Investing in rental properties can provide attractive returns and diversification for ordinary investors. But finding good rental real estate deals in other markets poses challenges. When location is a prime factor in determining whether a property is attractive, an investor based far away has some built-in disadvantages. A financial advisor can explain the basics of rental property investing and describe methods of locating deals in different markets.
Why Invest in Real Estate
Rental real estate occupies a portion of many investment portfolios. Rental property often appreciates over time and can generate passive income along the way. Investors can profit from rising property values and regular rent checks. Real estate also diversifies portfolios heavy in stocks and bonds.
Many real estate investors focus on a single market or even a single neighborhood in the city where they are based. Over time, they can gain deep knowledge about their local markets which can provide a significant competitive edge. However, expanding beyond your local market also offers advantages, including spreading risk and being able to access deals in markets with favorable trends. For these reasons, many real estate investors try to round out their rental property portfolios with properties in other cities and states.
The Out-of-Town Real Estate Challenge
In any market, profitable rental properties share common traits, like valuable locations, quality construction, multiple units and good rent rates. But assessing all those factors in unfamiliar areas strains even seasoned investors.
Long-distance landlording also brings headaches for on-site management, remote maintenance oversight and landlord-tenant laws. Despite technology aids, overseeing far-flung investments still requires extra effort.
Finding Your Deal
While it may not be easy, investors willing to do their homework can resolve the complexities of out-of-town investing. Several approaches can help locate attractive opportunities, including:
- Start by identifying promising markets. Study metro area apartment rents and vacancy rates using data services like RealPage or CoStar. Places with rising rents and low vacancies offer profitable spots. Analyzing an area’s price-to-rent ratio shows whether buying or renting makes more financial sense for residents. High ratios suggest strong landlord demand.
- Network locally to find off-market properties before they officially list. Cultivating relationships with brokers and property managers in target markets can yield deals. Local real estate meetup groups and online forums like BiggerPockets also connect with knowledgeable contacts.
- Attend real estate auctions and foreclosure sales in target markets. Websites like Auction.com list dates for local foreclosure auctions across the country. In-person participation might secure distressed properties in recovering areas at below-market prices.
- Regularly review county recorder foreclosure notices. You can do this by visiting county clerk offices, scanning county recorder and assessor websites, and using aggregating services such as RealtyTrac and Foreclosure.com. Monitoring filings helps identify distressed properties and lien sales early before competitive bidding drives up prices.
- Scout nationwide property listing sites like LoopNet and Costar for multifamily buildings. Individual real estate agents rarely represent larger apartment complexes, making specialized platforms essential for identifying those investment opportunities.
- Partner with turnkey operators active in other markets. Some companies acquire, upgrade and rent out properties on investors’ behalf for a fee. Turnkey arrangements simplify remote real estate ownership. The costs of these services will reduce your returns, however, and vetting turnkey providers’ expertise and performance history is essential.
- Consider tax lien investing. When property owners fall behind on taxes, municipalities can sell the lien on the property to investors. If the owner remains delinquent, investors then take possession. Tax lien investing is complex and risky but can sometimes double returns. Key risks include legal snags taking ownership and rehabilitating neglected properties.
- Connect with estate attorneys and inheritance tax appraisers who practice in target markets. Deaths sometimes force heirs to quickly sell inherited properties to cover estate taxes. Executors have incentive to sell fast, even at below-market prices. Attending estate planning council meetings and networking can put you on attorneys’ radar when opportunities arise.
- Check out-of-town “for sale by owner” (FSBO) listings. Motivated sellers trying to avoid real estate agent commissions might price homes lower than typical. FSBOs require more seller interaction but can yield bargains particularly via direct mail solicitation campaigns. You can find these listings on sites like Sites Craigslist, Zillow and Trulia.
Rental property investing offers opportunities to get rising income streams and equity growth over time. Doing necessary due diligence from afar can strain even seasoned investors evaluating unfamiliar markets. But you can ease research burdens and maximize profit potential by tapping knowledgeable real estate professionals, using online resources, data providers and listing services.
Real Estate Investing Tips
- A financial advisor experienced in real estate analysis can assess if rental property investments fit your financial plan and risk tolerance. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s property tax calculator estimates your property tax liability using your property’s value and location.
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