How To Master Long Distance Real Estate Investing (2024)

A great rental real estate portfolio will spin-off positive cash flow and allow investors to benefit from easy financial leverage. Historically, this asset class beats inflation and provides exposure to an asset with underlying value.

But, depending on where you live, finding houses that make financial sense in your local market may be next to impossible. Soaring home prices and moderate rents can lock some investors out of the market. With so many real estate markets “on fire”, would-be real estate investors may want to look outside of their city or state to find their first or next investment property.

• Your local market has a low rental income to property value ratio. (The ratio of the monthly rent to the property value is well below 1%).
• You don’t have a specific advantage (home repair skills, ability to “drive for dollars”, etc.) that would allow you to find excellent deals locally.
• Despite unfavorable local conditions, you want to own and maintain physical rental real estate as a part of your portfolio.
• You’re willing to put in the work to find a team of people who can help you manage your property from afar.

Rental properties are houses (or apartments). They are big, unwieldy assets that need to be physically maintained. As the owner of that asset, it is up to you to keep the asset in shape. That means you need to know who to call when the HVAC breaks in July, or when the caulk around the tub starts to leak. On top of that, you’ll need to find tenants and make sure they pay their monthly rent.

Over time, rental properties may yield income with less time investment. But it takes a lot of work to find and buy a property. Then it takes more work to find tenants. It takes more work to find a team of people who can provide services to the property to keep it in shape. And even if you outsource it to a property manager, it takes work to find a property manager you trust.

With all the upfront work, the investor’s reward is steady cash flow.

Rental properties rarely provide massive returns except when investors use leverage and invest in many, many properties. It’s not a bad asset class (in fact, it is my favorite). But buying real estate and selling it after a few major repairs is a recipe for lost money.

Think carefully before you leap in to real estate investing, especially if you plan to buy at a distance. Remember, even in expensive markets, you may be able to “house hack” to gain exposure to rental real estate.

Most people who want to own rental real estate want to own more than one property. Multiple doors mean more cash flow. Often, real estate investors who invest from a distance choose one metro area to focus their investments.

Focusing on one market offers many practical advantages. It allows investors to understand the market dynamics in the area. Focused investors can develop a local network of excellent real estate agents, property management companies, service people, and general contractors.

Figuring out where you want to invest may be the most important first step in buying real estate from a distance. When studying regions for investment, real estate investors will want to understand the general real estate climate. They can study things like:

• What are the major draws to the area? (universities, specific Industries, hospitals, schools, etc.)
• Who rents in this area? (students, retirees, families with children, etc.)
• What is the ratio between expected monthly rent and typical property values in the area?
• Is the area stable, growing, or shrinking?
• What are the employment prospects for most people in the area?
• How do property taxes compare to property values?

I also like this guide from Bigger Pockets that explains how to do market analysis. You can also look at listing sites like LoopNet (for Multi-family properties), Apartments.com, and Zillow to get a feel for pricing in the market.

As a distance real estate investor, you’ll want to work with local real estate agents or turnkey companies to find properties. Don’t just use a Zillow real estate agent. Instead, seek out agents who specialize in rental property acquisitions.

If you use a turnkey company, look for reviews or ask to speak to former customers. One national turnkey company is Roofstock and they have a great selection of inventory to choose from.

A good property management company will field tenant calls and dispatch service providers as needed. They may handle aspects of the vacancy process such as giving tours. Unfortunately, many property managers want clients with large portfolios. They may specialize in apartment management. A person with one or two houses may find it difficult to locate a property manager to serve their needs.

Roofstock, however can refer you to a preferred property manager that is vetted and monitored.

You’ll need to save money for a down payment (typically 20-25% minimum) and a repair fund for a rental property. You’ll also want to figure out your preferred lending scenario. Many real estate investors use a HELOC on their residence to buy the rental property and then mortgage it later to pay the loan back. This works well if you live in an expensive real estate market, but it can backfire if you’re unable to secure a fixed-rate mortgage on the new property.

Other investors try to buy and rehab with cash and take out a mortgage after the repairs are complete. Still, others prefer to use traditional mortgages to buy. You may see some real estate investors talk about “hard money” loans. These are typically private loans with fairly high-interest rates. They tend to be appropriate for people looking to fix and flip, but are not typically a good long-term choice for rental property buyers.

The great thing about using a platform like Roofstock is that they have lending partners on the platform that they can refer you to (and they’re familiar with what you’re doing). This can make a transaction seamless.

Once you know your market, have a team, and have your funding, you can finally start looking for deals. Most of your searching will be done online, and you may never see a house in person. You’ll likely rely on online images and video to “see” the property.

Thanks to Covid-19, buying properties digitally is no longer a major problem. Most documents can be e-signed or signed in front of a notary.

Be sure to call your title company or real estate attorney before wiring any money. Wire transfer fraud can be a major source of lost money, so take precautions.

Once the property is yours, you can fill it up with tenants and start collecting rental income. Of course, you also become responsible for paying the loan and maintaining the property.

Keep careful tabs on your profit and loss, since it can be easy to overspend on capital investments or to underspend on regular maintenance activities. Careful tracking can help you become a better real estate investor as you refine your approach.

Buying real estate takes a ton of upfront work to build a network and to procure a property. But the work can pay off, even if you have to leave your market to find a property that works. If you’re willing to put in the effort, you may be able to build up a modest portfolio of rental properties that provide income to fund your lifestyle.

Just remember, an out of state property is still a house. It requires upkeep, and you won’t easily be able to DIY a repair when you’re 18 hours away.

If you’re ready to start browsing properties, check out Roofstock here >>>