Navigating State Laws Is Complex
That leads me to the third and final reason why you should not invest out-of-state, and that is the complexity that comes with it. Im talking about the complexity that comes with setting up the right legal structure. Every state has different laws, from an eviction standpoint and setting up an LLC to lawsuits, all of which an attorney is nickel-and-diming you for. And then theres also the tax liability of investing out-of-state. Once again, Im not an accountant, but federal, state, and city taxes are all different depending on your income and the other investments that you have. You dont know what tax bracket you are going to fall into or what your tax liability is going to be when you are investing in that particular state.
Those are the three reasons why you should never invest out-of-state. If you think Im wrong, please comment below. Of course, there is nothing necessarily wrong with any piece of real estate as long as the price is rightand that could be out-of-state or out of the country I just think its more likely to be in your own backyard. Thanks for listening.
Do you agree? Disagree?
Is It Located Near A Big City
Big cities have a lot to offer. They have job diversification, convenient shopping, great nightlife, and culture. In fact, cities with more than one million residents also offer a large pool of potential tenants for your new rental property. Additionally, an estimated 40 percent of the population rents, which means that in a city of one million residents youll have access to 400,000 potential tenants. As an added bonus, big cities often mean great suburbs and as we all know, the suburbs attract an entirely different sector of potential tenants. Keep in mind that people like to live within driving distance to a large city and dont want to be longer than a 30 minute commute to their jobs. In other words, dont buy too far away from the big city fortunately, your property manager can help you select the most desirable in-city neighborhoods or booming suburb.
Is It In A Booming Market
As its name suggests, a booming market occurs when the prices are rapidly rising. Generally speaking, you should try to avoid investing in booming markets due to their unpredictability and instability. With this in mind, if you are interested in a high risk investment, then you might consider a booming market if you plan on getting in early and getting out in time. The latter strategy can best be applied to vacation and retirement areas, where employment doesnt play a factor, but desirability does. Once again, a local real estate agent will be able to help you determine if the booming market is a bubble that is about to burst, or if you can jump in at exactly the right time to make a profit.
Also Check: Investment Adviser Registration Fees By State
So Where Should You Invest
Things to Consider1) Neighborhoods 2) Property Taxes 3) Schools 4) Crime 5) Jobs 6) Amenities 7) Future Development 8) Amount of Listings and Vacancies 9) Rents 10) Natural Disasters 11) Insurance Rates And of course, the actual property.www.ChrisGoffInvesting.com
5 HousesLEASE-OPTION HOUSES5 X $2K + $10K $200 X 5 Houses Each Month = $1K $5K Down for 5 Houses = $25K Sell in 1 Year $20K Profit X 5 Houses = $100K Total Profit: $137K for 1 Year
What Credit Score And Down Payment Do You Need To Buy An Investment Property
For a fixed-rate mortgage, the minimum credit score requirement on a single-unit investment property is 620, and it will require a 20% down payment. If you have a credit score of 720 or above, however, you are only required to put down 15% on a single-unit investment property.
For an adjustable rate mortgage, the minimum credit score is 620 and will require at least 15% down on a single-family investment property.
If youre interested in purchasing a multi-unit property, reach out to a Home Loan Expert to discuss the requirements and options.
Don’t Miss: Investment Apps For Non Us Citizens
Pick A Market On The Upswing
- If you have the luxury to buy anywhere, then you might as well pick a city that has a vibrant economy, increasing population and good job employment. It sounds like common sense to me but this is a very important tip because if could impact the future of your investment. For example, if you choose a city with a decreasing population and a declining job force then this means you are losing renters, will most likely have declining rents as well as a depreciating housing market. Things could be great for your first few years but later down the road you will regret ever purchasing this property and will have a hard time getting rid of it without losing money. Its best to just pick a market that does not show any signs of slow down.
Benefits Of Buying Investment Property Out Of State
There are, of course, many countable benefits when an investor comes to buy an investment property out of state. Of course, for most investors who choose to invest out of state, it is initially due to their resident state prices being too high.
Buying an investment property out of state can itself present cheaper investment opportunities. When the opportunities locally are priced way too high, buying out of state will always make financial sense. Property prices will generally correlate with the location. The first thing an investor should consider doing is a cross-state market analysis. Doing this analysis will allow the investor to identify profitable properties for sale.
If the investor is, in fact, a seasoned property investor, they may already have properties already in the current state. The reason for investing and buying a property out of state may be to extend the existing portfolio. Holding property interest in more than one location can be a financially sound way to perform business. If the property is held in multiple states, the risk of loss should one economy see a sudden decline would not be as significant. Owning financial interest elsewhere can support a temporary slump and keep your portfolio afloat.
Don’t Miss: Life Insurance And Investment Companies
Buying A Turnkey Property Out Of State
One of the more popular and time-tested ways of create passive income through real estate investing is to buy a property and rent it out. Its a pretty straightforward concept.
However, there is often a lot of work that goes into identifying a good property and then making a property rent ready. There may be major renovations to perform, repairs to be made, and possibly even tenants to evict.
The idea of a turnkey property solves these headaches . Theyre a great way to get into real estate investing for just this reason.
But the focus of this article isnt just about why a turnkey property might work for you. Rather, its to discuss the idea of investing in a property that may be thousands of miles away from you.
Its a strange thought. In fact, you may have heard it said that you shouldnt invest in a property more than 30 minutes away from your residence.
In recent years, though, some advancements have been made in how properties are found, vetted, and purchasedand turnkey properties are one of these ways. If you havent considered investing in an out-of-state property before, you may find that its a great way to get a better ROI and achieve better diversification.
Is Investing In Out Of State Rental Property Right For You
Summary: In this article youll learn about the pros and cons of investing in out of state rental property so you can decide if this strategy is right for you. This article is based on Chapter 3 of Kathy Fettkes best-selling book, Retire Rich with Rentals.
Recommended Reading: Investment Mortgage Rates 15 Year Fixed
Make New Friends Online
Networking is a powerful thing. Technology makes it easier than ever to find people who know people who know people. Along with connecting with your new neighbors in social media groups, reach out to people you already know. Ask if they know anyone who lives in or near the area youre moving to, and if so, ask to be put in touch with them. People are happy to talk about their city and make recommendations on their favorite neighborhoods, and the best local restaurants and entertainment.
If you have a job lined up, reach out to your future co-workers if you can. That will be an easy way to introduce yourself and get to know them better because the convo can start with questions about the area.
You could also check out other online communities, like Meetup, to find people with similar interests or job skills in your area and learn about various events happening that may interest you.
Why To Buy A House Out Of State
Many people wonder why anyone would want to go through all the work of finding, financing, and purchasing a house outside of their home state. The answer is: lots of reasons!
For people who live in a cold climate, they may want a vacation home in a warm, sunny place. For those who live in Florida but like to ski, they may want a house in the snowy mountains! Plenty of other people just want a second home to go for family vacations and getaway weekends.
Another good reason people buy houses out of state is to make money. Buying an investment rental property in an area where property is less expensive, but rental prices are high is a great financial decision.
One of the more stressful reasons to purchase a home out of state is when your family is moving because of a job transfer. This kind of move usually must happen more quickly and is more permanent.
Weâve all seen those shows on HGTV that make buying out-of-state property look fun and easy, and it can be! The important thing is to have a plan and a team to support your search.
Also Check: Best Investment Properties To Buy
Challenges With Buying Out Of State
There are, of course, a plethora of problems that can occur when you come to buy an investment property out of state. The first among these is the lack of knowledge of the area and property itself. It is credible to assume that not much if anything, will be known about the location or property. So knowing what exactly to look out for in a new state can be difficult. This can, of course, be remedied with a lot of research and frequent visits to the intended place of investment. By taking these steps, the investor then becomes acquainted with the current area, and investment becomes a little more straightforward.
Another issue that presents itself is the regulations. Each state holds its own set of regulations for properties, and knowing them all would be quite a feat. Most investors are only loosely familiar with the regulations in their residential state. This is why it is always best to have some form of a legal body on your side. Having the accompaniment of an attorney to tackle and iron out any issues that may come with state-based regulation will always reduce stress and purchase challenges.
How To Decide Where To Move
Choosing a city to move to in Florida is easy when youve narrowed down your preferences. Ask yourself the following questions to begin your search for the perfect Florida city to call home:
- Do you want to be close to the beach?
- Do you prefer a quieter town with fewer tourists?
- Do you want to be close to the theme parks?
- Do you want to be on an island?
- Do you want to be close to big cities?
These questions are great primers to help you think about where you want to live in Florida and what matters most about the location.
Read Also: How To Start A Real Estate Investment Firm
Choose The Right Realtor
The fundamentals of how to choose the right Realtor dont differ when buying an investment property in another state.
One area you should pay extra attention to is their experience working with investors. Youll be leaning on their expertise and their eyes when they walk through prospective properties. Realtors who have plenty of experience with investors and investment properties will know what to look forand the red flags to avoid.
Ask these questions before hiring a Realtor, and ideally get as many referrals as you can from other local real estate investors to help you choose the perfect local Realtor. The right Realtor will have connections to many local contractors, home inspectors, title companies, and other investors, all of which will make out-of-state real estate investing easier.
Are You A Landlord
When you start buying investment properties, you need to take some time to think seriously about your ability to manage your properties. Its a tough job being a landlord tougher than most people think and Ive seen many an investor become overwhelmed by the time it takes to be a good landlord.
Fun fact: Be on the lookout out for this kind of investor. They sometimes burn out under the weight of their landlording duties and just sell their whole portfolio at once. Its usually a good time to swoop in and buy.
But the point is that not everyone is cut out to be a landlord. Its an intense and time-consuming line of work, especially if you already have a day job. For this reason, I highly recommend getting a management company to do this work for you.
Sure, youre probably spending 9% to 11% of the rent on this service, but they will take care of the tenants needs and collect the rent. And in the unfortunate event that a tenant needs to be evicted, theyll help handle that process, too. Time is often more important than money, and letting go of this stress gives you the freedom to pursue additional investments.
Don’t Miss: Do I Have To Be 18 To Invest In Stocks
Choose The Right Market
Most new real estate investors simply invest in their home market and dont give much thought to other cities or states. But when you open yourself to out-of-state real estate investing, you suddenly have thousands of towns to choose from. Where do you start?
Start with cities and towns you already know. These could be towns you grew up visiting, or where you went to college, or where you travel frequently for work. Or, if you love vacationing in a certain area, that can make a convenient place to invest in rental properties or a house fix and flip, and you may be able to write off some future travel expenses as business-related.
The ideal market depends in part on what kind of investing youd like to do. For example, if youre investing in rental properties, state and local landlord-tenant laws should play a role in your decision, as should local price-to-rent ratios. See the interactive map of the U.S., in this Attom Data report, showing county-level rental yield returns, which can provide some ideas for high-ROI rental markets.
But if youre looking to be a house flipping investor, those are non-factors. A more important factor for you is which direction home prices are trending. The last position you want to find yourself in is buying and renovating a house based on one After Repair Value , only to find that in the six months it took you to renovate the property, the ARV dropped by $30,000. What was initially a profitable deal could suddenly lose you money.
How Do I Buy My First Investment Property
The first thing that would need to be placed into motion is financing the investment. The investment may be made from cash savings. Youll also need to secure a mortgage. Before looking at a property, a mortgage calculator should be used, and at least a preapproval for an affordable mortgage should be in place. Having this pre-approval in place allows the potential investor to scan the market to find an appropriately priced property. When they find the property, the investor would then look to employ the help of a remote real estate agent in order to assist them in their search.
When it comes to buying your first investment property, there are a few specific self-requirements you must take note of. Ensuring that you can meet the needs from the following list is a fantastic starting point in figuring out how to buy your first investment property:
1. Have your mortgage ready
2. Buy single-family homes rather than invest in multiple occupational properties
3. Focus on the return on investment
4. Know your strategy
5. Only purchase what you know
6. Research the area
7. Find out about the neighbors
8. Find a property with great outdoor space
Taking the above steps can really help ensure the investment goes smoothly.
Should I Invest In A Property Close To Where I Live
Australia is a large country with its major cities spread hundreds, if not thousands of kilometres away from each other. Not living close to your property can act as a mental barrier to investing interstate, and it can be particularly difficult if you are not familiar with suburbs outside of the city you live in.
Investing interstate usually means having to leave your comfort zone and seeking out the best area to invest in as opposed to the area that best suits your current circumstances.
Another barrier for investors can be considering the time and cost involved in finding and then inspecting a property interstate once they factor in travel costs, time off work and the logistics behind researching and inspecting a property in a completely different state to the one they live in.
Some investors also worry that they may not be able to check on a property in person if a tenant is having a problem such as a leaking tap, but even if you do reside in the same area as your investment property you should be engaging the services of a property manager, so should you really let this stop you from making a smart investment in another city?