My real estate investment portfolio includes several rental properties, some of which are out of state. I chose them because the rental market is stronger there and holds better potential long-term returns than where I actually live. Many investors are intimidated by buying property out of state, but if you do your due diligence to set up and manage the rental, it doesn’t have to be a money or time drain.
Managing Out of State Rentals Without Hassle
When your investment rental is out of state, you’re going to need to keep your eye on a few fundamentals to keep your business in the black. Failing to understand key principles of being a landlord can cause you both financial and emotional grief that can be avoided. Here are the top three foundational considerations:
#1: Know your market and laws
Real estate market conditions, laws and regulations vary widely from state to state and even city to city. Don’t make the mistake of assuming that if something is done one way in your local area, it is the same where your investment property is located. Take advantage of all the resources available to learn about tenant rights because failing to uphold best practices for renting out an investment property can cost you dearly both in terms of time and money. In addition, you’ll want to have a clear-cut rental contract in place that protects your investment interests. Make sure to have an in-state local attorney review your contracts since they’ll be more acquainted with typical tenant-landlord issues that pertain to the rental property in that market.
#2: Budget well
Even if you crunched the numbers before buying the investment rental, you’ll still need to stay on top of the accounting. While you anticipate regular costs such as maintenance and repairs, inevitably, unexpected issues will come up that will pinch your pocketbook. For instance, some states have very strong tenants’ rights laws and having to evict someone could take months—all while you are foregoing that tenants’ rental income and paying expensive attorney fees. However, your real estate rental property may also provide a number of tax deductions to take advantage of. Overall, holding rental property tends to be one of the safest passive income sources, if you manage it smartly.
#3: Hire the right property manager
The most important tip when managing rental properties out of state is to hire a property manager, if you can afford to do so. You’ll want to interview a number of property management companies where your investment is located to find the best one for your particular property type and budget. Some of the questions you’ll want to ask include:
- What kinds of properties do they manage? A property management company that typically handles large apartment complexes may not give your single-family house the attention it deserves.
- Ask for addresses of some of their rental properties. Then, drive by and check them out. Are they in good condition? Would you feel comfortable living there? If not, it’s time to find another property manager.
- Will the property manager perform regular inspections of your investment rental? The inside of your rental should be inspected at least once per year when inhabited and upon every tenant turnover. The outside should be inspected at least quarterly to ensure the grounds are well-kept.
- How often do they have to evict tenants in other properties that they manage? A high eviction rate tells you that they are not screening prospective tenants well. You do not want to be stuck with the costs of evicting tenants due to their inadequate management practices.
- What will they charge you? Some property management companies offer a la carte services and charge differently for each item you request. Others will charge a flat fee or percentage of the rent to manage the property. Be sure to read the details closely so you know what you are signing up for.
Finding a Rental Property With a Solid Value Proposition
Understanding and implementing rental property management best practices are core to maintaining profitable rentals. However, you also need to buy the property at a low enough sale price to ensure good returns. My investment rental portfolio delivers solid passive income year-over-year because I was able to access valuable leads and purchase at a below-market price from distressed homeowners. These homeowners call me first when they need out of a difficult financial “ugly” situation because they know and trust the nationwide “We Buy Ugly Houses®” brand. If you are building a rental portfolio and want to find the best deals, give HomeVestors a call to find out more about what becoming an independently owned and operated HomeVestors® franchisee can offer your real estate investing business.
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