If you look at a list of the best long-term investments, real estate will be among the top options. In addition to investing in growth stocks, bond funds, dividend stocks, and Roth IRAs, it’s also a good idea to look into how investment properties can factor into your long-term investment plan.
It’s not for everyone. But if your debt situation is under control, you have the funds available or are willing to borrow hundreds of thousands of dollars, and have a long-term investment timeline, you might want to build an investment property portfolio.
You’ve undoubtedly heard that location is crucial when buying any property, whether you plan to make it your home or rent it out to tenants. But should you consider purchasing real estate out of town–especially if there are great deals to be had?
You need to consider six things before purchasing an out-of-town investment property.
If you’re considering buying an investment property in another state, you’ll need to spend time building up a contact list. You’ll need a realtor, for instance. And if you do go on to buy real estate, you’ll need to find contractors who can do necessary maintenance and repairs. You can make things easier on yourself if you find a reputable property management firm to help you. Of course, that means researching to identify the most promising candidates to consider. But retaining the services of a property manager means you’ll have the support you need to succeed.
Another thing to remember is that investing in an out-of-state investment property will cost you more. While you may get a great purchase price, that’s only one part of the puzzle. You’ll need to hire a property manager since you can’t be in two places simultaneously. It’ll be well worth your while to do so, but it’ll be a cost you can’t take a pass on if you live in another state.
Another cost will come in the form of occasional visits to your investment property–just to stay in the loop. Your property manager will be able to handle the day-to-day operations, but it’ll be vital that you stop by once and a while. The cost of travel will add up. Also, keep in mind that you’ll pay more in mortgage insurance rates and home insurance rates.
You’ll want to have an experienced accountant help because there are things to consider if you own real estate in multiple states. An accountant specializing in tax laws is one expense that comes with the territory.
Calculating the return on investment (ROI) is essential whether you’re buying something in state or out of state, but it’s particularly critical when you’re doing the latter. The reason is that more costs are associated with investing in an investment property out of state. And your margin of error will be smaller.
Investors like to look for properties in other states because doing so widens their options. So, if the homes in desirable regions in your home state are overpriced, you might want to consider more reasonably priced rental properties across state lines. You might score better deals that make buying outside of your home state more desirable. It might give you an investment opportunity you wouldn’t otherwise have in your home market.
Due diligence is always essential. But it’s all the more critical when buying a property in another state. It might be easy to overlook conducting thorough research, booking a detailed property inspection, and doing other things ahead of making an offer. You might want to physically be on site when you hire someone to inspect on your behalf. Another reason it makes sense to find a property manager is that the company can help you with the property inspection and due diligence research. So, it makes sense to find one even before you buy a property.
Don’t assume that the rules applicable to buying investment properties in your home state are the same in other states. There may be regulations and bylaws that you’re not aware of. So, do your due diligence and consult with an expert on such matters if you have any questions and can’t find the answers.
The last thing you’ll want, for instance, is to invest hundreds of thousands of dollars into an out-of-state property and then find out down the line that there are ROI-hampering rules on the books. For instance, you might discover that a specific state has laws that heavily favor tenants at the expense of landlords. You can avoid such headaches if you do thorough research before becoming an out-of-state property owner.
Even if you hire a property manager to handle the day-to-day affairs of your investment property, you might still regret being so far away from it. You might want to stop by occasionally just to see how things are going with your own two eyes. But if you live out of state, you won’t be able to see it whenever you wish without spending a lot of time and money traveling there and back.
Of course, hiring a good property management firm will alleviate many concerns, but that doesn’t mean you won’t want to go and see it from time to time.
So, there you have it. You’ll want to consider these six things before purchasing an investment property in another state. There are good reasons to consider buying a rental property across state lines, especially if you find a reputable property manager to manage the property. But ensure you do thorough research and know what you’re getting into before doing so.
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