Before investing in real estate, I needed to take a hard look at where investing would make the most sense. As someone living in the Bay Area, where basic homes often sell for seven figures, buying in my backyard wasn’t the best (or a realistic) option available to me. Fortunately, I wasn’t out of luck. Enter, out-of-state investing! I was able to buy multiple properties out of state, make consistent cash flow, and capitalize on appreciation while being over a thousand miles away from them. And here’s the thing—it isn’t as hard as most people think!
In this guide, I’ll be disclosing everything you need to know before buying a rental property out of state, what you can expect once you do buy one, and where to find deals that’ll make it worth your while.
Why Investors Buy Rental Properties Out of State
If you’re an investor looking to buy an out-of-state rental property, there are several reasons why you might do so.
- You live in a high-cost-of-living area where homes won’t cash flow or are just far too unaffordable for you to invest in.
- You want to invest in an area with higher demand for rental properties or have a large supply of renters without housing.
- You want to diversify your portfolio. The real estate market is unpredictable, so it’s wise to invest in different regions and types of rental properties that may have different values over time. This prevents you from putting all of your eggs into one basket.
- You want to invest in more landlord-friendly states with favorable laws or states with low property taxes.
- You found your “dream home” in some other market and want to buy it and rent it before you eventually move in.
- You want to capitalize on migration and invest in states where demand is far outweighing supply.
No matter what reason you chose to do so, investing in out-of-state rental properties is almost always a smart move—when done correctly!
Advantages of Buying a Rental Property Out of State
Long-distance real estate investing is a great way to start your passive-income-producing portfolio. Here are some of the key benefits you can expect when buying a rental property out of state:
More Affordable Properties
For those of us living on the coast, buying a cash-flowing rental property in our area is almost impossible, not to mention unheard of, if you’re looking to buy a rental property with no money down. But thankfully, more affordable markets like the Midwest (Cincinnati, Cleveland), Northeast (Upstate New York, Pennsylvania), or even Southeast (Huntsville, Tampa) can offer far more affordable properties while still offering high rent prices.
Higher Cash Flow
Your cash flow will arguably be higher when investing out of state. Some investing areas like Cleveland, Ohio offer homes for under $100K but rent for $1,300+/month. That means you’re getting 1.3% of the home cost back every month through rent, which is astounding compared to most coastal markets.
Diversification Lowers Risk
Maybe you already own an expensive primary residence in San Diego, Austin, or Denver. Diversifying into different markets that have alternative industries for employment, migration patterns, and landlord laws may allow you to keep your rental property portfolio growing even if your local market gets economically hit.
More Flexibility When Investing
Sometimes you want to do more than just long-term rentals. Maybe you want to rent mid-term to traveling nurses, or short-term on Airbnb and VRBO (check out our Airbnb Arbitrage article). Your market may not have a large healthcare presence or many tourist attractions. Investing out of state allows you to capitalize on the opportunities other markets offer, so you aren’t stuck with just one investing strategy.
Landlord-Friendly Markets
States like Georgia, Kentucky, Texas, Florida, and Alabama have strong landlord laws allowing you to collect rent faster, get evictions processed quicker, and retain your rights as a rental property investor. Other states like California, Washington, and New York offer very limited landlord protection, which could hurt you if you build a portfolio in those states.
Less Overhead
Inexpensive investing areas also offer lower prices on materials, labor, and services. That means renovating your rental property in Birmingham, Alabama could cost significantly less than renovating a property in Atlanta, Georgia, thanks to significantly lower labor costs.
If you want to know which markets are good for rentals, check out our article on the best states to buy rental property and which states are the worst.
Drawbacks to Buying a Rental Property Out of State
Now you know all the benefits of out-of-state investing, but what about the drawbacks? Sadly, there are some hurdles to get over, but if you can do so successfully, you may be on your way to making some serious money!
Lots of Research Required
Since you’re not investing in your backyard, you’ll need to do extensive research on the market you plan on buying in. How’s the crime, where are the good schools, what are the desirable neighborhoods? Many of these questions will require an area expert like a real estate agent or property manager, which can also be difficult to find!
Purchasing Sight-Unseen
Buying a property sight unseen is always a risk, but when you’re investing out of state, it can be especially risky. You’ll need to trust that the pictures and descriptions are accurate, as well as rely on reliable contractors or property managers who will take care of any problems that arise after you purchase.
Difficulty Finding Quality Tenants
Finding quality tenants is a challenge for many investors, but it can be especially difficult if you’re investing out of state. In most cases, you won’t be able to personally screen prospective tenants or even visit the property before renting it out. This means you’ll either have to rely on a phenomenal property manager OR do an incredibly thorough job screening your tenants remotely, that is if you decide to manage a rental property as opposed to hiring a property management company.
Tough Finding Contractors
Contractors can be difficult to find, especially if you’re in an unfamiliar area where you don’t know anyone! And if you’re working with a contractor who is new to your area, it can take longer for them to get the job done than expected. Networking with other investors and getting their go-to contacts can help alleviate this.
Networking Can Be a Struggle
The majority of investors are introverts. We’re not naturally great at networking and many investors struggle with this aspect of investing. It can be difficult to reach out to people and ask them for their contact information, which makes it harder to find good contractors, property managers, etc. You’ll want to attend a meetup (or two!) once you do visit the area so you can start connecting with other investors ASAP.
Where to Find Out of State Rental Properties
Before you start capitalizing on low housing prices and high rents, you’ll need to know where to look for investment properties. There are two main ways to do this without going the off-market route:
Local Realtors/MLS
Linking up with a local realtor can be one of the best moves to make when getting started in an area. They’ll know which neighborhoods have the most potential, which homes have the opportunity for equity growth, and where the highest rent prices can be found. They’ll also set you up on the MLS (multiple listing service), which will give you access to all the properties for sale within a certain area!
Listing Sites
Websites like Realtor, Zillow, and Redfin will soon become your best friend as you scroll through hundreds of houses that potentially could be yours. Make sure you’re setting up “saved searches,” as these sites will often email you listings that fit your exact parameters every day or two.
Off-Market (NOT for Newbies)
Off-market deals are properties that nobody knows are for sale. You need to find sellers who are willing to sell their home without a realtor (and often without an inspection). You can also work with local wholesalers who will send you off-market deals, but for a fee. I bought my self-storage facility off-market, but this was NOT my first deal!
Tip: If you’re looking for a more end-to-end solution, turnkey real estate may be your best option. Here are our top turnkey companies in the business right now.
Tips for Buying a Rental Property Out of State
By now, you should be noticing that buying out of state is a little more complicated than buying in your home market. That being said, by following these tips, you should be in excellent standing to get your first out-of-state real estate investment!
Look for Markets with Population Growth
Instead of location, location, location, think migration, migration, migration. Look up local census data or do a quick Google search to search to see where the population of your local area is headed. Don’t just look at the last ten years, look for decades over decades, and make sure the population trends are always up and to the right.
Economic Stability is Key
Real estate markets with strong demand often have strong job markets. Make sure you’re looking for areas that have multiple industries that employ a large percentage of the population. You’ll want to see a mix of energy, healthcare, tech, and small businesses in your investing area.
Rent Demand is Crucial
All rental markets are not created equal. Some cities have far higher rental demand than others. This can be caused by a young population who hasn’t hit their home-buying years yet or a lack of affordable homes to buy. College towns also have very high renter populations, as college students transition out of the area every two to four years.
Get Preapproved BEFORE You Start Your Search
Before you go on a three-hour Zillow scrolling marathon, be sure to reach out to a local bank or mortgage broker to get preapproved for a loan. They’ll tell you exactly how much you can afford and what you’ll need to come to closing with. This needs to be one of your first steps BEFORE bidding on anything!
Determine Your Max Investment (and Stick To It!)
Now that you know your preapproval number, you can determine how much you’re willing to spend. Try and stick to 90% of your preapproval amount as a maximum, since added closing costs and repairs could eat into your saved-up amount for this property.
Learn the Local Landlord Laws
Landlord laws vary from state to state and city to city, so you must research them before jumping into the real estate market. For example, some states have rent control laws that could prevent you from increasing rent or evicting a tenant. Other states have VERY long eviction windows, so read into your local laws!
Find an Investor-Friendly Agent
When you’re looking for a real estate agent, make sure to find one who is investor friendly. This will help ensure that they don’t try and talk you out of buying properties that are good investments but not necessarily great homes. Also, find an agent who knows the area well so they can point out any issues or concerns with each property.
ALWAYS Get a Home Inspection
When you buy a house, always get a home inspection. This will help you to find any issues with the property, and it can even save you money on your homeowner’s insurance. If there are major problems with the house that weren’t disclosed by the seller or agent, this can be an opportunity to renegotiate the price or even walk away from closing altogether. This is a MUST when investing out of state, as you often won’t be able to walk through, see, or smell the property before you buy.
Is Out-of-State Rental Property Investing Right For You?
Out-of-state investing can be one of the wisest moves to make if you’re trying to quickly build a rental property portfolio. But, you need to be ready before you invest. Here’s what a prime out-of-state investor would look like:
- You’re analytical with your decisions and have heavily researched investing areas.
- You’ve connected with other investors in your target market and gotten their take on where to buy/what to avoid.
- You have a basic understanding of what you can/cannot afford with your current savings/income level.
- You are either comfortable self-managing your rental property or already have great property managers lined up for when you close.
- You know that investing in your own area wouldn’t be optimal for your investing strategy.
- You’ve read this blog post up until this point.
If you’ve hit the above criteria, you may be an excellent out-of-state investor!
The Bottom Line About Buying Rental Property Out of State
If you’ve reached the point where out-of-state real estate investing is a viable option for your investing strategy, then go for it! You have all the tools to make an informed decision and should be able to find great properties in other areas of the country. Just keep in mind that there are some drawbacks to this type of investing (mainly having little control over what happens during your investment period), but if you can handle those issues then by all means invest away! If you’re ready for the next step, read our complete guide on how to run a comprehensive rental property analysis or use a deal analysis tool like DealCheck to crunch all of the numbers for you.
You got this!
