If you have thought about buying and renting a property out of state, there are many things to consider.
Will you deal with tenants directly?
Will you hire a local property management company to manage payments and handle repairs?
If so, how will you find a reliable individual to manage these functions?
These are all legitimate considerations that should be investigated before investing in out-of-state rental property. Consider the list below:
Pros and cons of owning rental property out of state
Pros:
- May be more affordable. In today’s housing market, some housing prices are astronomical, depending on location.
- Ability to generate additional income. This is an opportunity whether you buy rental properties locally or out of state. The difference is that the distance may require you to hire a property manager.
- Minimize risk. You will be minimizing risks if you purchase rental properties in more than one market.
- Finding a market to fit your investment plan. If you look at different out-of-state markets, you’re more likely to find a market that fits with your overall investment strategy.
- Higher ROI is possible. When you invest in out-of-state markets that are undervalued, but job and population growth is steadily increasing, you may be able to realize a greater return on your investment.
- Lower taxes. If you live in a market where property tax is high, you may benefit from finding a market where property taxes are lower. Often that means looking at out-of-state housing markets.
Cons:
- Buying sight unseen. There are risks of investing in property you have not seen for yourself, even if the photos look good and the house passes inspection. Some hidden repair issues may be overlooked.
- Difficulties finding tenants. In some markets, it may be a challenge to find suitable tenants who are responsible and will cause few, if any problems.
- Unfamiliar laws. You may need to brush up on local landlord/tenant laws. They differ from one community to the next and you don’t want to be caught off guard.
- Costs for property management. If you find the need to use a property manager or management service, this will be another expense that will reduce your profits.
The Pros and Cons of Owning Rental Property Out of State listed are a guide to use when considering the purchase of rental properties out of state, whether you plan to be more hands-on by buying in a neighboring state or want to buy something farther away.