While some investors feel most comfortable sticking to rental properties that are in their own locale, being open to long-distance investments can present a number of tremendous opportunities.
Investing out of town allows you to capitalize on housing markets with more growth potential, or find properties that could offer a better rate of return than anything that might be available locally. Buying properties in different areas also allows you to diversify your investments -if one of the local housing markets goes through a downturn, the other properties may be unaffected. For some people, owning property out of town allows them keep a home that they might return to someday -saving them from the costs of having to sell, and then buy again a few years later.
Of course, being an out-of-town landlord isn't without challenges. Troubles with tenants and difficulties getting the rent paid on time rank near the top of the list. And of course, there's always the financial risk of purchasing property in an unfamiliar market -especially for investors who decide to go it alone.
But the good news is that these obstacles don't have to hold you back. These days, it's easier than ever to be a long distance property owner, and a growing number of investors and landlords are seizing the opportunity, and scooping up properties that are outside of their locales.
If you're thinking of investing in out-of-town Rent Estate (tm), here are some tips for each stage of your long distance landlording journey to help you to get the most out of your investment.
Research the Area
While both local and out-of-town properties require research, purchasing property in a market that you're unfamiliar with will require a bit more diligence. When you have a prospective property in mind, it's important to do your homework to see how well it will perform as a rental -as well as to determine the property's projected appreciation. While you'll want to secure a good deal -never assume that a cheap property is a great investment -you'll want to ensure the property will perform well as a rental, and that you'll be able to generate a decent rate of return.
Make sure the potential investment has all of the trademarks of a great income property -a nice neighborhood, low crime, and good nearby schools, as well as fair property taxes -and future prospects for growth. Research local demographics, and find out if the area is poised to experience growth. Look into new local developments to gauge the local job market. Finally, to get an idea about how much your property could rent for, determine what the current market value is for nearby properties, and have a look at Zillow or Trulia to see what other similar properties in the area are listed for.
Do the Math
When investing in out-of-town properties in popular areas, it can be tempting to jump the gun to get in on the action. But just because it's in a hot market, doesn't mean it automatically qualifies as a solid investment -it's still important to do the math.
Calculate all of your estimated expenses and make sure the property will pay for itself. Pay careful attention to the actual return, instead of the gross yields that local agents may provide. Add up monthly mortgage repayments and running expenses -including taxes, maintenance, repairs, insurance, as well as property management, or HOA fees. Also, consider any potential upfront costs. Will the property need any repairs before you can rent it out? Up-front expenses are a significant cost -any time and money that you have to spend initially will immediately cut into your profits, and you'll still be responsible for all of the ongoing expenses while the property sits vacant.
Try to Establish Local Connections
Once you've purchased an investment property, it's important to establish connections in the area. Try to touch base with local businesses, and compile a list of contractors: groundskeepers, locksmiths, plumbers, and electricians to call on for maintenance -as well as for emergency repairs.
A pre-established network of contacts can be a lifesaver, and you'll know who to call at a moment's notice if something needs to be repaired at your rental. Having friends or relatives in the area can also help, but it's best not to have to rely on them for everything. After all, this is your commitment -not theirs.
Check in From Time to Time
It's a good idea to check in on your property periodically -especially if you don't have someone local who can be your eyes and ears on the ground. Showing your face at the rental also sends a positive message to tenants that you care about your property, and lets them know that you are still in the picture. Don't forget to budget in the expense of traveling to and from the rental at least once or twice per year, ideally more often -remember: you can deduct travel costs if the trip is for business.
You'll also want to keep in touch with your tenants. They'll feel more comfortable talking with you if you make yourself approachable, and reach out to them every so often. It's a good idea to email or call your tenants every couple of months or so to see how things are going, and to check that everything's in good working order at the rental. Touching base will also encourage your tenants to tell you about minor issues that they may have noticed -allowing you to arrange repairs for small problems, such as water leaks, before they become worse.
Hire a Professional Property Manager
Finally, finding a good property management company is a must for landlords who live a significant distance from their rental properties. A reputable property manager can take a tremendous burden out of long distance landlording, overseeing rent collection, tenant sourcing and screening, and repairs and maintenance. They will also be able to ensure that the tenants are abiding by the terms of the lease.
A good property manager can make it easy to own and operate multiple rentals in different locations -and many investors rely on them to oversee their out-of-town investments. It's worth noting, though, that not all agencies are created equal, and finding an experienced and reputable property management company is especially important when investing long distance.
Don't miss out on an excellent opportunity simply because the property happens to be located outside of your neighborhood. Conducting diligent research on the local market and calculating your estimated returns will allow you to ensure the viability of an investment, while taking care of the logistical management details up front will help you to set your property up to run independently of you -and save you from having to be around 24/7.
Are you a long distance landlord, or considering a Rent Estate investment that's out-of-town? Our team of professional property managers can help you to get the most out of your investment. Visit Renters Warehouse today to learn more about rental property management for long distance landlords.
*Photo credit: Josh Sorensen
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