The buy-and-hold strategy in real estate can be a powerful wealth-building tool, especially when you expand your reach beyond your backyard. But buying a rental property in a different city or state isn’t as simple as finding a good-looking listing online. You’re not just investing in a house; you’re investing in a local economy, a neighborhood, a team, and a set of regulations you don’t live with every day.
Here are 10 essential factors to consider before you pull the trigger on a long-distance buy-and-hold investment:
1. Know the Market Inside and Out
Before you commit capital, commit time to understanding the local market fundamentals. You want a city with population growth, job creation, low unemployment, and a healthy mix of industries. Look for demographic trends like migration, second-tier city booms, and remote-worker inflows. Use tools like market reports, local economic data, and real estate analytics platforms to evaluate supply, demand, and long-term viability.
Check out https://myrealestateanalytics.com/ for market trends and insights.
2. Cash Flow Comes First
Positive cash flow is essential; unless there is a large discount from the market value, cash flow should be prioritized. Analyze projected rent versus all expenses: mortgage, taxes, insurance, maintenance, vacancies, and property management fees.
3. The Right Location Within the Right Market
Not all neighborhoods are created equal. Drill down beyond the city level. Analyze crime rates, school districts, access to jobs and transit, and walkability. Talk to market experts, like local property managers, about tenant demand in specific zip codes. Look for areas benefiting from infrastructure projects or rising demand that haven’t fully appreciated yet.
4. Property Condition and Inspection
Always get a professional inspection, especially when you’re buying remotely. You’re looking for issues in the foundation, roof, HVAC, plumbing, and electrical systems. Turnkey or light rehab properties are ideal for new out-of-state investors.
5. Your Local Team is Everything
Build a strong local team, including off off-market properties provider, a property manager, a contractor, a handyman, etc. Your boots-on-the-ground team will be your most valuable asset. Vet your property manager thoroughly; they’ll be your direct line to the property and your tenants.
6. Stay Compliant with Local Laws
Landlord-tenant laws vary wildly across states. From rent control to eviction timelines to security deposit limits, you need to know the rules or hire someone who does. Research local zoning laws and rental registration requirements, and make sure your lease complies with state and federal housing laws.
7. Do Your Due Diligence
Order a title search, check for liens, and review past income and expenses if it’s already a rental. Title insurance is a must, and so is a comprehensive look at the property’s history.
8. Secure Smart Financing
Investment property loans require larger down payments (usually 20–25%) and better credit. Explore conventional loans, DSCR loans, or even hard money lenders if needed. Always keep a reserve fund of 6–12 months of mortgage payments.
9. Have a Property Management Plan
Managing from a distance is hard, especially if it is not your main job. If hiring a property manager, do your homework on their fees, communication style, and reputation.
10. Understand the Tax Game
Buy-and-hold investing comes with major tax perks. Depreciation, interest deductions, and operating expense write-offs can all improve your returns. Long-term capital gains treatment (on properties held for over a year) is another plus. Work with a tax pro who understands real estate.
Buying out-of-state rental properties can be a game-changer, but only if you are prepared. Start with one property, learn the ropes, and build from there.
Looking for your next investment opportunity? Sell2Rent can help. We pre-check titles and conduct light inspections before offering deals. Plus, we have vetted partners, including title companies, property managers, and attorneys. Browse our available properties and book a free strategy call with one of our Investor Advisors.
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