6 Tips For Buying An Out Of State Rental Property

There are many reasons to invest in real estate outside of your current market. Most often though, the biggest motivation is to invest in an area that gives you a better chance of finding deals that meet your criteria and ultimately have better returns.

If you are looking into investing out of your area there are a few things that you want to make sure to get lined up prior to taking the leap.

#1: Pick A Market On The Upswing

Find a market that has an Increasing population:

An increasing population is an indication that the area will be able to sustain rental property because there are people actively moving to that area. This is a key indicator that the economy will be able to support the rental market.

Find an area with an Increasing Labor Force:

As more people move to the area for jobs it means that they need a place to live. The more people that move to the area mean a few things

• More Renters to fill open inventory
• Rental rates will Increase as demand grows and the supply of rental properties becomes more scarce
• Real Estate values in these areas will become more valuable as more inventory (Both for sale and for rent) leaves the market which makes the existing inventory more valuable.

Pick a market with a strong, growing economy

A growing economy will reduce the risk of losing valuation as the area becomes more desirable to business and the labor force.

A growing economy also increases the probability of a property increasing in valuation as the area becomes more desirable to live.

#2: Secure Your Financing

Make sure you have a bank that operates in that market

Not all banks are nationwide. Finding a bank that operates in the area that you are looking into is very important when it comes down to acting on a property that you have interest in.

Reach out to local lenders and Title companies

Very important to understand what needs to happen in that market in order to close the deal. Each state has unique laws and disclosures that are required to move through the closing process. Understanding what these are ahead of time will give you the best opportunity to close on time and ensure that you get a property that will pay dividends for years to come.

Increases sellers confidence in closing on time

Having established relationships with lenders will give the seller piece of mind that you can close quickly. This confidence can be the difference between the seller choosing your offer or another investor. By having these relationships established it gives the seller the confidence that you can act quickly and close on time.

#3: Research The Potential Investment Property

Due to the nature of out of state investments it is important that you do your research on the property as well as the area. Here are a few areas to make sure of before you close on the property:

• Pay extra attention to the details
  • Long distance investments are much harder to get to
  • Make sure there is a lot of upside
• Increased Due Diligence
  • Crime Rates
  • Average rental prices
  • Economic markers (Growth rate/decline, what type of industry’s, Average vacancy)
  • Talk to other investors in the market
  • Contact property managers to get their opinion on the property and the area
    • Try to contact the property management company that already manages the property
  • Hire an inspector and appraiser once the property is under contract and you’ve verified the cashflow and rent roll

These are a actions to take to get started, but is very important to ensure that yu turn over every rock before you close.

#4: Research The Seller

Do all the possible research you can on the person selling you the house. Try to get an understanding of what their motivations are for selling.

This is a big purchase so make sure that you understand who you are doing business with

#5: Find A Good Property Manager

These are the people that will be managing the day to day processes so Interview as many as you can.

You can Find them through referrals, local Real Estate meetups, Bigger Pockets, local investor Facebook pages etc.

Find those property managers that everybody uses and who do a great job. There are a number of ways to find property managers but the best ones are always referred by other investors!

#6: Make Sure The Numbers Work

The most important piece of the puzzle is to find a property that fits within your investment criteria.

If you do not have specific criteria already then you should make sure to define exactly what you are looking for. It's very hard to know if you've found the property that fits into your goals if you do not know what you are looking for.

Here are a few things to consider when looking at the numbers:

• Leave plenty of upside
  • Don’t try to “Fit” the property into numbers that require everything to go perfectly to hit the numbers you need for the deal
• Know EXACTLY what your looking for
  • You should be able to tell anyone that asks exactly the type of returns you are looking for from a property and how to analyze them
• You MUST walk away if the deal doesn’t make sense
  • Do not MAKE something work just to get a deal under contract
  • Put on your “Why shouldn’t I buy this property” hat
• Make your money GOING IN not COMING OUT
  • Do not purchase with the mindset that “If this exact thing happens then this will be a good deal”
  • Buy with enough room that at the worst case scenario you will hit your target
    • These deals are out there, be patient

There are many more things to consider when going outside of your market but these 6 things are a great place to start.

The most important thing to remember is to find a team of professionals that you trust and have come highly recommended from other investors in that market.