May 27, 2022

Many people are unable to afford the cost to invest in rental properties in the same area where they live. In much of the country, the cost of housing currently is so high that it can be challenging to grow your real estate portfolio with properties in the same geographic location. Luckily, investing in out-of-state properties is one easy way around these current geographic challenges. Below we will discuss a few advantages and disadvantages of investing in out-of-state real estate.

Advantages Of Investing In Out-Of-State Properties

It may seem unusual to some to even consider investing outside of your city or state. It is worth taking a closer look at a few of the benefits and reasons behind why many investors consider this strategy to be a profitable and wise financial approach.

Saving Money

If you currently reside in a part of the country where properties and maintenance are skyrocketing, you may find more reasonable options in other geographical locations which can directly impact your ability to grow long term profits in an investment property.  Lots of investors weigh their options and decide investing outside their area is the smartest financial decision they can make to meet their long-term financial goals.

Higher ROI Opportunities

If you spend the time to do the proper research and get into an area where the population and job growth are still in the development phase, you may find a dream scenario that simply does not exist near your home. Lowering the cost you have to spend to secure a property in an area with rising rents can often generate more cash flow and build equity more quickly for when it comes time to sell.  Even if you only hold the property for a few years before you decide to sell, you may receive a higher ROI than if you invested in an area with high costs and low growth.

Investment Diversity

Putting all your eggs in one basket is never a good idea with any investment. Deciding to place all of your money in the wrong market could leave you in financial ruin if that market ever crashes while you are holding real estate investments in the area.  To the contrary, if you put some of your investment funds in your local market and other funds in other parts of the country, you can help offset the risk of one market falling apart.

Disadvantages Of Investing In Out-Of-State Real Estate

Time Consuming Research

Not living in a particular area probably means you won’t know all the specifics about another potential market you may want to invest in. Even if the market looks good from the outside there may be indicators you are not able to easily see without seeing the area. If you prefer to be more of a hands on investor who likes to periodically visit your investment, you may feel uneasy about being far away from your investment, and be forced to rely on a third party to tell you how things are going which can make some feel uneasy.

Different Laws

Even if you are familiar with all of the specific laws pertaining to real estate in your area, laws may very well differ in other states or cities. If you do not know about all of the local laws ahead of time, you could unintentionally break one of them and be subject to added liability and/or fines. This is a solid reason why it is recommended that investors only work with qualified property management companies who will understand the rules in the area and help ensure all legal obligations are properly met.

Purchasing A Property Blind

Nowadays, most real estate markets throughout the country are particularly hot and properties are selling at record speeds. If you don’t move fast or are financially able to offer above asking price, you could lose the deal. This unfortunately may require the need to purchase a property without seeing it.

Should you invest in out-of-state real estate? It all depends on your financial situation and your risk tolerance threshold. That said, with the proper research you may have the potential to save money when buying a home and earn more money monthly as well as when the time comes to sell of the property.  Investing in areas with high demand and rising appreciation will help ensure you get the most out of your investment. Diversifying your real estate investments across multiple geographic locations is one solid way to manage your risk while increasing your chances of gaining significant profits in the future.