What Do You Think of Beginners Owning Out-of-State Rentals?
One of my blog readers emailed me to ask:
“What do you think of owning out-of-state rental property? I live in WA state, and inspired by your blog posts, I am looking for rentals to invest in Atlanta. Do you think this is practically do-able?”
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The short answer: It’s definitely do-able. But it may or may not be something you WANT to tackle.
Plenty of people are successful out-of-state landlords. Plenty have also gotten burned by the process, which turned out to be more difficult than anticipated.
Here are a few questions I’d encourage the reader to consider before taking the leap into out-of-state landlording.
#1: Have You Ever Owned a Home?
And I don’t mean, “Have you ever owned a new-construction condo?” I mean, have you ever owned a structure that needs pest control, termite treatment, roof shingle repair, gutter cleaning, hot-water-heater replacement, dishwasher installation and midnight plumbing?
I made the mistake of becoming a landlord with my very first property. I had never owned property before, and suddenly I was responsible for overseeing the renovations on a 100-year-old triplex AND simultaneously managing three units of tenants who had grown accustomed to the previous lackadaisical landlord.
That experience gave me a quick crash course in home ownership (who knew you needed to think about drainage?). My only saving grace was my flexible, work-from-home day job, coupled with the fact that I lived across the street (and later moved into one of the units). Even still, I wanted to rip my hair out.
If you’ve never owned a home before – not even your primary residence – I’d caution you against becoming an out-of-state landlord with your first property.
And I’d very strongly caution you against buying an out-of-state fixer-upper.
Which leads to my next point …
#2: Do You Have Landlording Experience?
If you’ve never managed tenants before, I’d generally encourage you to try landlording in your own backyard before venturing into out-of-state property investing.
Notice that I said the word “encourage.” I DO think you could become a successful out-of-state landlord on your very first investment property, particularly if you have a trustworthy team established in the area where you’ll be investing. At minimum, you should have the world’s most awesome property manager, a good real estate agent who has experience working with buy-and-hold investors, and a trustworthy contractor.
I’ll award you extra bonus points if you’ve had exposure to the daily life of property investing (e.g. if your parents were landlords and you grew up watching their experience). If that’s your situation, you probably have a decent idea of what to expect.
#3: How Strong Is Your Team?
Do you understand the neighborhoods in the area that you’re eyeing? Have you ever visited the area? Do you have a strong idea of the neighborhood and tenant profiles?
Do you have a trustworthy, experienced property manager on speed-dial? Are you fluent in “construction-speak,” so that you can understand the jargon that contractors use? (Pop quiz: Do you know what a joist is? How about a toilet flange?)
Is your cash flow strong enough that you’ll be able to withstand lower rents and higher maintenance/vacancy costs than you anticipated?
Do you have a mentor who you can consult when you need help? Perhaps a friend with experience managing properties, or a parent or uncle/aunt who has been through this experience in the past?
This sub-section of questions is probably the most important. If you’ve never owned a primary residence home before, but you have the world’s most trustworthy mentors and managers, plus a deal that cash flows like crazy even with the most conservative estimates, then go for it. Buy an out-of-state fixer-upper rental, and enjoy the profits.
But that situation is rare. As a novice, you’ll most likely find an average deal managed by an average team. And in that situation, I’d encourage you to first own your primary residence, then try becoming a landlord within your own state, and then only graduate to out-of-state rentals.
BiggerPockets readers, what do you think? Did you own an out-of-state property early within your landlording career? What would you recommend to a beginner who wants to be an out-of-state landlord?
Photo: Ryan Dickey