The Rise of Remote Real Estate Investing (and How to Get in on the Action)
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We all know that real estate is about location, location, location. But what a lot of investors don’t know is how easy it is to invest in rental property in a different city or state.
Remote real estate investing lets you overcome the limitations of your local marketplace by owning rental property in areas with more opportunities and higher returns. In this article, we’ll explain how remote real estate investing works, why the market is growing, and tips for remote real estate investing success.
What Is Remote Real Estate Investing?
Remote real estate investing is similar to today’s growing work-from-home trend. You no longer have to be in the office to work, so why do you have to buy real estate in the same city that you live in?
Thanks to remote real estate investing, the answer is that you don’t have to. Investing in real estate remotely gives you access to more profitable opportunities across the U.S., in housing markets where economic growth is robust and property prices are still affordable.
Here’s a quick overview of how it works:
- Own rental property in another city or state from where you live without geographic limitations.
- Hire a local property management team to handle details such as leasing, maintenance, and rent collection.
- Monitor your local team and property performance via periodic video conferencing, emails, phone calls, and review of monthly financial statements.
Why Remote Real Estate Investing Is Growing
Over the last five years, the number of out-of-state real estate investors has increased by almost 8%—and for good reason. In many real estate markets today, housing prices are reaching all-time highs, property taxes are on the rise, and anti-landlord legislation like rent control laws has been enacted, all of which are helping to drive the growth of remote real estate investing.
Per data from Roofstock, many of the investors buying property elsewhere live in states like California, Washington, New York, Texas, Florida, and Illinois. And we see these customers buying in states like Missouri, Indiana, Mississippi, Texas, Tennessee, Alabama, and Georgia.
There seem to be several reasons remote investing is on the rise:
- Investors can earn higher yields in other markets, especially those living in high-priced markets on the East and West Coasts.
- High real estate prices in many local markets make it nearly impossible to begin investing in real estate without a large amount of capital.
- Remote real estate investing makes it easy to diversify investment portfolios instead of putting all of your eggs in one basket—the same strategy as a stock portfolio.
You’re also seeing a plethora of tech tools simplifying remote investing:
- Online listing platforms designed for the remote real estate investor
- Drone photography, 3D pictures, virtual tours, and augmented reality
- Digital transaction services to review, sign, and notarize documents online
Remote Real Estate Investing Pros and Cons
Although remote real estate investing is growing, buying rental property out of state isn’t necessarily right for every investor. Here are some of the top pros and cons of remote real estate investing to consider before you invest.
Pros of Investing Out of State
- Overcome geographic limitations with a wider array of investment opportunities nationwide
- Earn bigger potential returns by investing in out-of-state markets with affordable prices, higher yields, reduced competition, and lower property taxes
- Diversify your investment portfolio to minimize risks from local economic downturns and natural disasters
- Avoid unnecessary distractions such as emotional attachment to property and personal friendships with tenants
- Passive income is at its best with hands-off investing, allowing you to focus on scaling up your property portfolio
Cons of Investing Out of State
- Time needs to be spent up front analyzing markets in detail to avoid buying rental property in the wrong location
- Risk of overlooking a needed repair or property defect if you’re not physically at the property
- Challenge of finding a qualified property manager and leasing agent who will help your investments grow once your property is purchased
- Passive hands-off investing and turning daily details over to others can be uncomfortable for micro-managers who insist on always being involved
- Failing to realize there will always be a learning curve with new markets, your local real estate team, local economies, and landlord-tenant laws
How to Successfully Invest in Real Estate Remotely
Remote real estate investors can purchase newly-built homes, rehabs and foreclosures, flip houses, and even vacation rental property. However, one of the most tried and true methods to invest in real estate remotely is by purchasing single-family rental property. That’s because the market is so large and the anticipated future demand is so strong:
- Single-family rentals are a $3 trillion market
- 16 million single-family rentals currently in the U.S.
- Over 13 million new rental households forecast over the next 10 years
No matter where or what you invest in, there are several things to keep in mind before you buy real estate remotely to make sure your business starts right and keeps growing strong.
Tips for Remote Real Estate Investing Success
First and foremost, real estate is a people business. Investing in rental property is as much about who you know and what you know. So, make sure to reach out and network with other real estate investors in your chosen market. Once you’ve selected the best markets for remote real estate investing, build a team of trusted local real estate experts including agents, contractors, and lenders.
Next, a little bit about what you should know before you decide to invest. Spend time researching each market until you can spot good deals and avoid the bad ones. Read and understand the rental laws for each state and municipality you’re investing in to ensure you don’t accidentally break any landlord-tenant laws.
Once you select a rental property to remotely invest in, review documents for turnkey rental property, including the lease agreement, tenant rent roll, payment history, and application and credit reports on file. Always conduct thorough due diligence on the property—even if you're paying all cash—and don't hesitate to renegotiate the deal in good faith if need be.
Common Mistakes to Avoid When Investing Out of State
With so much competition in the market and prices on the rise, it’s tempting to move fast and make a deal. But buying the wrong property can cost you in more ways than one. Don’t buy in a market where the economy is weak and the population is declining. Look for cities where the cost of living and doing business is low and the quality of life is on the rise.
Another common mistake real estate investors make is hiring a real estate agent who doesn't specialize in rental property investments. There's a big difference between agents who work with normal mom-and-pop homebuyers and agents who understand real estate investing.
A great property manager is another key part of your team. However, choosing the wrong management company can lead to high repair costs, increased tenant turnover, declining property value, and negative cash flow.
Last but not least, never become emotionally involved when you’re investing in rental property. Remember that real estate investing is a business and not a hobby.
The Bottom Line
Thanks to online listing platforms, detailed market data, neighborhood ratings, and property technology it’s not necessary for remote real estate investors to visit a property in person. However, always be sure to balance technology with personal interaction. Taking the time to talk to people, building a team, and leveraging the knowledge of local market experts will help ensure your remote real estate investments are profitable for years to come.
Considering investing remotely?
Tell us why, where, and what issues you’ve encountered.