REP Status with out of state investments

Member since 2025 · 4 posts · 14 votes

Hello all,

This is my second post on BP. I have not yet invested but learning from everyone. I'm in an expensive market, and know that I will likely have to look out of state to make cash flow as a beginner. My wife will be managing our investments with the idea of gaining REP status. Is it possible to gain REP status while working with an out of state PM?

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Patrick DruryBusiness Member

Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes

10mo

@Jacob Bejarano
Your wife will have to self-manage it. If you use a PM for just 1 rental, you aren't going to meet the hour requirements. A lot of people buy STRs because these are more management-intensive and allow them to hit their required hours for real estate professional status

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Elealeh Fulmaran
Specialist · Member since 2025 · 483 posts · 270 votes
10mo
Yes, but it’s hard. REP is about hours, control, and documentation, not geography. Your wife would need to materially participate in your rental activity with well‑tracked hours doing management-level work: screening, leasing decisions, budgets, approvals, vendor coordination, bookkeeping reviews, and strategy. You can still use an out‑of‑state PM, but don’t outsource everything; carve out defined duties she owns weekly, keep a contemporaneous time log, consolidate activities into one “enterprise,” and review with a CPA who specializes in REP to ensure your setup and logs meet the tests.
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
10mo
Practically, it is very difficult if that's going to be the business your wife is in (rentals). It is generally easier if your wife is a realtor and then manages the properties.
The benchmark is 750 hours and more than half of your working time. So with one property, working 750 hours with an out of state property manager is going to be unlikely.
If she is a realtor (or another real estate trade or business), she could work 750 hours as a realtor and then you'd need to materially participate in your rentals (several tests but the main ones are 500 hours, 100 hours and more than anyone else's time, or substantially all the rental activity).
For now, I'd focus on buying good properties in good areas and then over time figuring out if the REPS status makes sense for you.
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Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
10mo
Quote from @Jacob Bejarano:

Hello all,
This is my second post on BP. I have not yet invested but learning from everyone. I'm in an expensive market, and know that I will likely have to look out of state to make cash flow as a beginner. My wife will be managing our investments with the idea of gaining REP status. Is it possible to gain REP status while working with an out of state PM?
Welcome to BP, Jacob! Yes, it’s definitely possible for your wife to gain REP status while working with an out-of-state property manager—as long as she’s actively involved in making investment decisions and managing the portfolio, the REP program allows for that kind of arrangement. Out-of-state investing just means she’ll need to rely on a trusted local team for day-to-day operations, inspections, and tenant issues, but as long as she’s making the financial and strategic calls, it counts toward the experience requirements. Columbus, Ohio, for example, is a great market for out-of-state investors because you can still find properties in the $120–180K range that hit the 1% rule, cash flow nicely, and benefit from strong population and job growth with companies like Intel, Amazon, Google, and Honda driving long-term appreciation. Happy to connect and answer any questions you have!
[email protected]614-300-7535
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Alfath AhmedBusiness Member
Real Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
10mo
Quote from @Jacob Bejarano:

Hello all,
This is my second post on BP. I have not yet invested but learning from everyone. I'm in an expensive market, and know that I will likely have to look out of state to make cash flow as a beginner. My wife will be managing our investments with the idea of gaining REP status. Is it possible to gain REP status while working with an out of state PM?

Hey Jacob, yes your wife can achieve real estate professional status. It is easier if you guys are actively managing and can prove that she has worked 750+ hours or more.

Some of my investors run multiple STR rentals, or you can actively be involved in BRRRR or flip deals. What markets did you start looking in?
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Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
10mo
@Jacob Bejarano
Your wife will have to self-manage it. If you use a PM for just 1 rental, you aren't going to meet the hour requirements. A lot of people buy STRs because these are more management-intensive and allow them to hit their required hours for real estate professional status
[email protected]614-412-4565
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Joey BanasihanPro Member
Investor · Boise, ID · Member since 2019 · 233 posts · 188 votes
10mo
Hey @Jacob Bejarano, you are definitely jumping into some high level investing, which is cool. It’s true it’s not easy as some have alluded — but that’s also what makes it valuable. I’m not a CPA, so definitely verify any of this with one — but here’s how I understand it from working with dozens of investors around this strategy A few things to think through before deciding if it’s worth pursuing:
– Your income and tax bracket — that’s what determines if the benefit’s meaningful
– STRs vs LTRs — STRs often qualify for material participation without full REP
– Whether cost segregation and bonus depreciation can offset enough income to justify the effort
We’ve helped dozens of out-of-state investors go both routes, many from the Bay Area actually this year haha: some through STRs, others through value-add LTRs using cost seg. The key is matching the strategy to your own tax picture and time availability, not just chasing the REP label. Since we have a sistere company that does property management, we can help folks have a strong team on the ground.
Are you mainly looking at REP for the tax advantages, or more as a way to justify going full-time into real estate?
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- Jacob Bejarano
  OP
  Member since 2025 · 4 posts · 14 votes
  10mo
  Quote from @Joey Banasihan:
  
  Hey @Jacob Bejarano, you are definitely jumping into some high level investing, which is cool. It’s true it’s not easy as some have alluded — but that’s also what makes it valuable. I’m not a CPA, so definitely verify any of this with one — but here’s how I understand it from working with dozens of investors around this strategy A few things to think through before deciding if it’s worth pursuing:
  – Your income and tax bracket — that’s what determines if the benefit’s meaningful
  – STRs vs LTRs — STRs often qualify for material participation without full REP
  – Whether cost segregation and bonus depreciation can offset enough income to justify the effort
  We’ve helped dozens of out-of-state investors go both routes, many from the Bay Area actually this year haha: some through STRs, others through value-add LTRs using cost seg. The key is matching the strategy to your own tax picture and time availability, not just chasing the REP label. Since we have a sistere company that does property management, we can help folks have a strong team on the ground.
  Are you mainly looking at REP for the tax advantages, or more as a way to justify going full-time into real estate?
  We are looking at REP status to tax offset and reinvest into additional properties. I'm a full time W2 and don't intend to leave that. As for rep, I understand that it will be difficult to gain hours especially with an out of state investment however a modified PM agreement would put more decision making our hands. We will eventually rent our primary residence once my youngest goes to off to college next year and explore other nearby markets to either house hack or BRRR.
  
  I'm still solidifying our strategy and our what and why statements while learning. I think with the current market we have little time and using it to learn more everyday. Next on my list to learn how to do a proper location analysis. Do you have any advice you can share whether that is books, website/videos?
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
10mo
@Jacob Bejarano, That’s a great question, and you’re absolutely on the right track thinking about REP this early. It is possible to qualify even with an out-of-state property manager, but your wife will need to stay actively involved in decisions and track her hours carefully to show material participation.

I actually just sent you a guide that breaks down exactly what counts toward material participation and how to document it properly, it should help clear things up. Good luck, and happy to connect if you’d like to go over it together!
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Edgar Estrada
Rental Property Investor · San Antonio, TX · Member since 2016 · 66 posts · 10 votes
10mo
Jacob — great question. It’s technically possible to qualify for Real Estate Professional (REP) status with out-of-state rentals, but in reality it’s very tough to pull off. In most cases, the property manager ends up being the one truly running day-to-day operations, which makes it hard for the IRS to see you as “materially participating.”

To meet REP requirements, two things have to happen:

-You (or your wife) need to spend more than 750 hours a year on real estate activities, and

-Those hours have to make up more than half of total working time for the year.
The challenge is proving that level of involvement when a property manager is already handling leasing, maintenance, and tenant issues. The IRS wants to see that you’re actively directing and managing the business — things like approving budgets, coordinating repairs, analyzing performance, and making operational decisions — not just reviewing reports or responding to occasional updates.

So while it’s not impossible, it’s rarely achievable unless you’re very hands-on, even from a distance, and have solid time logs to back it up.

If you’re interested, I can share a free REPS tracker that helps you record and organize your hours. It’s a great way to see whether you’re realistically on pace to meet the REP thresholds.
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Min ZhangBusiness Member
Real Estate Agent · Member since 2022 · 1k+ posts · 1k+ votes
10mo
Hey Jacob, good question! REP status can definitely be achieved even if your properties are out of state. The main thing is that your wife has to materially participate in the business (750+ hours and more than half of her working time), which can include overseeing your PM, analyzing deals, managing repairs, handling bookkeeping, etc. It’s less about physical location and more about how active she is in running the show.

A lot of investors in similar setups document their hours carefully and stay involved in decisions and communication with their PM. Are you both planning to self manage part of it to start or go fully hands off with PM?
[email protected]614-412-2912
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Marc RiceBusiness Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes
10mo
Quote from @Jacob Bejarano:

Hello all,
This is my second post on BP. I have not yet invested but learning from everyone. I'm in an expensive market, and know that I will likely have to look out of state to make cash flow as a beginner. My wife will be managing our investments with the idea of gaining REP status. Is it possible to gain REP status while working with an out of state PM?
Yes, your wife can gain the REP status only after she meets the criteria. Happy to help you with all the knowledge and experience I have
[email protected]614-363-2787
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Reyjie Sobebe
Member since 2025 · 29 posts · 7 votes
10mo
Absolutely plenty of investors earn Real Estate Professional Status while using an out-of-state property manager, but the key is how much you or your wife are actually doing, not where the property sits. The IRS cares about material participation, which means your wife needs to be the one making decisions, coordinating repairs, reviewing financials, approving tenant moves, setting strategy, etc. A PM can handle boots-on-the-ground tasks, but your wife has to remain the quarterback. The part most people miss is documentation being able to clearly show the hours, tasks, and decisions she handled throughout the year. I started with spreadsheets, but honestly it got messy fast, I've been using like tools to automate has made it easier for me because it automatically pulls tasks from emails, vendor receipts, and calendar events, so the time log basically builds itself. In short: yes, REP is doable with an out-of-state PM, you just have to stay meaningfully involved and keep a clean paper trail.
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