4 Must-Haves When Investing in Out-of-State Rental Deals

by | BiggerPockets.com

For several reasons, some investors decide to invest out of the state they actually live in.

Many who do so choose to go that route because their hometown area is too expensive. They’d rather invest in a place where the numbers make sense and produce the return and cash flow they are looking for.

While out-of-state investing can be exciting, it can also be very scary at the same time. To set yourself up for success with this strategy, you need to have a lot in place.

Here’s my two cents when it comes to buying out of state.

Related: 10 Essential Real Estate Team Members (& How BiggerPockets Takes the Pain Out of Finding Them)

Must Haves for Investing in Out-of-State Rentals

1. Establish Your Search Criteria

What are you looking for? Define your goals and your search criteria. Are you looking for a small multifamily? Are you looking for a single family home? What rent and purchase price are you aiming for? How much money can you bring to the table? Are you going to do real estate syndication or a small partnership? Determine price, deal size, and geography—pinpoint one to three markets at most—before jumping in.

2. Focus on Management

Don’t expect to self-manage from states away. Unless you have phenomenal systems in place, management needs to be done by a third party that’s in the area. This is a fact for big deals, small deals, all deals. The best laid plan for a rental property will get thrown out the window if there’s poor management.

3. Assemble a Team

Each state has different laws, landlord rules, and so on. First and foremost, you need a good lawyer in the state (and sometimes in the county or town) you want to be in. You also need boots on the ground, meaning someone who has equity alongside you or is financially benefiting from the deal somehow. This person needs to be able to go out and look at property for you, so you don’t have to fly into town every time you come across a deal that looks interesting. Also, look for a local broker or real estate agent, local maintenance team, and as many others in the market as possible that you can leverage as a team.

4. Find Funding

If it’s a smaller deal and you find a local community bank that’s willing to fund the property for you, that’s probably the cheapest money that you’re going to come across. However, some small banks don’t want to work with anyone who isn’t actually residing in that area. In this case, you might have to look to a national lender.

Tackle all of these things before you go and start looking at properties. The path to success is having a lot of this in place going in.

The market is moving so fast right now, if you find a good deal, it’s not going to stick around for a couple of days before it’s under contract. Ensure your deals are successful by taking these steps first.

Watch my video above, where I go into greater detail about each of these concepts.

What other advice would you offer investors interested in finding deals out of state? 

Let’s discuss in the comments. 

About Author

Matt Faircloth

Matt Faircloth, Co-founder & President of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

4 Comments

  1. Christopher Smith

    Sound approach provided in your clip. I am an out of state investor, live in the Bay area and have properties in the Midwest – OH.

    I currently invest in only one out of state location. I lived there for 10 years before moving to CA, and learned the area very well. I already had a local property manager before I left for CA that I have used for almost 20 years. Also had an insurance guy in place that I still use and everything has gone like clock work so far.

    When I buy a new property my PM has my POA so no need for me to travel for closings. Haven’t been back in the past 20 years and don’t intend going back anytime soon.

    Remote capabilities combined with a couple of trusted local folks have made this operation actually hands on than my CA properties. Plus the OH market that I left 20 years ago has remained extremely strong. It was a top market in OH when I left, and has only gotten better since.

  2. Steve Elling

    One way to whittle down a newby investor’s list of prospective markets: Study the property-tax assessments in areas you are considering, because the thresholds can make all the difference in cash flow. For instance, in Ohio, there is a reason the prices in Cleveland seem too good to be true. The taxes there can run $5,000 annually on a $100K house. A few miles away in the suburbs, the taxes are half that. South Carolina also has crazy-high taxes on investment properties, which is a shame, because the price points there are solid. In Florida, primary residences are taxed at a lower rate than rental homes, which are taxed at the max rate set by the county property assessor. Just some examples that won’t be obvious when looking at Zillow listings from four states away.

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