If you are considering purchasing a rental property in a different state then you are no doubt at the right place. I have successfully bought 4 rental properties so far in a different states from where I live in and so far they are working out great. Chances are high that if this is something you are considering on doing then you are ready to improve your financial future. Am I right? I mean the whole purpose of buying rental properties is to make some money. Rental properties are a great way to generate passive income, increase your net worth and help build a path to financial independence. So why in the world would anyone even want to purchase a rental investment out of state? It could vary to each person but below you will find the top 2 reasons why anyone would even consider purchasing rentals in a different state.
Why Purchase A Rental Property In A Different State
- Purchasing a rental property out of state can be a great way to diversify your real estate portfolio. Sometimes it’s not smart to have all your eggs in one basket (city/state). If all your rental properties are located in one area and a natural disaster or some other sort of rare event happens then it could jeopardize your whole real estate portfolio. Having rentals in different states or cities can help mitigate some forms of risk.
- The market you live in is too expensive. If you are like me, then you live in a market that just does not make sense to buy cash flowing properties. If you barely break even or even worse have negative cash flow, I would personally consider that a bad investment. These types of markets can be great for flippers and appreciation speculators but not necessarily great for cash flow seekers.
My plan for early retirement consists of building enough passive income from rental properties to pay all my living expenses and then some. It is very important to follow a path to success to ensure your dream of financial independence will come true. If all goes according to plan, I should be set for early retirement in about 5 years. I would like to have about 15 rental properties producing passive income for me to in order to be set free from the nasty rat race most of us live in today. I currently have 5 rentals so I have 10 more to go and if I am able to purchase two per year, then my 5 year plan should hit right on target. There is however a really good chance that I can hit this earlier but I like to be conservative. I mean I did purchase four rental properties in 10 months last year so if I get on another purchasing binge like that then life will be good. I have included a list of 6 items that are essential for buying rental properties out of state. These are tips that I personally use for when I purchase an investment property far away from where I live.
6 Tips For Buying An Out Of State Rental Property
1) 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. It’s best to just pick a market that does not show any signs of slow down.
2) Secure Your Financing
- It amazes me how many newbie real estate investors try to jump into the game without ever knowing how they will purchase or finance the property. You can spend all the hours you want reading and looking for properties but if you do not have the financing or cash in place than you will just be on the sidelines watching others. If you have the cash to buy then great, kuddos to you but if you need to secure financing, contact some lenders and try to get a pre-approval before spending a ton of time searching for houses or sellers. This was one of the first things I had in place when I start investing and I now have 7 mortgages with the last 4 all coming from the same lender. Once you get to four mortgages, the guidelines change a bit. You can check out this article on how to finance more than four mortgages if you want some more info.
3) Research The Potential Investment Property
- If you find an investment property you are interested in, you will want to pay extra attention to all the details. Not having the means to see the property first hand puts you at a disadvantage and it is important you research the crap out of whatever house you want to buy. You will want to check crime statistics, evaluate rent prices, find local investors to talk to about the property, contact property managers to get their opinion on the address in question, and hire an inspector and appraiser once you have the house under contract.
4) Research The Seller
- Just as important as researching the house, you will want to do all the possible research you can on the person selling you the house. Do internet searches on the firm, the individual’s name, check the better business bureau for complaints, search forums for info, find others who have used them and speak to them about their experiences. Believe it or not, there are a lot of shady crooks out there looking to take advantage of unsuspecting newbie real estate investors. Do not leave one stone unturned or it could come back and haunt you. And by haunt you, I mean potentially losing thousands of dollars.
5) Find A Good Property Manager
- I’ve said it before and ill say it again, “A PM can make or break you!!”. I’ve had the luxury of working with both good property managers and horrible ones. I even wrote an article about how I fired one of my property management teams because they were dreadful. Be sure to interview your PM and also speak with other investors who have used them. It is worth it to interview multiple PMs before finally making a decision on who you will use.
6) Make Sure The Numbers Work
- It’s easy to run numbers using cool spreadsheet calculators like the one I use. What is not so easy is actually entering the correct numbers to get a realistic number. You can shave down your expenses and costs all you want to see better numbers but at the end of the day, you are only hurting yourself. Your research from above should have given you all the data you need to properly input a good set of realistic numbers. If your returns are not met, then move on to the next property. Simple as that. If you want to use the same calculator I use, just go ahead and subscribe to the blog, you will be automatically taken to download the FREE calculator. It’s pretty cool so you should check it out. You can subscribe by entering your email in the box below:
I wish you good luck on your journey to financial freedom and will be pulling for you to make smart decisions to help you get there. If you have purchased a rental property in a different state, I would love to hear other cool tips you may have to share with everyone.