Pros and Cons of Investing Out of State
Let’s say you’ve got some money to invest and you are looking for some new opportunities. You might think about investing in real estate – whether commercial or residential. Maybe you’re considering looking into some investment opportunities that are located out of state – where do you even begin to find the right location? What is the best way to learn as much as you can as quickly as you can while minimizing your risk? If you think out-of-state investing is the way to go, check out some of the pros and cons we’ve listed below before you dive in!
Choosing the Right Market
The first thing you need to do when considering what market to focus on is to define your investment goals. Are you looking to take an active role and flip properties? Or do you want to start slow and purchase a single rental property and see how things go? These are important questions to answer because a profitable area to flip properties might not necessarily be a successful rental property location. You need to understand your own goals, so your research can be focused and your ultimate investment successful.
Another important piece of the puzzle to examine carefully is the state law where you are thinking about investing. Make sure you have officially determined whether the state you want to invest in is tenant or landlord friendly. In practical terms, what does this mean? Well, it means that if you have a bad tenant and you need to get rid of them, the laws work in your favor to evict them as quickly as possible. Otherwise, it may take you months of legal wrangling to get rid of a horrible tenant while you rack up expenses and potential damages to your investment property.
Population trends and price-to-rent ratios are also key pieces of information to gather as you look at different markets across the country. A growing population in an area is always a good sign that industry and other growth trends are moving in the right direction. And how much is the rent for properties in the market you have your eye on? And what is that number compared to the purchase price? Making sure those balance out and are worth the risk is something you need to have a handle on before you start making offers.
Understanding the Unfamiliar Market
Okay, so now that you have selected the right market to invest in, how do you find a great piece of property? You basically have a couple of options here depending on your level of risk and the amount of time you really want to spend babysitting this type of investment. First, you can find a local real estate agent with their finger on the pulse of the community and who would presumably have connections to contractors, property managers and inspectors. Or, you can simply purchase a property that is turnkey and ready to rent from the get-go.
While picking up a rehab property might be a cheap investment with a possible high rate of return, there are some potentially expensive disadvantages to this investment scenario as well. There is always a risk that remodeling the property will cost more than planned and you might have a long time between the purchase of the property and when it gets rented. This can be very costly. You will need to really stay on top of this type of investment or have someone you trust do it, so your expenses don’t get out of hand.
Purchasing a turnkey property means you can get a tenant in immediately and get a property manager to make sure normal repairs are addressed in a timely manner. However, turnkey properties usually cost more so you might make a smaller profit right off the bat. But, since your risk and expenses are lowered in other ways, this might be the more comfortable option for your first investment.
Los Angeles Mortgage Broker
A smart piece of due diligence might be to talk to the right Los Angeles Mortgage Broker who can answer a lot of these questions for you. Our Peak Financial professionals combine their exclusive lists of motivated investors and an unmatched expertise in local markets with the investor resources of the Peak Corporate Network. Peak professionals make buying or selling a property easy-to-understand and stress-free while providing clients with unique insight to make better decisions.