I’m a real estate investor and syndicator. Every deal my company looks at is out of town. So this subject is near and dear to my heart. In this short article, I’m going to outline five tips we use when considering an out of town rental property.
I’m not alone. Many real estate investors are buying out-of-town rental properties these days. Perhaps you live in a location like California or New York where skyrocketing prices have forced you to look elsewhere.
Or maybe you’re in a small town and you want to invest in a larger metropolitan area. My family has chosen to live in a small town for quality-of-life reasons, and we’ve never considered buying large multifamily assets here.
Perhaps technology has given you a comfort level with buying out of town. One time, we were studying a neighborhood for a property purchase in Houston. I was driving up and down streets while my business partner was on the phone. He was studying Google Earth, and it seemed like he had a better grasp of the area than I did.
“Did you see the bars on those windows to your left? And does that lot of junk cars on the corner still look awful?”
Investing in multifamily is not the only way people are investing in other cities these days. Many investors are also investing with third-party single family rental firms. If this is your path, I would remind you to do your own due diligence to be sure these properties are a great match for your goals.
Here are five quick tips to help you buy out-of-town properties.
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1. Don’t Go to a City Out of Convenience
Would you make a contractual commitment to the first Realtor who picked up your phone call? Just like you shouldn’t do that, don’t just choose a city out of convenience. I know you like the sports team or the weather, but that doesn’t mean it’s the best place to make money.
And don’t do it because your friend said to. (Would you jump off a bridge if your friend did?) Check it out for yourself!
2. Find the Right City
My firm, Wellings Capital, uses 22 metrics to evaluate a city before looking at any multifamily deals. Check out the net population migration, job growth, the unemployment rate, the cost to rent vs. buy, rental vacancy projections, and more. And check out the landlord-tenant laws while you’re at it.
How diverse is the job base? We like to buy in cities that have a mix of health care, education, and government jobs. And though many see it differently, I’m nervous about investing in a city dominated by military tenants. The stroke of a government pen could change your economic future. That’s not something I want to bank on.
3. Locate a Great Property Manager
You’ll need this ally to help you select a property, make budget projections, and manage it for the long haul. Interview several property managers.
Check their references, and again, don’t pick the first one that seems nice….