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What to Know Before You Buy Out of State Rental Property

Owning rental units, whether they’re single-family houses, condominiums or beach-front vacation homes can be a lucrative business for a savvy property investor. While your own home area is a great place to start, you do have the option of buying out of state rental property as well.

For many investors, out of state property is enticing because their own home area is simply too expensive. This is often the case for investors in very expensive city centers like Los Angeles, San Francisco and New York. For others, out of state income property is an ideal way to diversify their growing number of property holdings. Doing this can help protect an investor against a weak market in one area from hurting their bottom line too much.

Are you ready to start shopping for out of state income property? Use this guide to learn more about what you need to know before you venture away from home with your hard-earned cash.

out of state rental property

What’s Your Rental Style for Out of State Rental Property ?

Before you can start scouring the out of state market for the ideal rental property you need to narrow down what you’re looking for. In general, there are a few different types of properties you might be interested in, including:

Long-term Rentals

Typically unfurnished, these are usually apartments, condominiums or single-family homes where people will sign a lease for a one-year or multi-year stay. These rentals will usually be your tenant’s primary residence.

Short-term Rentals

Often furnished, short-term rentals are ideal for business travelers and people who need to move around a lot or simply prefer not to sign a long-term lease. Short-term rentals run the gamut from relatively affordable to high-end luxury units.

Vacation Rentals

Always furnished and ready to use, vacation rentals are typically occupied for a week to a few months per stay. In some areas, your vacation property may be relatively empty during the down season. For example, a property in a popular ski town may be unoccupied in the middle of summer.

Get to Know the Area

Choosing rental property in a city you’ve never visited and simply don’t understand can be a major gamble. If you’re looking to really maximize your profits, you need to get to know the area where you’re buying. This is typically best done in person with a realtor or knowledgeable business partner.

out of state rental property

Of course, some of the legwork can be done from your office or even the kitchen counter. Understanding rental unit pricing in different parts of a city you’re interested in buying in, as well as checking for the number of available properties and their associated costs can provide you with valuable information. In general, you’re looking for a property with a high revenue to cost ratio. Except in the case of seasonal vacation properties, you’re also looking for properties that will be in demand year-round so your unit or units don’t stay empty.

Determine Renovation Costs

As a property investor, buying a building that needs a little work can make sense. You pay less now, put a little money in and hopefully get more back because of it in the long run. When you’re shopping for out of state income property, this process can be a bit more difficult.

Remember that you’ll likely need to be in the area while renovations are made. If you don’t plan on traveling, you’ll need to pay someone to manage your renovation project and report back to you. Either way, the costs can add up.

If you do take on a property that needs work, you’ll also want to make connections with local contractors. They will be a valuable resource for getting your project finished on time and on budget.

Consider Other Potential Costs

Visiting an out of state income property, even if you only do it twice per year, can cost you thousands of dollars. It’s important to consider this when determining if buying out of state is right for you.

You may also incur maintenance costs that you might otherwise be able to avoid by doing basic work on your own if you lived in the area. Even your insurance needs can vary in a new region as well, which can drive up your potential costs in unfamiliar ways.

Do You Need a Property Manager?

You’ve chosen the perfect neighborhood for your out of state income property and considered all the benefits and potential drawbacks of owning away from home. Now it’s time to start looking for renters or long-term tenants so you can earn the income you’re after.

How exactly are you going to do that if you’re a state or two away? For most people, coming into town for a week or longer in order to scout for potential tenants seriously cuts down on profits. If you end up having higher than expected turnover, you could be leaving home a lot more than you might have initially thought. In the case of a vacation-style property where renters may only stay for a week at a time, visiting yourself to fill the property simply isn’t possible.

Hiring a property manager to handle finding tenants for your rental could be a better choice for you. A property manager will also handle the day-to-day issues like fixing a leaky sink. Most even collect rent payments.

Of course you will have to pay a property manager, but for most people, it is an expense that just makes sense. That’s especially when you consider the fact that your out of state income property is less likely to be vacant for any length of time when you have a property manager that knows the area and can help you rent it quickly.

Out of state income property can be lucrative, but it can be more difficult to manage when you don’t live in the area. Variables like an unfamiliar economy and different insurance needs also must be considered.

Take your time and do your homework when buying out of state. If you don’t, you might find that your ideal rental property barely breaks even despite your hard work.

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