Many people don't realize that owning real estate outside of their primary market is a feasible option, let alone an option with great potential upside. It's a way to spread out risk, earn better returns, take advantage of up-and-coming areas, and own in landlord friendly states.
Now, I'm by no means an expert in real estate. I've only been doing this for a year, but here are five reasons to consider buying an out-of-state investment property:
1. Affordability: Look at the San Francisco Bay Area (where I live!), Seattle, or New York, and you'll see one major theme - housing is EXPENSIVE. Like, REALLY expensive $. Oh, and really competitive too. It's tough getting into those markets without cash or the right partner, but that shouldn't crush your dreams of becoming a real estate investor. Explore other cities and states that have a good acquisition price to rent ratio. A good place to start? The Midwest and South (USA).
2. Diversification: to protect your returns in real estate, or any investment really, it's smart to diversify. If you put all your money in one market, and it crashes, welp, there goes the value of all your real estate assets. By investing in different markets, your portfolio will be tied to multiple market cycles, and better protected against volatility in the long-term.
3. State Taxes: it's true, tax rates are different depending on state. Buying rental property in states or counties with lower property taxes (like Alabama, Colorado, or South Carolina) can generate extra savings and better returns.
Because you have to file a tax return in the state you live in PLUS the state in which your investment property is in, states with lower income taxes can greatly impact your bottom line.
4. Entering Up-and-Coming Markets: there are a ton of up-and-coming cities out there right now. So, why not invest in one before it really blows up? Obviously, you can never predict the future, but here are some key indicators that could help in finding hot markets:
-Companies are moving their headquarters there, or are opening up new branches
-A decrease in average days properties are on the market
5. Rental Demand: some cities have a very strong rental market, where some are heavily owner occupied. Do your research around the country and figure out where populations prefer to rent. These are obviously areas in which your property will be in demand and very well may be outside of your home market.