In some smaller to medium size cities, home prices are rising well beyond what is acceptable, especially when you are planning to rent your properties out at reasonable rates. One way to beat these conditions is to purchase real estate outside of your immediate market.
Benefits of Purchasing Long-Distance Real Estate
Buying a rental property outside of your vicinity opens up options to make things more affordable. This allows you to make your capital go a long way, potentially giving you the opportunity to purchase multiple units or, in some cases, apartment complexes.
This freedom to invest in more affordable areas also gives you a chance to lower your tax burden due to lower taxes as well as insurance premiums. Furthermore, if you are investing in an area that you can see yourself living in years down the road, you can slowly fund your future retirement home. By utilizing rent to pay down your future home loan, you can essentially cover the cost of living without having to make much of an investment upfront.
Another benefit of a long-distance investment is that it allows you to diversify your property holdings. Just like when dealing with the stock market, it is important to have a diverse portfolio of investments just in case one area performs poorly.
Think of it this way. If you have properties in North Carolina, Texas, and Florida, and the market in Florida bottoms out, then you have investments in other areas that can help balance out what you lost in Florida.
Disadvantages of Long-Distance Real Estate Investments
While there are so many pros when it comes to investing in properties that are in far-off places, these properties can also turn into serious projects. There is no reason to sugarcoat long-distance real estate investment; challenges abound.
Some of the challenges include:
- Maintenance can be a headache due to distance.
- Not being able to easily check in on your rental property.
- Addressing issues with tenants over the phone.
- Lack of knowledge when it comes to utilities and local contractors.
- Difficulties in getting paid.
All of these things can be tough, but with the right mindset, a long-distance real estate investment can be full of value.
Why Long-Distance Real Estate
There are plenty of benefits and disadvantages to investing in long-distance real estate. However, there are some measurable reasons for investing in a property that is not close by. If your local market has a low rental income to property value ratio, then it may be time to begin investing outside of town.
As long as you have a solid property manager and are willing to put in the work finding the best people to work with, you can make long-distance real estate work for you.
Where To Start
If you feel like you are up to the challenge of long-distance investment or simply want to diversify your real estate portfolio, it may be time to get to work. Finding the right property in the right place can be hard, especially if you are not local to the area, but it can be done.
1. Do Your Research
While you may want to immediately begin purchasing properties in low-cost areas, it is important to first do some legwork to ensure that you do not get burned. Focused investors will start with a single market and learn everything they can about the area.
If you find yourself interested in an area to invest in, get on the ground and learn about the area. Get to know the people and dig into the economics. Is the town growing? Are people looking for places to live? What kind of jobs are available? All of these questions are a great way to begin your journey of learning what you can bring to the table if you begin investing in real estate.
Additionally, it is important to have a deep understanding of the local demographic; potential investors may look for:
- Attractions
- Types of Renters
- Property Taxes
- Property Values
As an investor, it is important to understand the local market dynamics to ensure that you can make a return on your investment.
2. Build a Network
As you begin to narrow down areas to invest in, increasing your network is vital to your success. Since you will be investing in a property that is well outside of your typical drive time, you need people on the ground that can take care of your property, collect rent, and fill vacancies as they inevitably come up.
Finding quality connections is vital to the success of your real estate investments. Property managers are a dime a dozen, but when you connect with one that is top-notch, they can help you gather your team.
Beyond just collecting rent and marketing your property, a good property management company will connect you with their preferred services people such as plumbers, electricians, cleaning crews, pest control, HVAC repair, insurance providers, and more. They will also be the point person between you and your tenants.
In addition to working with a quality property manager, finding an insurance broker that deals well with rental properties is a must. Buying insurance for rental properties can be very complicated as many insurance companies only work with landlords under certain conditions.
Finding the right lender for a real estate investment can also be tough. Most mortgage lenders steer clear of rental properties and only issue mortgages for owner-occupied housing. This obviously will not work, and you will need to hunt down a lender that understands real estate investment and is willing to offer financing on long-distance projects.
3. Fund the Property
As you have built your network and found an area to invest in, it is time to line up funding for your rental property. In most cases, you will need a pretty substantial down payment to cover a loan for non owner-occupied property. It is also smart to have a repair fund to ensure that you can cover repairs, especially in the early stages.
Once you have garnered investment or financing, it's time to get to work looking for properties. These days, most searching can be done online or by working with a real estate agent on the ground. A good practice is to travel and look at properties, especially if you have never been to the area where you intend to invest.
As you begin to find properties that make sense and meet your investment criteria, it's time to make an offer. As with any real estate deal, there will be some negotiations, inspections, and lots of paperwork. Eventually, you will get through the process, pay your down payment and whatever contingencies, and you will now own a long-distance property.
How To Make Money Off of Your Long-Distance Rental Property
When you finally have a property that is yours, it is time to begin filling it up with tenants. Sure, all of the time invested in seeking out and purchasing a property in a far-off town is a lot of work, but now the real fun begins.
Engage with your property management company to develop a strategy to market your property. Take the data that you have researched and set a price based on your final purchase price as well as what the market can bear. Your property manager should be able to help list your rental property on all of the real estate platforms, such as Zillow and Apartments.com.
As qualified leads come in, work with your property manager to gauge interest and weed out the junk. Make sure that you have a good tenant screening process so that you find good renters that you want to keep around (you can learn more about “Keeping Good Renters in Asheville, NC” in our blog)
While long-distance real estate investment can be a scary thing, it can also be lucrative when partnered up with the right team of people. As long as you know what you are getting into and have put in the time to do research and learn about the markets that you are investing in, long-distance investments can be worthwhile.
We believe that hiring a property management company is the key to managing a long-distance rental property. It will keep you from having to deal with the day-to-day business and focus on the long-term vision of your real estate investments.
Don’t Sweat Your Absence; Asheville Phoenix Properties Will Be There
If you are looking at investing in properties in the Asheville area, look no further than Asheville Phoenix Properties to stand in the gap for you as an absentee landlord. In addition to having a deep understanding of the local market, we know exactly what it takes for a rental property to be profitable.
We can help you throughout the entire process; our services include the following:
- Advertising property through appropriate channels.
- Screen potential tenants through interviews, references, and credit history.
- Inspect the property before and after occupancy.
- Prepare and execute rental contracts.
- Collect security deposits, fees, and monthly rent.
- Conduct property check-ins.
- Communicate with tenants and arrange necessary repairs.
- Deal with problematic tenants.
In Asheville, North Carolina, we are aware of what it takes to maintain a pipeline of quality tenants, and we are equipped to manage virtually any problem relating to rental properties. With more than 20 years of real estate management experience, we can help owners and tenants by managing every aspect of a rental property. Contact us today!