- What are the benefits of long-distance real estate investing?
- How can you find the best long-distance real estate investments?
- How can you manage your long-distance real estate investment business?
Q: Is investing in long-distance real estate worth it?
A: Although out-of-state real estate investing can have higher initial costs than other investments, it is a great way to get the most out of your money while being able to take advantage of attractive tax laws.
Investing in real estate often feels like a faraway dream for even the most seasoned entrepreneurs – especially long-distance real estate.
The idea of buying property in a different state can feel daunting, and it can be challenging to figure out how to manage the out-of-state property properly. Despite these hurdles, long-distance real estate investing is an excellent way to realize significant profits.
Whether you’re quickly flipping homes, buying rental properties, or renovating “fixer-uppers,” there are several key points to remember when investing in long-distance real estate.
Sometimes, the best option is to invest long-distance. Closing real estate deals remotely may be easier than you think.
Despite the higher up-front investment, the real estate market offers unrivaled returns. Due to the inherently inflationary nature of the land on which homes and properties are built, it’s difficult to lose money when you invest intelligently in real estate.
Of course, there are exceptions to this rule. For instance, buying a home in an area you know nothing about isn’t recommended. While you might think that you’ve found an amazing deal, the locals may know better – making it very difficult for you to sell the property.
You can avoid these issues with proper research.
If you’re wondering why long-distance real estate investing might be a good idea, keep reading to learn how to find the best out-of-state investments, how to manage these long-distance investments, and much more.
- What are the benefits of long-distance real estate investing?
- How can you find the best long-distance real estate investments?
- How can you manage your long-distance real estate investment business?
- Achieving passive income
What are the benefits of long-distance real estate investing?
Investing can be scary. Instead of investing a few hundred dollars in the stock market every month, you’re forced to put down tens of thousands of dollars for a down payment. This is a considerable commitment.
Fortunately, the same principles apply in both the real estate world and the stock market, and with careful research and organization, long-distance real estate investments can yield outstanding profits.
The barrier to entry might be higher than your everyday Vanguard 500 mutual fund, but as the housing market continues to grow, there is a lot of money to be made.
Read more: Key facts about housing affordability in the U.S.
All too often, entrepreneurs mistakenly conflate local realty with long-distance real estate investing. Living in an expensive area doesn’t prohibit you from exploring affordable properties in other states!
Investing out-of-state opens the doors to countless American real estate markets. Because the cost of living varies so much from state to state and from county to county, there’s always a way to find growing markets with cheaper-than-expected properties.
As you familiarize yourself with as many of these promising markets as you can, it becomes easier and easier to become an effective and profitable long-distance real estate investor.
Similar to traditional investing, a diversified portfolio is important to balance out any potential losses and ensure profitability. And just like investing in the stock market, the goal is always to make as much money as possible.
Long-distance real estate investing offers a considerably lower barrier to entry, and if handled with care, the risk-reward ratio is excellent. As it stands, stocks are victims of the vicissitudes of the market. On the other hand, real estate is an inflationary market that rarely loses value in the long term – especially in regards to the raw land on which properties sit.
How can you find the best long-distance real estate investments?
Just like with traditional investments, long-distance real estate investing is an art that requires careful research, a level head, and an edge.
What do we mean by “edge?” We’ll discuss this in a little more detail later, but the first thing you need to consider when searching for properties is affordability.
Affordability
If you’re looking to break into the real estate market for the first time, it makes sense to search for the most affordable properties.
Not only will this allow you to start building equity sooner, but it also gives you the chance to reinvest these early profits so you can slowly begin buying more expensive properties down the road.
Although affordability should be the priority of any long-distance real estate investor, it doesn’t make sense to buy an affordable property that no one wants. If other people are looking to buy or rent in the area, you know you’re looking at a desirable market.
However, searching only in already established markets won’t offer the same kind of returns offered by emerging markets. Keep an eye out for areas that aren’t booming and learn as much about the ebbs and flows of the market as possible.
Read more: Existing home sales fell in April to the lowest level since the start of the pandemic
Homes in need of renovation
Another way to maximize your returns when investing out of state is to focus on homes in need of renovation. If you’re able to handle these renovations before you sell, the sale of the home will pay for labor costs while still providing you with a substantial profit.
Pristine properties are typically more expensive than their dilapidated counterparts. Buying properties that need renovations in booming markets is a great way to ensure affordability and guarantee a bigger return.
Even if you’re buying properties to rent them out, renovating a property is usually worth it. When everyone else assumes that a property would be far too much work to fix up, you usually get an amazing deal.
Renting vs buying
While on the topic of renting or buying, it’s important to determine your goals before you approach the real estate market. Just like some traditional investors focus solely on technology stocks or medical stocks, you should figure out the kind of out-of-state real estate investing you’d like to focus on.
Flipping homes without renovating them is the quickest way to experience large profits in the real estate market. However, you lose out on passive income offered by rental properties.
Renting offers a unique type of passive income – one that has existed virtually unchanged for thousands of years. When you consider the rising cost of living, renting is a proven investment strategy that will usually cover the cost of your mortgage – and then some.
On the other hand, renting requires a longer timeline, and you won’t be seeing the large lump sum profits associated with flipping or renovating homes.
There is no single most profitable investment strategy in the world of real estate.
There are successful long-distance real estate investors that focus on managing rental properties, and others that focus on buying and selling homes quickly for a profit. It’s up to you to determine which of these avenues will help you meet your long-term financial goals.
The ‘Edge’
Remember when we mentioned the importance of that mysterious “edge” when approaching the real estate world?
In traditional investing, an edge is simply something that gives you an advantage over the other market players. The same rules apply here, and finding an edge is a surefire way to ensure profitability, negate losses, and ultimately become a pro at long-distance real estate investing.
So how can you get ahead?
Big-name realtors have war chests filled with cash they can rely on, while long-term investors have a deep understanding of the market based on years of experience.
So, what can you do?
The answer is research.
It might sound trivial, but straightforward research is a key component of traditional investing. Real estate is no different. Here are some easy research tips:
- Familiarize yourself with markets that don’t have as many buyers and renters.
- Search for areas that are steadily climbing in population — but haven’t made it onto the ‘Top 10 Places to Live’ lists yet
- Find the online communities for smaller towns and ask the people living locally questions about the area
A deep understanding of emerging markets can’t be bought. Researching these markets will pay dividends in the long run and give you an edge over the competition.
Read more: The Top Real Estate Markets Attracting Out-Of-State Buyers
Long-distance real estate investing takes a lot of work, but you can succeed if you focus on these things:
- Affordability
- Determine whether you’d like to focus on owning rental properties or simply buying and selling
- Research
If you can do this, you’ll give yourself a competitive edge as you find the best investments possible.
How can you manage your long-distance real estate investment business?
For now, we’ll be focusing mostly on how to buy a rental property, how to manage that property, and tools that make long-distance real estate investing much easier.
This isn’t to say that flipping homes don’t require management, but buying rental property out of state is a lot different than basic out-of-state real estate investing. This is because you need to focus on a number of factors as a landlord, including:
- Collecting rent
- Maintenance requests
- Finding trustworthy tenants
First things first:
You’ll need to set up an online portal for rent and maintenance requests. With the recent digital boom, everything is online — and your operation must follow suit.
There are a lot of options out there for rental property management software, and some apps are better than others.
Below, we’ll take a look at three of the best software options available to you as a long-distance real estate investor.
Turbotenant
Touted as “a DIY landlord’s one-stop shop”, Turbotenant is free-to-use software that allows you to list as many properties as you’d like. Not only is the software free, but by digitizing all of the potential tenants’ history, you have quick access to an individual’s past. This includes their previous landlords and employment verification.
Rent Cafe
RentCafe offers you access to more exposure while generating higher retention with your online applicants. Because RentCafe deals with tenants and property managers, there’s an optimally sized pool of potential candidates ready as soon as you’ve listed your properties.
Buildium
This app is probably the most comprehensive of the three listed, and it was created by property managers. Buildium offers an all-inclusive service that automates rent collection, financial reports, 1099s, and plenty more. It’s a bit expensive, but the numerous amenities are well worth the extra monthly cost.
Using software like this will make your life immeasurably easier, and it’s incredibly convenient to collect rent without leaving your home. If you’re capable of doing so, you can also customize your website to handle onboarding, rent collection, and tenant concerns.
Out-of-state real estate investing means that you won’t have the luxury of visiting the properties you purchased on a regular basis. Because of this, you’ll likely need to start your own property management business.
Outsourcing property management is possible but expensive, and if you’ve properly diversified your portfolio, you’ll have to hire multiple management companies for each of your out-of-state investment properties.
In reality, it makes more sense to start your own property management business and onboard local employees as necessary.
Read more: Is Staying a Local Small Business Killing Your Profits?
One of the best ways to get your property management business off the ground is with a virtual office. A virtual office gives your business a physical address, helps you achieve long-term stability in the market of your choice, and is an excellent way to build legitimacy with prospective tenants.
By utilizing a virtual office, you can also pick a good state for tax purposes. Long distance real estate investing could take you to all fifty states, so it makes sense to incorporate in a state with the most beneficial tax laws – especially if you’re going to be doing business in that state.
Even if your intentions are solely to flip homes or other properties, registering with a virtual office gives you the flexibility to simplify your taxes while avoiding issues with the IRS. While breaking tax laws is always unadvisable, out-of-state investment properties offer specific deductions that you can take advantage of – especially with a virtual office.
Last but not least:
You need to find tenants that last – especially if you want to achieve passive income without constantly worrying about your various properties.
Doing so is easier said than done, but by properly utilizing the software mentioned above and creating your own property management business, you’ll be there much sooner than you expect.
Approaching Passive Income
Investing is a game of patience, research, and conviction, and long-distance real estate investing is no different.
Not only does investing out of state give individuals the chance to break into more affordable markets, but it also offers the opportunity to make use of attractive tax laws.
When looking for properties, try to find investments in areas that show growth potential. You want to find areas before they make it into lists of “Top 10 Places to Live” articles.
The good news is that with adequate research, you can find these areas with ease.
Familiarizing yourself with the market is important — and so is knowing where and when to buy.
While these are only a few important aspects of your long-distance real estate investing journey, they represent the best strategies to ensure profitability.
Outside of research, registering a virtual office is the best way to ensure stability while maintaining the necessary flexibility to invest across the United States.
Further Reading
- Key facts about housing affordability in the U.S.
- The Top Real Estate Markets Attracting Out-Of-State Buyers
- Is Staying a Local Small Business Killing Your Profits?
- Existing home sales fell in April to lowest level since start of the pandemic
One of the best pieces of advice for any investor comes from Mr. Warren Buffett himself:
“The most important quality for an investor is temperament, not intellect.”
What this means is that disciplined investors understand that the market is fluid — and they stick to their guns regardless of how the market is acting.
This is easier said than done because humans are naturally emotional creatures.
But investment success doesn’t require the brain of a genius. It’s easy to feel compelled to make a hasty decision because you feel that the market is acting against you.
But if you invested out of state with a sound thesis, there’s no reason to assume that your thesis won’t hold.
Don’t be emotional with your investments. Create detailed theses and stick to them.
For individuals looking to break into long-distance real estate investing, Alliance Virtual Offices offers several tools to help make your venture successful.
Alliance Virtual Offices’s Virtual Office is an effective tool for potential long-distance real estate investors. Not only does this virtual office provide the opportunity to establish your business at a recognizable address, but it’s also an easy way to build legitimacy with potential tenants as well.
Whether you’re an experienced investor looking to diversify your portfolio or an individual looking to find more ways to make your money work for you, a virtual office can make a real difference. Contact us to see how Alliance Virtual Office can make your dream of long-distance real estate investing a reality
