Investing in real estate isn’t always easy. You need to put in the hours of analyzing different property sub-markets and also assess the potential neighborhoods. For these reasons, many first-time investors prefer investing in local property markets that they have some considerable information on.
However, an out-of-state investment might be a great option, especially where the local price is out of your budget. If you’re considering an out-of-state investment, take a look at these tips so that you can get started on the right track.
Tips When Investing Out-of-State
Consider the following tips if you’re thinking of investing in an out-of-state property:
Consider the Return on Investment (ROI)
What determines the feasibility of an investment is the ROI. There are several factors that you must consider when assessing the ROI of a property. Some of the vital information you will need include the purchase price, rental income, turnover costs, maintenance costs, taxes, rental review rates, and appreciation rates.
With this information, you will be able to make an informed decision on whether investing out-of-state is worth it.
There is no substitute for local property knowledge. While you may argue that the information is readily available online, local property knowledge will reveal more and offer nuanced market information that only a resident would know.
A good example is property laws and regulations. What you might read on the internet and what happens in the local authority offices might vary significantly. This complication is one that many out-of-state property investors find themselves in.
Therefore, as an out-of-state property investor, it is ideal to rely on information from a local professional. A local property management company will also assist you in the management of the property and will have the network and contacts to handle the various needs of a rental property.
Conduct a Physical Viewing
We understand and appreciate that technology offers convenience. With high-resolution photos and video tours, you might have a good feel of where the property is located, what its fittings & finishes are, and the amenities in the surrounding area.
However, it’s recommended that you visit in person prior to making a purchase. The time and money spent making the trip might save you from a poor investment. A physical inspection of the property might reveal maintenance issues or nuisances about the property that might be expensive to remedy. Once you have identified such issues, you can use them to bargain with the seller/ real estate agent for a lower price.
Hire a Home Inspector
Just because you see the property in person, doesn’t mean that you’re qualified to assess its structural integrity. Some property investors lack the expertise to inspect the condition of the prospective rental and its appliances.
It might be in your interest to hire a home inspector to accompany you on the in-person viewing. They have the training and expertise needed to assess the condition of the property. You will receive an inspection report that contains all the information on the property’s condition as well as necessary repairs to meet safety and health provisions.
Get Pre-approval for a Mortgage
Few individuals can afford to pay the listed price of a property up-front. Even in an affordable neighborhood or market, you will still need to spend hundreds of thousands of dollars. You might also have to rely on a mortgage to close the deal.
While you are visiting the property, you should also pay a visit to the local lenders. What you are looking for is the most favorable loan terms. Compare the interest rates, length and amount of repayment, and other pertinent loan terms. Getting pre-approved for a loan will show the seller that you are serious about closing the sale.
Modern Alternative of Investing in Real Estate
Previously, investing in real estate meant either looking for a plot of land ready for development or a property for sale. Things have evolved significantly. One modern option that is gaining significant traction worldwide is a real estate investment trust or REIT.
REITs are companies that purchase or lease various income-producing properties and generate income either through selling or sub-leasing the properties. The income is then passed down to the shareholders of the company in the form of dividends. Investing in REITs is similar to purchasing a company’s stock.
Purchasing REITs allows you to own a piece of real estate in a prime location or neighborhood without having to spend as much. Another advantage of investing in REITs is that you don’t have the stress that’s associated with owning an investment property.
Make sure to purchase property in a neighborhood that has similarities with your local neighborhood. The demographics and proximity to amenities will be familiar and will give you an idea of what you are working with.
What’s more, if possible, invest in an area that you have some experience living in; it could be your college town or where you spent some of your professional life in. Furthermore, avoid high-risk properties. This might appear in various forms, for example, luxury properties, properties on auction, or house-flipping investments.
There could be several reasons that might push you to buy an investment property out-of-state. It might be that you live in a neighborhood with little demand for rentals or you are looking for an area where the initial investment cost is significantly lower. By following the tips provided above, you should be able to start off your investment journey on the right foot.
Do you have more questions regarding out-of-state property investments or how to manage your properties once purchased? The team from Keyrenter Property Management New England is well-positioned to help. Contact us today to learn about our property management services!