There are many reasons that you may choose to invest in real estate that is outside of your own backyard. In many states, such as New Jersey or Connecticut, property taxes are incredibly high. You also have to consider that properties in other states similar to those in your state might be far less expensive. The point of investing in real estate is to have a strong ROI, and investing in properties that are too expensive could put a dent in that.
If you choose to take the risk and invest in some out-of-town real estate, here are some things you should consider:
1. Build A Team
When you’re dealing with properties that are outside of arm’s reach, you’re going to need to build a team of people to help you out. This team should include property managers, contractors, insurance people, a title company, etc. If you’re wondering how to build a star-studded real estate team, check out this link here.
2. ALWAYS Consider ROI
While it may be enticing to purchase the cute little suburban home with the white picket fence and tire swing out front, you need to consider the numbers. Once you begin acquiring more properties, the aesthetic of one vs. the other won’t matter so much. What will matter is that the investment is worth your money over time.
3. Set Up The Proper Legal Entities
Setting up the proper LLCs or S-Corps for each property or state that you are renting in can be incredibly helpful. Putting all of your properties under a single LLC can be a risky move, as you’ll be susceptible to more substantial lawsuits or asset harm in the case that one of your properties gets hit with a smaller lawsuit. Plus, having separate LLCs helps you to stay organized and see how each of your properties is doing as separate entities.
4. Property Management
We can’t stress this enough. If you can’t afford to put together a property management team, then there is no reason for you to purchase an out-of-town property. Property managers can be there to make sure the property is in tip-top condition at all time to avoid violation fines. Having that team will also help you to avoid phone calls at 3 AM from aggravated tenants when their toilet isn’t working.
Pros Of Investing In Out-Of-Town Real Estate
For starters, you might want to invest in a property that is in a neighboring state which is cheaper than yours. Investing in an area that isn’t as expensive as your own can help you to save some initial cash.
The location will have a significant influence on your ROI. Consider a neighborhood outside of your backyard that is growing. It might be a good idea to invest in property there. Profit correlates with the ROI, cap rate, and rental income. If you can find an out-of-town property that exceeds in those terms and is in a location that is on the verge of thriving, you should 100% try and invest there.
Should You Take The Dive?
If you’re starting out, we would recommend trying to acquire some properties in your own backyard. This way you can get a good feel for what it is like to own and manage a property, resolve tenants issues, and deal with the legal/physical work it takes to keep a property on its feet.
If you decide to invest in out-of-town real estate, make sure to follow our steps above and talk to some property owners who have successfully been through the process. Have you invested in out-of-town real estate? Let us know about your experience in the comments!