Long-distance investment properties may be an excellent option if you're considering expanding your real estate portfolio or even exploring your opportunities. One of the main reasons people look into acquiring properties outside their city or state is because the long-distance location they are considering may be a hot spot with lots of activity (such as Virginia Beach). Here are five tips for buying and managing long-distance investment properties.
What Exactly Is Long-Distance Real Estate Investing?
Long-distance real estate investing involves purchasing or becoming an investor in a property located outside one's local area. Long-distance can mean something other than in another state; it could be a few hours away.
How Can You Buy a Long-Distance Investment Property?
If you're interested in buying a long-distance investment property, here's how to get started.
Do Your Research
Investors must ensure they’re going into the investment with all the information they need, like finding out about the area if they don't know anything about it or have never been there. Some questions they should ask include the following:
What types of activities are there?
Is it close to a major venue?
How is property used in the area?
Does the area have plans for growth?
What are the property values in the area?
The answers to these questions can help investors decide whether this will be a good move.
After completing their research, investors should start looking for properties to get a general idea of what's available. Those who don't plan on seeing the property in person must rely on online information or find a real estate agent to work with.
Estimate Investment Property Cash Flow
While considering different investment properties to purchase, smart investors will estimate the amount of cash flow they are likely to bring in through any rental home. Use an investment property cash flow spreadsheet calculator to ensure you’re making an informed decision.
Once an investor knows what types of properties they're interested in—whether they plan on investing in condos or multi-family properties—it's time to start building connections with real estate agents, mortgage lenders, inspectors, insurance brokers, and other service providers that can assist with the upkeep.
Funding & Offers
Investors must have money for a down payment on the property and have the funding to purchase it. They also need money for improvements and other necessities that their property may require. Once they have their financing and have found a property, it's time for them to make an offer. Real estate agents will operate as the go-between until the deal is complete.
Managing a Long-Distance Property
Before making an offer on a long-distance property, it's essential to know how it will be managed and maintained. This is the time for investors to list all the things that should be covered monthly or recurring and who will take care of them.
The real estate agent should be able to direct investors to a local property management company that can handle all aspects of management, including giving tours, vetting potential guests or tenants, and any maintenance-related tasks.
As property owners, investors should know the rental real estate laws of the area. If any rules are broken, responsibility ultimately falls on the owner, regardless of whether they have a property management company handling the day-to-day work. A good grasp of the land-use laws and tenant-landlord relationship stipulations is key to success.
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It's also important for investors to understand tax laws and their potential tax liability as real estate investors. Each state has different property tax laws, and property owners want to ensure they aren't hurting their portfolios or cash flow potential by acquiring properties attached to high taxes.
Are There Benefits to Having a Long-Distance Real Estate Investment?
Long-distance investments do have benefits, especially for those wanting to branch into different markets and diversify their portfolios. Depending on the area, investing in a real estate market in a location just starting to grow may be more affordable than one already developed. Investors can get more for their money, putting them in a good position in the future. Investing in lower-priced areas also opens the door to acquiring more than one investment property.
An investor's goal should be to assemble a reliable team to help them acquire and manage their properties as smoothly as possible. They'll want a manager who can operate as if they were the property owner, immediately taking care of emergencies. The potential property manager should have a stellar reputation and relationships with different vendors that may be needed. Research is the first and one of the last steps investors must take when considering long-distance real estate.