6 Ways to Invest Out-of-State This Year

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Whether you want to invest directly or passively in out-of-state real estate, you have several options. I’ve invested using most of these strategies myself, and some are definitely easier than others. Stay open-minded as you explore the best ways to invest beyond your own backyard. 

1. Land Flipping

You don’t typically need to see land parcels in order to flip them. 

Flipping land is just as much a business model as it is a real estate investment strategy. It requires three main skill sets: outbound marketing to find great bargains, underwriting (property valuation), and marketing the land parcel to buyers. 

I dabbled in the land flipping business for a few years, along with a partner. We sent direct mail to out-of-state owners who had owned their parcels for at least a few years, making a generic offer in our initial letter. The offer was around 25% of the lowest land values in the county. 

If they called or emailed us back expressing interest, we would then do property-specific due diligence. We’d look at factors like zoning, layout, access to roads, natural features such as ponds or forests, and so forth. We’d get a sense for the true market value of the property, after looking at comps and figuring out the best use of the land. From there, we could negotiate with the seller and only let ourselves go up to 30% to 40% of the property value. 

Once purchased, we started marketing the parcel for sale on every platform where people look at land, and sell for at least a 100% profit. 

2. Turnkey Rental Properties

Over the last decade or so, a new type of flipper has entered the market: turnkey rental flippers that specialize in selling to out-of-state buyers. After renovating a rental property, they market it for sale to long-distance investors. 

Often, they offer full-service property management as well, to continue servicing the property. They handle all maintenance and repairs with their own crews, and ultimately, they aim to forge long-term relationships with their clients. 

I know some reputable turnkey rental sellers and managers who do right by their clients. But there are plenty of shysters out there as well, who know they can cut corners in the renovations because their buyers will never see the work with their own eyes. 

As you explore new markets to invest in, vet turnkey sellers just as carefully. Speak with as many of their clients as possible, ideally including some local ones who have seen their renovation work firsthand. Also, look for turnkey sellers who offer full property management at reasonable prices and who guarantee their initial repairs for the first year. 

3. Short-Term Vacation Rentals

Some investors look to mix business and pleasure by buying vacation rentals in their favorite destinations. They often buy in-person, unlike long-distance turnkey investors who typically buy sight unseen. 

There’s nothing inherently wrong with buying vacation rentals in a market you love or using the property yourself periodically. But these investors tend to run into trouble because they let their emotions get the best of them. They justify buying a second home by telling themselves, “It’s an investment,” even though the numbers don’t work. 

True investments should make you money, both in annual cash flow and in appreciation. If you buy a property that costs you money—but which you enjoy using personally—you’re buying a second home that you sometimes rent out, not a true investment property. 

When running the math, use realistic numbers for seasonal occupancy and rents, lost rents to personal usage, and property management costs. I interviewed Airbnb expert Katie Cline on my podcast about this, and she follows certain rules when she buys vacation rentals. 

One of those involves buying within a four-hour driving radius of where she lives. Why? So that she can use them last-minute, when a weekend isn’t booked. That way, she gets her personal use without sacrificing any rental income. 

4. Private Partnerships

I love investing through silent partnerships with niche real estate experts, all over the country. 

For example, last year our Co-Investing Club at SparkRental partnered with a house flipper on a series of flips in Michigan. We provided the bulk of the funding, the flipping company does all the work, and we get a portion of the profits. He even guaranteed us a floor return of 8% per annum, since house flips occasionally run into unexpected hiccups. 

Another example of a private partnership our Co-Investing Club entered last year was with a home developer in Texas. In the jurisdiction where he builds homes, the local municipality promotes new housing supply by allowing up to three separately deeded single-family homes on the same lot. So, he buys tear-down properties on huge lots, removes the dilapidated homes, and then builds three new homes and sells them separately. 

He earns enormous returns using this strategy—which we will now partake in as well. He, too, provided us a guaranteed floor return to protect against the unforeseen. 

You can go in as a silent partner with any type of real estate investing specialist. But it helps to have a huge network of investors, and a lot of capital to help you negotiate floor returns, like we do in our Co-Investing Club. 

5. Real Estate Syndications

Most middle-class Americans have either never heard of syndications or don’t understand them. 

But the wealthy love them, as evidenced by the latest UBS study of billionaire investments. They aren’t out there fielding phone calls as landlords or direct investors—they invest passively in private equity real estate. 

A real estate syndication is simply a large project that raises capital from silent investors. These silent investors become fractional owners and get the full cash flow, appreciation, and tax benefits as direct owners. 

For example, imagine a multifamily investor finds a $10 million property with outstanding cash flow. They arrange a loan for $7 million, come up with $1 million of their own money, and raise the final $2 million from passive investors (known as limited partners, or LPs). 

Our Co-Investing Club invests in these sometimes. We collect cash flow distributions and then get our share of the profits when the property sells. In some cases, the operator refinances the property to repay our initial investment, but we keep our ownership interest and keep collecting cash flow. Some investors think of this as “infinite returns” because you can keep reinvesting your original capital even as you build streams of passive income. 

I now own an interest in around 3,000 units across the U.S.—and I’ve never laid eyes on a single one of them. 

6. Real Estate Equity Funds

Rather than investing passively in a single-property syndication, you can invest in a private equity real estate fund that owns many properties or buys and sells many properties over time. 

Remember how I said I dabbled in land flipping? The business ended up taking more time than we were willing to devote to it—but I still love the business model. Last year, our Co-Investing Club at SparkRental invested with a land flipper who operates an equity fund. He flips around 50 parcels each year, with an average hold of 4.1 months. His fund has been paying us 16% cash-on-cash return in the form of quarterly distributions. 

Oh, and he flips parcels in six states, adding diversification in case one state starts to dip. 

We’ve also looked at other real estate equity funds that specialize in industrial real estate, self-storage, retail, or multifamily. They offer one more option to diversify.

Final Thoughts

There’s no right or wrong way to invest in out-of-state real estate. Personally, I prefer investing $5,000 at a time as a member of an investment club, spreading my money across many properties, asset classes, operators—and geographically across many states. 

I don’t know where the next hot market is. But I do know that by spreading my money across many states and markets, I’ll earn strong returns over the long term. And that matters far more than trying to look clever at cocktail parties by predicting the next hot market.