluate properties
- Property managers: Hire a reputable property management company to handle day-to-day operations, tenant relations, and maintenance
- Contractors: Build relationships with local contractors for property inspections, repairs, and renovations
Step 4: Visit the market
While technology allows for virtual tours and online research, visiting the market in person will give you a more comprehensive understanding of the area.
Plan a trip to explore neighborhoods, meet with your network, and inspect potential properties.
Firsthand experiences will help you make informed decisions and build confidence in your investment.
Step 5: Finance your purchase
Securing financing for an out-of-state rental property may involve additional considerations.
Lenders often have different requirements for out-of-state investments. Here are some tips to navigate the financing process:
- Lenders with local experience: Consider working with lenders (like Marquee Funding Group) who are familiar with out-of-state investing
- Loan options: Explore various loan options, including conventional mortgages, portfolio loans, and hard money loans
- Creditworthiness: Ensure your credit score, income, and financial stability meet the lender’s criteria
Step 6: Legal and tax considerations
Investing in rental property out of state involves understanding the legal and tax implications.
Each state has different laws and regulations regarding property ownership, landlord-tenant relations, and taxation.
- Property laws: Familiarize yourself with the state’s property laws, including eviction processes, security deposit rules, and tenant rights
- Tax implications: Professional tax advisors can be invaluable in understanding how out-of-state rental income will affect your taxes, including state income taxes and property taxes
- Insurance: Appropriate insurance coverage for your rental property is highly advisable, including liability and property insurance
Step 7: Property management
Effective property management is central to maintaining your investment and ensuring a steady rental income.
Since you won’t be on-site regularly, hiring a professional property management company can greatly benefit here.
These companies can provide peace of mind and operational efficiency.
Other factors to consider include:
- Tenant screening: Ensure the property manager conducts thorough tenant screenings to minimize risks
- Maintenance and repairs: Property managers should handle maintenance issues promptly to keep tenants satisfied and the property in good condition
- Rent collection: A reliable system for rent collection and accounting is essential for financial stability
Step 8: Monitor and adjust your strategy
Once you’ve acquired an out-of-state rental property, monitoring its performance and making adjustments as needed is essential. While it would be great to have an investment that worked as planned right from the start and continued to perform as expected or better—that is pretty rare.
Regularly review financial reports, market trends, and tenant feedback to ensure your investment meets your goals.
- Performance metrics: Keep track of the significant performance indicators
- Occupancy rates
- Cash flow
- Return on investment
- Market trends: Keep tabs on changes in the local market that could impact your property’s value and rental demand
- Tenant relations: Maintain open communication with your property manager and tenants to address any issues promptly
Buying property out of state: The most important step
Buying a rental property out of state can be lucrative if approached with diligence and preparation.
By understanding your goals, researching potential markets, building a reliable network, and managing your property effectively, you can navigate the complexities of out-of-state real estate investment.
However, the most important step is often choosing the right lender to make your investment dreams happen.
Marquee Funding Group knows out-of-state real estate investments
Our loan professionals know what it takes to diversify your investment portfolio with a lucrative out-of-state real estate opportunity.
Submit your scenario to Marquee Funding Group or call us at (818) 222-5222 today, and we can discover the best ways to get you the right funding for your next investment adventure.