The Basics of Buying Out of State Property
Are you an active investor trying to buy rental property, but not able to find profitable deals in your local market? Are the laws in your local market not favorable to landlords? Is your local market too expensive?
You may want to consider buying long-distance property, and it can be easier than you think. As with most investments, it will still take a lot of hussle, but it is certainly much easier than it used to be (this is 2020 after all, you've got the world at your fingertips).
Below I've summarized a simple step-by-step process I've used to efficiently purchase cash-flowing properties out of state:
Education. This may seem obvious, but make sure you know what you're doing. There's plenty of material out there on long distance investing in every form you can imagine: books, podcasts, blogs, etc. Try networking with other long distance investors through Bigger Pockets, local meetups, or maybe even friends and family. It's important that you spend enough time learning that you feel confident to take the next step, but you don't want to be stuck here forever. Keep in mind that the best lessons will be learned by doing.
Funding. This one is self-explanatory. How do you plan to purchase the property? Do your finances allow you to buy with cash (more attractive offer), or do you need to obtain financing? What's your target purchase price? Do you need to partner up with another investor to make the numbers work? Make sure you have this step dialed in before you get too far.
Strategy. As with any investment, you should have a solid strategy in place. Are you planning to flip fast or hold long-term? Are you looking for distressed value-add opportunities or turn-key? What class neighborhood are you looking to be in? Do you plan to repeat the process, or just buy one property for now? If you rehab, will you complete a refinance after completion? Are you after cash flow, appreciation, or both? These are all questions you need to answer in this phase before moving on.
Find a Market. This one is interesting, and the amount of time you spend on this step s reflective of your investment style and overall approach to risk. You could spend months (or even years) researching every possible market and looking for that "perfect" scenario, or you could focus on the basics and knock it out in a weekend. You may want to find yourself somewhere in the middle: thoroughly research potential markets, but don't get stuck in analysis paralysis for more than a few weeks at most. Make sure that at a minimum, you find a market with stable/growing population and job growth, clearly identifiable low crime areas, and stable/rising home values. Within the market, you'll also want to identify target neighborhoods that best meet your criteria.
Assemble Your Team. This is where it starts to get fun. Depending on your strategy, you'll likely at a minimum need a real estate agent, a lender, a property manager, and a contractor. Remember what I said about having the world at your fingertips? For an agent- start with Zillow, Realtor.com, RedFin, or similar websites. Read reviews, and look especially for those with positive reviews from fellow investors. For lenders, you can try researching national lenders, but you'll likely may have more luck with local banks and credit unions. You can search for the best local options using Google Maps. For property managers, you'll want to find the best through networking, as most reviews online will be from unhappy tenants. You want the opinion of landlords, and you can likely find it from active members on websites like BiggerPockets. And lastly, to find a contractor, you'll want to utilize Yelp (and similar websites) as well as word of mouth. An important thing to note with this step: often times you'll find that the best in the business tend to know and work with the best. If you can find a top-notch agent, chances are that he or she can refer you to a fantastic lender, a quality contractor, and/or a solid property manager. Also keep in mind that when utilizing reviews online for vetting a potential candidate, this is an excellent starting point but it shouldn't be the only method you use. Ask questions, ask for references to past clients, and don't proceed past this phase until you're comfortable.
Find a Property: Time to get started! After completing all of the steps above, you should be ready to go. Tell your agent what you're after, and start running numbers on what they find. You'll likely start with the MLS, and trust me, the deals are there if you know what you're looking for. Over time, you may find off-market deals as well, but keep in mind that these are not always guaranteed to be better, and oftentimes can be worse if you don't thoroughly vet them. Once you find a property that meets your criteria, have your agent walk it and send you detailed videos. Talk to your property manager about the location and potential rent. Talk to your lender about the value of the home, and whether they think it will appraise where you expect it to. And lastly, if the home requires rehab, ask your contractor to walk through it with your agent, and at a minimum provide a budget to work with. If everything works, submit an offer! You'll be closing on your first long distance property before you know it.
Best of luck, and as always be sure to let us know if you have any questions along the way.