Ready to Invest Out of State? Make Sure of This First

Investing in the market you live in doesn’t always make the most financial sense. Sometimes, your local market’s conditions actually make it a terrible choice for investment. Maybe the housing costs are astronomical (looking at you, San Fran), or the job scene sucks. Whatever the case, factors like these can make local investing a poor financial move.

The alternative is, of course, to look outside your market. There are a number of them performing quite well in the U.S., and with the advent of technology, it’s easier than ever before to invest in a place miles away from where you live.

However, just because it’s easier, doesn't mean it’s necessarily the right move for you. Out-of-state investing takes just as much - and arguably more - work than local investing. Here are 5 factors you must be sure of before pulling the trigger on a remote investment:

#1 - The property itself

If you can make it out to see the property in person, by all means, do it. Buying a property sight unseen can be done, but it’s not a great idea. You won’t know what you’re truly getting into unless you’re able to lay eyes on the property and see its condition for yourself. Visiting your potential investment means you also get an in-person look at the neighborhood and larger community, so you can make a more informed decision about the property’s true potential. Of course, it’s not always feasible to make a journey. Time, distance, travel costs and other factors may prevent it. In these cases, it’s critical that you find a local person you can trust to make the trip for you.

#2 - Your expenses

While you’re probably familiar with most of the expenses you’ll incur as an investor, when you’re buying a property out-of-state, you may get more than you bargained for. Remote investors are usually considered higher risk by banks and other lending institutions, which may result in higher interest rates or down payments. Unless you’re paying all-cash, you will want to double-check for these. The same can be said for insurance; some out-of-town investors see higher premiums because they’re not local. Taxes can be another tricky area that may result in greater expenses. When you live in one state and earn income from another, it becomes more complicated, and potentially costlier. Lastly, if you do plan to occasionally travel to your property, there will be expenses associated with that.

#3 - The ROI

You should always be concerned with the return on your investment, whether you’re investing in a property down the street or on the opposite coast. If you’re buying in a market where homes are much more affordable and appreciate at faster rates, you may see an increased ROI. However, when you factor in any of the expenses above that come with remote investing, this number may go down. To get the most accurate ROI, be sure to weigh these against all of those benefits that are motivating you to look outside your market.

#5 - Property management

I always recommend partnering with a great property management group, whether the investment is local or remote. With out-of-state properties, the importance of this is amplified. Obviously, you’re not going to be around to make sure everything is being properly maintained, so a property manager is essential. Do your research on local management companies to be sure that you are signing with a reputable and experienced one who will take care of your place in your absence.

#5 - Local presence

Finally, there are the issues of truth and trust. 1. Are the local people you’ve been speaking to and working with telling the truth about the property? and 2. Can you trust them? These folks are your eyes and ears since you’re not there, so you have to be certain of these factors before you make any deal. Just because a person says, “This is a great part of town! You should totally invest here!” doesn’t mean it’s necessarily true. They’re looking at it through their own lens, but there’s no certainty that it’s accurate. Make sure that the local professionals you’re working with are not simply in it for their own benefit; get referrals, and follow up with them to ensure you’re gathering info from the right people.

If you live in a not-so-hot housing market but still want to invest, then getting involved in another market is the most sensible thing to do. However, there can be increased risks, so make sure you’re considering all the factors above before buying a new property.