Investing In Property Out Of State

B uying and owning property is rarely easy or simple. When the property in question is in a distant location, the challenges multiply. Investing in out of state property might seem appealing if you live in an area where real estate is expensive. It might also appear attractive if you already own property where you live and you want to diversify your holdings. Or you may just want to own a vacation home. But before you make an offer, carefully consider these issues.

Reasons to Buy
One factor that leads people to consider buying property far from home is that property may be more affordable in another state. Perhaps you live in an area like San Francisco or New York City, where property costs are sky high. If you simply can't afford to buy a place where you live or if doing so would require investing the majority of your money in real estate and you'd rather diversify your investments, you may want to look at other cities where market fundamentals are sound but property costs are significantly lower.

People who live in depressed areas but don't want to move for work or personal reasons may be better off renting in their hometown and investing in real estate where the economy is stronger. For example, if you lived in Las Vegas, the city with the highest foreclosure rate during the housing bust, you might have wanted to buy property in a market where median sales prices remained relatively stable, like Charlotte, North Carolina.

Perhaps the main reason people decide to invest in property out of state is that the return on investment (ROI) may be better there than it is at home. Purchase prices, appreciation rates, mortgage expenses (if any), taxes, housing regulations, rental market conditions and more are all factors that might be more favorable in another state and will contribute to a property's potential ROI.

Challenges to Consider
When you invest out of state, you must overcome your lack of familiarity with the out-of-state real estate market and with its local economic conditions, both at the city level and the neighborhood level. You won't have the same intimate, day-to-day knowledge of a distant market that you have of the market where you live. You don't have an in-depth understanding of the best neighborhoods - or the worst. You will have to rely on word of mouth, research, gut instincts and the opinions of any professionals you hire.

Understanding the all laws and regulations regarding property ownership and property taxes in a place where you don't live is another major challenge. Even if you read every line of the local codes and ordinances, what it says on paper and what happens in reality don't always match up. It's crucial to talk with property owners in the area to gain a true understanding of local regulations.

You'll need good contacts in the area to make your investment plan successful, but when dealing with a distant city, you may be starting from scratch in finding quality professionals such as real estate agents, property managers and handymen - the people who will be the key to your success or failure.

Buying Out of State
The secret to many out-of-state investors' success is to find and hire an excellent property management company. You'll need them to help you fill vacancies, collect rent, make repairs and handle emergencies. If you lived in the area, you might choose to manage the property yourself, but if you live far away, professional property management is an extra expense you simply must incur to safeguard your investment. As experienced builder and property manager Rusty Meador advises, "No matter how good of a real estate deal you find, it is only as good as its ability to be managed well."

Be aware that even with a property management company on your payroll, you'll still need to make occasional visits to your property to make sure that what managers and tenants tell you matches reality. This is an additional time and money cost that must be considered.

Also, when purchasing rental property, especially rental property out of state, you're likely to encounter higher homeowners insurance rates, higher mortgage interest rates and higher down payment requirements because lenders will consider you a riskier borrower than an owner-occupant. You'll also complicate your tax situation by owning rental property and earning income in more than one state. You may need to hire an income tax professional to keep you in the tax authorities' good graces.

When considering all of these factors, you may find that being an owner-occupant or purchasing investment property at home is a much simpler and less expensive proposition than purchasing out of state.

Before You Buy Out of State
If you're still intent on buying out of state, be sure to heed these additional warnings.

Do not buy sight unseen - the property may not be what you think it is. Online information on a property can be out of date, and a local real estate agent or property owner who isn't looking out for your best interests might lie to you to close a sale. If you unwittingly become the owner of a nuisance property that violates health and/or safety laws, you can find yourself on the hook for numerous code violations that will be time consuming and expensive to fix. If a property has been vacant for long enough, it can develop maintenance issues that cause such disrepair that the city deems it a safety hazard and bulldozes it. You might even wind up on the hook for the demolition bill.

Some property investors have found bed bugs, termites, roaches, mice or other pests to be their downfall. Without an in-person visit to the property and a professional inspection to check for these issues, you could become the owner of a property that is not habitable. Scott Paxton of the Rental Protection Agency advises that bed bug complaints have become increasingly common and this problem can be very expensive to get rid of.

Finding quality tenants is extra important for absentee landlords. You won't be there to keep a close eye on your tenants' behavior or their treatment of the property, nor will you be there to pressure them to pay if the rent is past due. In addition to hiring a top-notch property management company, you want to have tenants that won't cause you or your management company any headaches.

Finally, if you've never owned property, buying your fist property out of state is extra risky. No matter how many books you read on property ownership, there is no substitute for real-life experience. Without any experience in property ownership and without the firsthand knowledge that comes from living in a property day in and day out, you might miss important property maintenance considerations on your out-of-state property.

Out-Of-State Alternatives
If you don't think you want to buy property where you live for whatever reason, there are other ways to get into the real estate market that are much simpler than investing out of state. One option is the real estate investment trust (REIT). Investing in a REIT or REIT ETF is similar to investing in a stock, and you can choose a REIT with a risk/return profile that fits what you're looking for. And just like when you own a stock and you aren't responsible for making decisions about running that company, when you own shares of a REIT you won't have any of the headaches that are associated with actually owning a property.

You might also take a second look at buying property where you live - even if you don't want to live in it. Maybe you've been renting in San Francisco because you aren't interested in living in the only place you could afford to buy - a 250 square foot condo. But would you be willing to own that condo as a rental property? It's likely to be easier to buy and own a place near your home. It could be more expensive or less profitable, but you may find the extra cost or lower ROI worth the reduced hassle.

How to Make it Work
If you are going to buy out of state, buy in an area you are familiar with - perhaps where you went to college or where you grew up. It's better to have some knowledge of the area than none at all. As a bonus, if you buy in an area that you normally visit anyway, your leisure travel can become at least partly tax deductible because you will be adding a business component to those trips to check up on your property.

Buy in an area with some similarities to the area where you live, such as climate, demographics or property age so that you have some idea of what you're dealing with. If you have lived in a 1960s suburb of California your entire life, don't buy a 120-year-old property in Boston.

Don't buy a high-risk property. Buy in a primarily owner-occupied neighborhood to attract tenants who are a lower economic risk, says Ryan L. Hinricher, a founding partner of the investment home sales company Investor Nation. A high-quality property will"typically have less maintenance and upkeep. These properties also rent more quickly as they usually have modern layouts and an adequate count of bedrooms and bathrooms," he notes.

Finally, as mentioned earlier, it's crucial to build a great network of professionals to help you and to occasionally visit your property yourself.

The Bottom Line
Investing in property out of state is a high-risk proposition and a major commitment. Before you do it, make sure you truly understand what you're getting into and are prepared to meet all of the related challenges.



More From Investopedia

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Who's who in the Syria conflict
    Who's who in the Syria conflict AFP News - 37 minutes ago

    Talks aimed at ending Syria's nearly six-year war are set to open on Monday in the Kazakh capital, brokered by regime allies Russia and Iran and rebel backer Turkey. Key regime backer Russia began an air campaign in support of President Bashar … More »

  • Years of failed efforts to end Syrian conflict
    Years of failed efforts to end Syrian conflict AFP News - 49 minutes ago

    Since the start of Syria's war in 2011, several diplomatic initiatives have stumbled over the future of President Bashar al-Assad. Here is a recap: - End of Arab solutions - In January 2012, two months after an initial bid to end the violence, … More »

  • US stocks rise, dollar falls as Trump era begins
    US stocks rise, dollar falls as Trump era begins AFP News - 1 hour 5 minutes ago

    US stocks rose and the dollar fell Friday as Donald Trump was officially sworn in as the president of the United States and Barack Obama's term ended. Trump's inauguration dominated a day that saw most major equity markets rise as the … More »

  • Sales Lower but resilient Business Times - 1 hour 19 minutes ago

    CYBERJAYA: The Malaysian automotive industry is resilient, considering there were no “surprises” by the industry players last year, despite lower sales figures, according to Malaysia Automotive Institute (MAI) chief. Chief executive officer Datuk … More »

  • Automotive industry: Sales lower but resilient Business Times - 1 hour 19 minutes ago

    CYBERJAYA: The Malaysian automotive industry is resilient, considering there were no “surprises” by the industry players last year, despite lower sales figures, according to Malaysia Automotive Institute (MAI) chief. Chief executive officer Datuk … More »

  • Top gainer: UMW Holdings shares soar Business Times - 1 hour 20 minutes ago

    KUALA LUMPUR: UMW Holdings Bhd soared almost 10 per cent yesterday, while its subsidiary UMW Oil & Gas Corp Bhd (UMW O&G) plunged more than 17 per cent, following the announcement of their consolidation plans. UMW Holdings was Bursa Malaysia’s top … More »

  • Trump's inauguration day of ritual upends tradition
    Trump's inauguration day of ritual upends tradition AFP News - 1 hour 51 minutes ago

    Donald Trump awoke as your everyday American billionaire. By noon he was sworn in as the nation's 45th president, on a whirlwind day that saw him thrust into the spotlight like never before. Trump, 70, began his Inauguration Day as many American … More »

  • Trump signs executive order against Obamacare health law
    Trump signs executive order against Obamacare health law AFP News - 2 hours 35 minutes ago

    President Donald Trump signed an executive order aimed at limiting the "burden" of the Obamacare health law that the incoming US leader has vowed to repeal. During the signing in the Oval Office, Trump's chief of staff Reince Priebus described the … More »

  • Singaporean buyer scores a bargain at St Regis Residences
    Singaporean buyer scores a bargain at St Regis Residences The Edge Property - 3 hours ago

    One of the first few resale transactions in 2017 resulted in a hefty loss for the seller. On Jan 3, a high-floor unit at St Regis Residences Singapore was sold at a loss of $2.3 million. The seller bought the unit in a sub-sale transaction in 2008 … More »

  • US stocks rise, dollar falls as Trump era begins Business Times - 4 hours ago

    NEW YORK: US stocks rose and the dollar fell Friday as Donald Trump was officially sworn in as the president of the United States and Barack Obama’s term ended. Trump’s inauguration dominated a day that saw most major equity markets rise as the … More »

  • US stocks rise, dollar falls as Trump era begins AFP - 4 hours ago

    US stocks rose and the dollar fell Friday as Donald Trump was officially sworn in as the president of the United States and Barack Obama's term ended. Trump's inauguration dominated a day that saw most ... … More »

  • Trump gets Obama's house, title _ even his Twitter handle
    Trump gets Obama's house, title _ even his Twitter handle Associated Press - 5 hours ago

    Donald Trump built his campaign on early morning tweet storms and hashtag-worthy slogans. Now president, he's in control of the White House's powerful social media arsenal, including the official @POTUS ... … More »

  • Business Highlights Associated Press - 5 hours ago

    ___ China's growth in 2016 slumps as Trump trade struggle looms China's economic growth sank to a three-decade low in 2016 as its struggling exporters brace for a possible trade battle with President-elect ... … More »

  • Stocks edge higher, snapping a 5-day losing streak for Dow
    Stocks edge higher, snapping a 5-day losing streak for Dow Associated Press - 6 hours ago

    Materials companies led U.S. stocks modestly higher Friday, recouping much of the market's loss from a day earlier and snapping a 5-day losing streak for the Dow Jones industrial average. Another crop ... … More »

  • How major US stock market indexes fared on Friday Associated Press - 6 hours ago

    Stocks closed modestly higher Friday, recouping much of the market's loss from a day earlier. The gains, which snapped a 5-day losing streak for the Dow Jones industrial average, came against the backdrop ... … More »

  • Gambia's Jammeh agrees to go, but exile terms not reached
    Gambia's Jammeh agrees to go, but exile terms not reached AFP News - 6 hours ago

    Gambia's Yahya Jammeh agreed "in principle" to hand over power to President Adama Barrow on Friday, Mauritanian and Guinean sources said, but differences remained before a full deal could be reached. Mauritania's President Mohamed Ould Abdel Aziz … More »

  • Dollar falls, U.S. stocks end higher after Trump inauguration
    Dollar falls, U.S. stocks end higher after Trump inauguration Reuters - 6 hours ago

    The dollar ended down while U.S. stock indexes rose in the last day of a choppy trading week, as investors reacted to President Donald Trump's inaugural speech. U.S. stocks started the day higher but gave up some gains after Trump started speaking. … More »

  • TrailStone buys Cargill's power and gas group - sources
    TrailStone buys Cargill's power and gas group - sources Reuters - 6 hours ago

    Commodities trader and investor TrailStone Group has purchased Cargill Inc's gas and power trading group, three sources familiar with the deal said this week. The move, first reported by Sparkspread, comes amid a reshuffling in the power and … More »

  • Dollar falls as investors unpack inauguration speech
    Dollar falls as investors unpack inauguration speech Reuters - 6 hours ago

    The dollar edged down on Friday as investors were underwhelmed by the limited scope of executive actions and the lack of concrete policy reforms in the inauguration speech of newly sworn-in U.S. President Donald Trump. Investors had been looking to … More »

  • Oil prices jump 2 percent ahead of producers' compliance meeting
    Oil prices jump 2 percent ahead of producers' compliance meeting Reuters - 6 hours ago

    Oil prices rose more than 2 percent on Friday on expectations that this weekend's meeting of the world's top oil producers would demonstrate compliance to a global output cut deal, but rising U.S. drilling activity limited gains. Members of the … More »

  • Mars investigating Skittles said to be intended for cattle Associated Press - 6 hours ago

    A mysterious Skittles spill on a rural highway in Wisconsin is taking another twist, with Mars Inc. saying it doesn't know why the discarded candy might have been headed to become cattle feed. The case ... … More »

  • US stocks close higher as Trump takes office AFP - 7 hours ago

    Wall Street stocks finished higher Friday as Donald Trump was sworn in as the 45th president of the United States and Barack Obama's term ended. US stocks were in positive territory virtually the entire ... … More »

  • Markets Right Now: Dow industrials break 5-day losing streak Associated Press - 7 hours ago

    The latest on developments in financial markets (All times local): 4:00 p.m. Stocks are ending higher, recouping much of the market's loss from a day earlier and breaking a 5-day losing streak for the ... … More »

  • Haven Assets in Demand as Forceful Trump Sworn In: Markets Wrap Bloomberg - 7 hours ago

    The S&P 500 Index’s advance was cut by about three-quarters as Trump addressed the country for the first time as president. The Bloomberg Dollar Spot Index fell. The S&P 500 Index advanced 0.3 percent to 2,270.48 at 4 p.m. in New York. … More »

  • Oil prices jump 2 percent ahead of producers' compliance meeting
    Oil prices jump 2 percent ahead of producers' compliance meeting Reuters - 7 hours ago

    Oil prices rose more than 2 percent on Friday on expectations that this weekend's meeting of the world's top oil producers would demonstrate compliance to a global output cut deal, but rising U.S. drilling activity limited gains. Members of the … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.172-0.002-1.15%
    N21.SI
    0.109+0.003+2.83%
    AAJ.SI
    0.121+0.006+5.22%
    40F.SI
    3.81+0.03+0.79%
    Z74.SI
    0.855-0.005-0.58%
    Y92.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.45+0.12+36.36%
    MR8.SI
    0.44+0.09+25.71%
    AWC.SI
    0.46+0.08+21.05%
    AYB.SI
    0.52+0.07+16.85%
    E8Z.SI
    0.20+0.02+10.50%
    BDN.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.22-0.03-13.73%
    AWI.SI
    0.155-0.015-8.82%
    F86.SI
    0.113-0.010-8.13%
    D79.SI
    0.23-0.02-8.00%
    T18.SI
    0.139-0.011-7.33%
    5NF.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.4246-0.0012-0.09%
    USDSGD=X
    1.5220+0.0019+0.12%
    EURSGD=X
    1.7591+0.0004+0.02%
    GBPSGD=X
    80.1670-0.478-0.59%
    SGDJPY=X
    5.4390+0.002+0.04%
    SGDHKD=X
    3.1179-0.0011-0.04%
    SGDMYR=X
    9,436.7451+30.9307+0.33%
    SGDIDR=X
    4.8209+0.004+0.08%
    SGDCNY=X
    1.0759-0.0017-0.16%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,210.20+8.70+0.72%
    GCG17.CMX
    17.11+0.11+0.66%
    SIH17.CMX
    88.68+1.12+1.28%
    ^XAU
    2.620.00+0.19%
    HGH17.CMX
    52.33+0.96+1.87%
    CLG17.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.94-0.01
    ^FVX
    2.47+0.01
    ^TNX
    3.05+0.01
    ^TYX