Out-of-State Real Estate Investing 101: Buying Rental Property Out-of-State

If you’re struggling to find affordable properties in your market or looking to diversify your portfolio, out-of-state real estate investing unlocks all kinds of opportunities for investors. In this guide, you’ll learn why you should invest out-of-state, common challenges you’ll face when investing in other markets, the best states for buying properties, and much more!

Why Invest Out-of-State?

Buying a property in an area like New York City, Los Angeles, or San Francisco isn’t in the cards for many investors, as many markets have higher housing prices, increased competition, and tenant-friendly laws. Fortunately, you don’t have to invest in your backyard. Looking out-of-state could give you the following advantages:

Cheaper Property Prices

Home prices are much higher in certain markets, making it nearly impossible for some investors to buy property. Investing in a more affordable market allows you to not only get more bang for your buck but also scale your real estate portfolio faster.

More Favorable Tax Treatment

Some states and municipalities have lower property tax rates and tax laws that incentivize real estate investing. Most of the time, you don’t have to be a resident to take advantage of these tax benefits.

More Favorable Landlord Laws

Housing laws and regulations vary from state to state, making some markets more or less landlord-friendly than others. If you live in a tenant-friendly state, investing out-of-state could give you greater control of your investments.

Higher Cash Flow Potential

Thanks to lower home prices and expenses, some markets offer higher cash flow potential. Of course, cash flow is largely dependent on how much rent you can charge, so look for markets with the largest gap between rental income and expenses.  

Diversification Across Markets

Having all of your properties in one market is risky. If that market experiences an economic downturn or one of its main economic drivers leaves, you could be dealt severe portfolio losses. Spreading your properties across several markets takes some of the risk out of your portfolio.

Looking for high-cash-flow rental properties?

Common Challenges of Buying Out-of-State Rental Property

There are significant challenges to overcome with long-distance investing. Here are some of the most common issues you could face along the way:

Lack of Local Knowledge

There are rough neighborhoods in almost every market, and if you’re not careful, you could end up buying a home in a bad part of town. Thankfully, Rent to Retirement has done the research for you in top real estate markets across the country!

Difficulty in Finding Tenants

Many investors struggle to find high-quality tenants in their own markets, an issue that is only amplified when investing from hundreds or thousands of miles away. But when you invest in turnkey rentals through Rent to Retirement, you’ll get a local property manager who already knows how to find and screen tenants for your property.

Maintenance Challenges

Coordinating maintenance, repairs, and inspections is difficult when you can’t drive to your property. But with Rent to Retirement, your on-call property manager will take care of all the maintenance requests for you!

Ready to invest in headache-free rental properties?

What to Look for in an Out-of-State Investing Market

Out-of-state investing can help you grow and diversify your portfolio, but you need to do your due diligence when analyzing another market. Look for the following factors:

1. Growing or Stable Population

Before you commit to a new market, look at the area’s population growth across the last several years. You want to make sure that there will be enough rental demand for years to come.

2. Cash Flow Potential

Unless you’re primarily investing for appreciation or tax benefits, you should make sure that your market allows you to cash flow. Subtract your expenses (including your debt service) from your income to determine if buying a rental property out-of-state is worth it. Or, try our rental property calculator for free! 

3. Economic Drivers

Identify industries and attractions that can support your market and attract more renters in the future. Job growth, colleges, and sports are just a few of the many economic drivers to look for.

4. Affordability

Affordability is an important factor for investors, but it’s equally important for renters. Median rent should be relatively affordable for the local population so renters don’t leave.

5. Landlord-Friendly Laws

Housing laws may affect your ability to increase rents, evict tenants, and manage your property how you would like. Because these laws vary from state to state, you should lean toward states with landlord-friendly laws.

Best States to Buy Rental Properties

Looking for a hot market to invest in? Here are some of the best states for buying investment properties in 2024:

Texas

Texas has one of the nation’s fastest-growing economies, with steady population growth, a strong job market, and high rental demand. The state’s housing laws are also very landlord-friendly, as investors are not hampered by rent control or security deposit limits. Pair all of this with affordable home prices and you have one of the best states for real estate investing!

Is the Texas housing market the new real estate hotspot?

Florida

Florida has a below-average property tax rate of 0.80%, allowing investors to hang on to a little extra cash flow each month. Like Texas, Florida has a robust economy with strong population growth and high rental demand. What’s more, the state’s housing prices have outpaced the rest of the country in recent years, having increased 67% since 2020.

Read our full write-up on the Florida housing market!

Alabama

Alabama has the second-lowest property tax rate in the nation at just 0.41%. Despite affordable prices, Alabama housing has appreciated faster than the national average since 2020. The state is also extremely favorable to landlords, allowing them to charge the rent they want and evict nonpaying tenants quickly.

Check out our full list of the best states to invest in real estate!

Building Your Out-of-State Team

Your real estate team can make or break your chances at a profitable out-of-state investment. Without the advantage of driving to your property, you need a high-capacity team to keep the wheel turning. Find the right people for the following roles:

1. Your Turnkey Provider

Investing in turnkey real estate is one of the easiest ways to invest from afar, as it allows you to consolidate property management, contracting, and maintenance. But to achieve this, you’ll need a nationwide turnkey provider like Rent to Retirement.

Read our full list of the best turnkey real estate companies!

2. Real Estate Agent

To land the perfect property in a top market, you’ll need to team up with an investor-friendly real estate agent who can be your eyes and ears during your search. This person should know your market inside out and which neighborhoods to target.

3. Property Manager

When investing from a distance, you’ll need a local property manager to oversee your property’s day-to-day operations—preferably someone with a strong local track record and knowledge of the market. Rent to Retirement’s network includes some of the most trusted property managers in top markets!

4. Contractor/Maintenance Worker

You’re also going to need an experienced local contractor for any renovations or improvements, as well as someone to handle everyday maintenance requests. Rent to Retirement takes care of this for you by pulling from their network of fully-vetted, experienced local contractors.

Beginner Tips for Long-Distance Investing

Want to make sure your first out-of-state investment is successful? Here are some crucial tips for getting started.

Get Pre-Approved

After researching local loan products and interest rates, get pre-approved with a lender in your new market. Give yourself plenty of time, especially if you plan on buying in the next six months, as there may be extra steps required for out-of-state financing.

Choose Your Strategy

There are all kinds of ways to make money in real estate—Airbnb, medium-term rentals, build-to-rent, and other strategies. However, some options are market-dependent. Run the numbers for several strategies to find the one that makes the most sense in your new market, or keep looking for a market that fits your preferred strategy.

Visit Your Target Market

Visiting your market in person gives you a huge advantage when investing out-of-state. Make the most of your time by networking with local experts, becoming familiar with neighborhoods, and checking out properties for sale.

Save for a Down Payment

Like any investment property, an out-of-state property will likely require a down payment. Even if you’re investing in a market with lower home prices, you should start saving now, and be sure to build up your reserves in case you encounter issues along the way.

Talk to Investing Experts

You can never be too prepared before diving into a new market. To learn more about an area, meet with local investors in person or online, or schedule a call with the out-of-state investing experts at Rent to Retirement.

Out-of-State Real Estate Investing FAQs

Can You Invest in Real Estate in Different States?

Yes, many investors buy real estate in other states. This strategy allows you to diversify your portfolio, buy appreciating assets in up-and-coming markets, and reap local tax benefits.

How to Start Investing Out-of-State?

To invest out-of-state, you’ll first need to research different markets. Look for areas with steady population growth, a healthy economy, and affordable properties that will cash flow.

Is It Smart to Invest in Real Estate Out-of-State?

While out-of-state investing has its own challenges, it can be a great way to diversify your portfolio and find affordable properties outside your current market. Just make sure you have a top local agent, property manager, and contractor on board!