Real Estate Questions to Consider Before Buying a Long Distance Rental
Purchasing a rental property in a different city or state can be risky and tricky, so investors like you might get curious if that would be a good choice. It’s understandable if you’re hesitant to explore other places if there are very little great deals left in your area, or if you hear about flourishing towns in different states.
Investors from as far as California were reaching out to realtors in other states like Georgia, Arizona and Florida to look for investment properties during the peak real estate years of 2003 to 2007. The business was so booming that these investors struck deals even without seeing the properties in person! Those decisions were deemed crazy and reckless back then, and they are still considered that way nowadays.
This investing pattern ended pretty quickly, but this doesn’t mean that you, as an investor, should completely stop purchasing out-of-state or out-of-town property. You just need to do your research, be prudent, and take precautions.
Why purchase long-distance real estate property?
Like any investments, there are advantages and disadvantages to buying properties located in another area. First, you have to know what’s in it for you. Here are the pros in availing homes in other towns.
- You are free to choose and invest in more affordable places.
If you stop restricting yourself from purchasing properties outside the area you live in, you will see that there are a lot of possibilities for investing. A lot of investors from fancy areas with higher costs of living like California, Massachusetts and New York can not afford homes in these areas anymore, but Midwest and Southern states offer much more affordable options. Aside from the affordable sales prices, these areas have lower taxes and rental property or dwelling insurance premiums.
- Your investment can be your future retirement home
It is very common for investors to buy homes in a retirement town with the plans of living there someday. Their purchases may be a lovely little cabin in the mountains, or a condo unit near the beach. The plan is to have these homes rented out with long or short term leases. The tenants pay the principal loan in the process until the investor is finally ready to retire and enjoy the place. There’s even a possibility that by the time you’re retiring, the mortgage is already fully paid off!
- You may gain additional tax deductions
Some parents have children who study in a university far away from home. Instead of spending a lot of money in a small dormitory and occasional visits, they invest in a humble two or three bedroom property near campus. The student can live in this house, and rent the other rooms to some classmates or friends. Aside from saving money on dormitory fees, the family can offset a good chunk of the total mortgage payment with the payments made by the other students or their families. The best part is that every time the parents travel to spend some time with their child, 50% of their travel expenses can be written off on their income taxes legally because they’re inspecting their property.
Managing the disadvantages of long-distance property investments
Owning a property located far away from home can be challenging. Here are some of the cons that long-distance landlords often encounter:
- Lack of knowledge about the place in which they are purchasing investments in
- Relying on other people to do maintenance work
- Difficulties in getting the rent payments on time
- Lack of familiarity with trustworthy service providers
These disadvantages don’t have to stop your plan of investing in long-distance rental property. Here are some tips on how to make your investment successful
- Research and learn about the area
First, hire a trustworthy, well-experienced realtor from the area you’re interested in. Interview your candidates by phone, and ask the ones you’re comfortable with for a list of homes for sale that may meet your criteria.
Once you’ve hired a realtor, you can visit the area and inspect properties together. It is important to remember that desirable, affordable homes sell out quickly, so that cute little house you’ve been eyeing might not be available anymore if you plan to wait longer. It is best to plan a tour of eight to ten houses to visit.
You have to shell out some money for the expenses involved in purchasing long-distance properties, such as travel expenses. Because of this, do not rule out short sales, foreclosures, and distressed properties that can be purchased at a big discount to comparable properties in the area. This type of home might not be ready for immediate usage, but it should yield some sweat equity once you’ve done the necessary improvements.
- Create a list of go-to local service providers
You can coordinate with your realtor to build a list of service providers like electricians and plumbers that you can trust with regular maintenance work. You can check out smaller companies, because they usually have better pricing and they tend to be honest about the repairs they need to do. Larger companies are known to just ask for a brand new unit when in fact, a repair would have worked fine.
Before you close, it’s a wise idea to contact the service providers. Ask about the mode of payment they accept, as most of them prefer to be paid as soon as the job is done.
- Personally manage the property
It’s not too difficult to make the necessary calls when problems arise, but if you’re finding this too stressful, you can always ask your realtor if they offer property management services. You’ll have to pay around 10-12% of the total rent, but you can rest assured that your investment is in good hands.
- Simplify or automate rent collection
You can ask your tenants to have their rent automatically deposited to your bank account, since this faster than having them send you a check. To encourage them to pay their rent on time, it’s a nice idea to send them reminders when their due date is near.
Once you’ve set things up, your rental should run fine. If there’s a problem, you can just call your service providers to help.
There are several pros and cons to purchasing long-distance investment properties, but with a little research and some effort, it is possible to make it into something profitable. Just be sure to set up a network of reliable resources, and your property will surely become a good asset.