Positive cash flow will be generated by a strong rental real estate portfolio, and investors will be able to take advantage of simple financial leverage. This asset class has historically outperformed inflation and offers exposure to assets with underlying value.
However, depending on where you live, it can be quite difficult to discover homes that are economically viable in your neighborhood. Some investors may be forced out of the market by rising housing prices and modest rentals. Would-be real estate investors might choose to search outside of their city or state for their first or next investment property because there are so many real estate markets that are “on fire.”
The purchase of rental property from a distance might be challenging. Without the correct assistance, dealing with issues like leaky toilets, angry renters, and sudden vacancies from out of town may be challenging.
When to Think About Long Distance Investing in Real Estate
Although owning rental property might bring in reliable income, not everyone should invest in it. The intricacy increases when long-distance real estate ownership is layered on top. However, it could make sense to buy a long-distance investment property, particularly if:
The ratio of rental revenue to property value in your neighbourhood is low. (The monthly rent to property value ratio is far lower than 1%.)
You lack a particular advantage that would enable you to uncover exceptional prices locally (home repair know-how, the capacity to “drive for bucks,” etc.).
You wish to own and keep physical rental real estate as a part of your portfolio despite poor local conditions.
You’re prepared to put in the effort to assemble a group of individuals who can assist you in managing your property remotely.
Rental homes are buildings (or apartments). They are large, cumbersome assets that require regular maintenance. You are responsible for maintaining the item as its owner. Therefore, you must be aware of who to contact if your HVAC system malfunctions in July or if the caulk around your bathtub begins to leak. You’ll also need to recruit renters and ensure that they pay the rent on time each month.
Rental properties may eventually provide money with a lower time commitment. Finding and purchasing a home, however, is a laborious process. Finding renters after that is more difficult. Finding a group of individuals who can perform services on the property to keep it in good repair requires additional effort. Even if you hire property management to handle it, finding one you can trust takes time.
The investor’s reward for all of the initial labour is consistent cash flow.
With the exception of situations when investors employ leverage and buy a large number of properties, rental properties rarely provide enormous profits. It’s a respectable asset class (in fact, it is my favorite). However, purchasing real estate and then selling it after a few significant repairs is a surefire way to lose money.
Think twice before investing in real estate, especially if you want to buy from afar. Keep in mind that you might be able to “house hack” your way into rental property even in pricey cities.
How To Purchase A Long Distance Investment Property
There are a number of procedures involved if you decide long-distance real estate investing is correct for you. Here are the steps you need to take to identify the ideal home, buy it, then rent it out so you can start earning rental money.
1. Conduct thorough research
Most people who wish to own rental property desire many homes. More doors equal more revenue flow. Real estate investors who work remotely frequently concentrate their interests in a single metro region.
Concentrating on a single market has numerous tangible benefits. Investors might use it to comprehend local market dynamics. Focused investors may create a network of top-notch general contractors, service providers, property management firms, and real estate brokers in their area.
The most crucial initial step in buying real estate remotely could be deciding where you want to invest. Real estate investors should be aware of the broader real estate climate while researching potential investment areas. They may research subjects like:
- What are the region’s main attractions? hospitals, schools, universities, certain industries, etc.
- Who pays rent here? (Students, seniors, parents with young children, etc.)
- What is the relationship between the anticipated monthly rent and the area’s usual property values?
- Is the region steady, expanding, or contracting?
- What are the chances of finding work for the majority of locals?
- How do property taxes stack up against home values?
You may increase your confidence that you can uncover transactions that will be profitable in the long run by researching market dynamics. Knowing the market can also help you avoid buying a $72,000 property only to discover later that it is significantly overpriced for the neighbourhood.
Visit Roofstock Academy for a fantastic starting point. Online courses are available to teach you how to manage turnkey rental properties, and these courses work well with using their platform to actually buy real estate.
I particularly appreciate this Bigger Pockets tutorial that outlines market analysis. To gain a sense of market price, you may also browse listing websites like LoopNet (for multi-family properties), Apartments.com, and Zillow.
2. Begin expanding your network
You’ll need a group of individuals to assist you in finding, financing, and maintaining your real estate while you own it remotely.
Finding reliable connections while you’re far away might be really difficult. Firms like Roofstock make it simple. However, you may always create your own network. These are a few groups of folks you should look for.
Other small local real estate investors
Although they may appear to be your rivals, I’ve discovered that other investors have the finest connections to service providers including insurance companies, cleaning services, pest control companies, electricians, and HVAC repairmen.
A competent inspector can assist you in determining when it will be necessary to replace crucial systems. They will significantly lower the danger involved with a distant property.
Real estate brokers or neighborhood turnkey businesses
Working with neighbourhood real estate agents or turnkey businesses will be a good idea for you as a remote real estate investor to identify homes. Don’t rely solely on real estate agents from Zillow. Instead, look for agents who focus on buying rental property.
Look up reviews or request to chat with previous clients if you utilise a turnkey business. Roofstock is a well-known nationwide turnkey provider, and they provide a wide range of merchandise.
For long-distance investment properties, local mortgage lenders are not always required. However, you should seek for lenders who are familiar with the rental real estate market and avoid loan providers who solely provide mortgages for owner-occupied homes.
Brokers of Insurance That Work With Landlords
It is not as simple as phoning a broker and asking them to compare costs to get insurance for rental homes. Many insurance providers only cover landlords in specific situations. For my long-distance rental property, it has taken me a few years to find an insurance that will regularly provide a competitive rate.
Owners of rental properties should at the very least be familiar with HVAC, pest control, and plumbing. Plumbing, insect, or heating and cooling problems can rapidly result in unhappy renters and property issues. Through online forums like the Bigger Pockets Forums or the Next Door app, you might be able to identify nearby service providers.
Real estate managers
An excellent property management business will respond to requests from tenants and send out service providers as necessary. They could take care of duties like delivering tours as part of the hiring process. Unfortunately, a lot of property managers prefer customers with substantial portfolios. They could be experts in managing apartments. Finding a property manager to meet their needs may be tough for a person who owns one or two homes.
Roofstock, however, can make a recommendation for a trusted, supervised property manager.
3. Line Up Funding
For a rental property, you’ll need to accumulate money for a down payment (usually 20–25% minimum) and a repair fund. You should decide on your ideal loan circumstance as well. When purchasing a rental property, many real estate investors utilise a HELOC on their own home and then mortgage it to repay the debt. If you reside in a pricey real estate market, this will work well, but it may backfire if you can’t get a fixed-rate mortgage on the new home.
Other investors attempt to buy with cash, renovate it, and then borrow money to pay for it. Others, though, like using conventional mortgages when they buy. Some real estate investors can mention “hard money” loans to you. Usually, private loans with rather high interest rates are involved. They are often an excellent option for persons trying to renovate and flip properties, but they are not frequently a wise long-term investment for buyers of rental properties.
Utilizing a platform like Roofstock has its advantages since they have loan partners that they can recommend to you and who are already aware with your business. This may facilitate a smooth transaction.
4. Find Properties
You may start looking for transactions if you have a team, are familiar with your market, and have finance. You might never see a property in person because the majority of your searching will be done online. To “see” the property, you’ll probably rely on web pictures and videos.
Some potential landlords travel to search for houses. If you’ve never visited the region, this makes a lot of sense. You may get a better idea of what $100,000 would get you on the market by seeing houses in person. You could change your mind about what you’re looking for after the trip.
5. Make A Proposal
You may submit an offer on a house if you locate one that appears to fit your requirements. Many investors like to have a “inspection contingency” clause that allows them to withdraw after an inspection for any reason or no reason.
Making an offer is really simple on the Roofstock platform; all you have to do is click a button!
6. Purchase the Home
The main issue with purchasing houses online has been resolved by Covid-19. The majority of papers may be electronically signed or notarized.
Before wiring, any money, be sure you phone your title company or real estate attorney. Take care since wire transfer fraud can be a significant source of money lost.
7. Lease The Property And Find Tenants
Once you own the property, you may rent it out to tenants to begin earning rental revenue. Of course, you also take on responsibility for the loan’s repayment and upkeep of the property.
Keep close track of your earnings and loss because it’s simple to spend too much on capital purchases or too little on routine maintenance tasks. As you develop your strategy, careful tracking may help you become a better real estate investor.
Is investing in long-distance real estate right for you?
Building a network and finding a property need a lot of upfront work when buying real estate. But the effort might be worthwhile, even if you have to go outside of your usual market for a suitable house. You might be able to amass a modest portfolio of rental homes if you’re ready to put in the work and earn the money necessary to support your lifestyle.
Just keep in mind that a house is a house regardless of where it is located. It needs maintenance, and when you’re 18 hours away, it won’t be simple to do a DIY repair.
Editorial Disclaimer: The views expressed here are those of the author alone and do not represent those of any bank, credit card company, airline, hotel chain, or other advertisers. They also have not been examined, authorized, or in any other way supported by any of these organizations.