Out of State But Not Out of Mind
Renters Warehouse Blog
Out of State But Not Out of Mind
When it comes to real estate investing, seeking out local properties can be a great place to start.
Staying local offers a number of benefits. For one thing, you'll have the advantage of being familiar the area and the housing market -and will have an easier time spotting a good deal. You'll also be able to keep an eye on your properties if they're local -and if something goes wrong, you're just a short drive away.
But the fact is that out-of-state investing can also be a great opportunity -and something that you won't want to dismiss too quickly. The best deals -aren't always found in your own backyard, and being open to opportunities that are outside of your local area will give you more options, allowing you to take advantage of booming housing markets -or deals that may be better than what's available in your own area.
While it's true that being an out-of-town landlord has its own challenges -it can also be an extremely rewarding venture. With the right strategy, you can mitigate many potential problems -and with some careful planning, you can get your properties on-track to operate profitably in your absence.
Putting some extra time and research into your prospective rental can pay off tremendously down the road. If you're thinking of investing in out-of-town property, here's a look at what you can do to help set yourself up for success.
Do Your Research
Once you have a prospective property in your sights, you'll want to do your homework on the local area -and the property itself. Have a look at websites like Zillow and Trulia to see how much other, similar properties are renting for. You'll also want to check the home value index to see if home values in the local area are appreciating, or if they've stagnated. While you're at it, do some research on the local economy -what's the job outlook for that region? Is there a major university nearby? Finally, make sure you look into state laws and local regulations surrounding rental property, to ensure that you're clear on what your responsibilities will be if you own a rental in that jurisdiction. A few areas where state law varies include rules regarding security deposits, landlord access to property, and the eviction process.
Avoid Buying the Property Sight Unseen
In most cases, you'll want to avoid buying property sight unseen. The last thing you'd want is to end up with property that's not what you were expecting. For instance, if you end up with a property that violates certain health or safety laws, you could be responsible for bringing it up to code. If it's been deemed a safety hazard, you could even be liable for the demolition costs. Before you commit to buy, visit the property in person to have a closer look -check for signs of pest infestations, fire or water damage, or other issues that could be problematic.
Establish Local Connections
Next, you'll want to start making some local connections. One of the number one issues with long-distance property is finding reliable contractors in the area that you can trust, so take the time to connect with local contractors -and compile a list of people that you can contact for maintenance or repairs. This includes plumbers, electricians, tree surgeons, and locksmiths. You'll also want to try to network with real estate professionals in the local area -if you can, try to establish a good working relationship with a local real estate agent and a property manager, as well as a local attorney. Attending real estate events in the area is a good way to rub shoulders with professionals, and get their contact info. That way, if something comes up, you'll know who to call.
Automate Rent Collection
Another way to make life easier as a long-distance landlord is by automating the rent payment process. Online rent processing tools are available, which allow tenants to set up a direct debit, or make online payments manually each month. In many cases, tenants can pay via an app on their smartphones. Simplifying rent collection will make it easier for your renters to pay you on time -and of course, will save you from having to hear, "The check's in the mail."
Make Frequent Trips to the Property
Just because you live a considerable distance away, doesn't mean you can rent it and forget it. It's a good idea to plan to visit your properties at least twice a year to ensure that everything is going smoothly. Remember to inform your tenants ahead of time that you plan to stop by -in most cases, you'll be required to provide notice before entering. And don't forget -those travel expenses can usually be deducted as a business expense.
Maintain Contact With Your Tenants
You'll also want to ensure that you maintain open lines of communication with your tenants. Provide them with your email address and phone number -and tell them to reach out with any questions or concerns that they have. Don't let too much time pass without any contact -if you haven't heard from your tenants for a while, pick up the phone and call them. Keeping in touch with your renters will show them that you care about the property, helping to keep your tenants accountable. And, as a bonus, reaching out to your tenants can remind them to fill you in on small problems -such as leaks, allowing you to address minor issues before they become more serious. It's also a good idea to inform your tenants when you'll be going out of town -or if you're planning to be away from your phone for a few days. Tenants should also extend the same courtesy to you -informing you of any planned vacations that they have will save you from unwanted surprises if you can't get ahold of them.
Protect Yourself With a Lease
While protecting yourself with a tenancy agreement is important -no matter where your property is located, for long-distance landlords, it's especially vital to ensure that you have an airtight lease to protect your interests -before you turn your rental over to a tenant. Your lease should include important details such as when the rent is due, late fees, as well as terms and conditions -such as your smoking policy, your pets policy, and other important details. You should also include documentation of the condition of the house, and specify the state you would like it to be in when they leave. Be sure to check state laws to ensure that your lease is in compliance, since the law often differs from state to state. You may also want to run it by a local attorney who will be familiar with state regulations -just to make everything is covered.
Conduct Careful Tenant Screening
As an out-of-town landlord, you'll want to take extra care to ensure that only qualified applicants gain access to your home. The best way to do this is by having a thorough tenant screening process in place, and documented in writing, that you adhere to each and every time. This means making background, reference, and credit checks a part of your screening process -and following through to verify the accuracy of information that tenants provide you with. As with your tenancy agreement, it's also a good idea to run your tenant screening process by an attorney to ensure that it's in compliance with fair housing laws.
Consider Hiring a Property Manager
If you're serious about income property -and looking to start investing in areas outside your local area, you may want to consider bringing a professional property management company on board. As experienced builder and property manager Rusty Meador says, "No matter how good of a real estate deal you find, it is only as good as its ability to be managed well." Having a qualified property manager on your side can make all the difference -allowing you to offload many tasks, and responsibilities that come with being a long-distance landlord. It also means that you'll have someone to keep an eye on the property for you -something that's invaluable for long-distance landlords. As a bonus, an experienced property manager will often be able to fill vacancies faster -helping you to get the best return on your investment.
While being a long-distance landlord carries its own set of challenges -in the end, it's an opportunity may be worth taking. Many investors regularly invest out-of-state -and appreciate the freedom of being able to take advantage of opportunities in different housing markets.
Finally, remember: the success of your investment, in large part, will depend upon your strategy -and your ability to set up your property to run like clockwork in your absence. By surrounding yourself with a network of people that you can call on to assist with your rental, or -finding a reputable property manager to stand in your stead, and laying the groundwork for your rental to function in your absence, you'll be able to enjoy the financial benefits that come from being a long-distance landlord -without all of the stress.
Landlords: are you considering investing out-of-state? Long-distance landlords, share your property management tips with us!