How to Manage an Out of State Rental Property – Guide for Landlords

Want to learn how to manage a rental property from out of state? 

If you’ve ever explored asset diversification, investing in rental properties has probably appeared in your search results. In fact, recent TransUnion statistics show that over 74% of rental properties are owned by individual investors. If you’re considering investing in rental properties, you may be wondering how to manage a rental property from out of state.  

While it’s true that there are local rental options available, many investors focus on out-of-state properties. These include vacation homes, luxury condos, or rental properties in high-traffic tourist destinations. 

Regardless of why you want to buy an investment property, owning real estate out of state comes with unique benefits and challenges. Whether you decide to keep your investments local or branch out with hopes of a greater return, you won’t want to skip doing your homework first.  

Is it Smart to Invest in an Out of State Rental Property? 

The decision of whether to invest in a local or out of state property depends on several factors. Some of these are personal preferences, such as whether you want the ability to drive by the property and check in.  

If you’re not as worried about keeping an eye on your investment, an out of state option could be enticing.  

Here are a few questions to ask before you decide whether it’s best to invest out of state: 

1. What kind of market is it? Survey a few real estate professionals to see whether current market trends favor buyers or sellers. If the trends signal more benefits to sellers, then buying out of state could increase your choices and affordability. The housing market ebbs and flows, and patience could be the key to finding the best option. 

2. Can I recoup my investment in recurring rent? Before making any housing sale permanent, you should have an idea of what to expect in monthly payments. Is the local market inflated? A market analyst can help you with definitive numbers. 

3. What business expenses am I willing to take on? If you’re out of state, you may want an established property management team to handle the property for you. If you’re not willing to shoulder the cost of such a service, prepare for travel expenses and other services as you self-manage the property. Hiring a real estate expert to provide property management services is worth the investment and to avoid headaches.

What are the Benefits of Being an Out of State Landlord? 

For some investors, taking the chance on out of state real estate properties is an exciting challenge. It opens a world of possibilities and even creates a reason to travel and explore new cities.  

There are several benefits to being an out of state landlord or property manager.  

Benefits 

For one, you’re not restricted to certain markets, especially those in high cost-of-living areas. Imagine how difficult it would be to live in the heart of New York City and want to invest on your own turf. Expanding into other markets means cheaper properties and more bang for your buck. 

Second, out of state properties often serve a purpose for the owner and their family. Have you always wanted a stable vacation house to use, or do you hope to retire by the water one day? Purchasing an out of state investment property can help you start paying down the mortgage on that getaway home much sooner. 

Third, owning many properties could mean tax advantages and write-offs down the line. If you earn income from a property and travel to visit that home for any reason, the travel expenses could be considered business write-offs. 

Disadvantages: 

For as many benefits as there are to owning real estate out of state, there are also a few negatives you should be aware of. While these reasons may not completely deter you from investing, they could provide a more realistic portrayal of what out of state management entails.  

• Lack of familiarity with the area – When you’re not as immersed in a city or town (like when you live there) understanding trends, market values, and other factors becomes a bit harder. You’ll probably want to invest help in this area to stay up-to-date with any newsworthy factors that could impact your income. 

• Knowledge of state-specific laws – Real estate rules govern investment properties differently depending on your state or region. Statewide rules can dictate everything from taxes to tenant screening practices. These laws can sometimes catch new investors off guard if they’re not prepared. 

• Reliance upon a realtor for information – If you’re not able to physically visit an out of state property before purchasing, work with an honest realtor who will provide a full picture of the neighborhood and property details. Some investors don’t ask tough questions and can also end up purchasing properties located in undesirable areas or with unseen problems.  

Self-Management vs. Property Management? 

How you manage a property from out of state largely depends on whether you plan to make it a solo effort, or if you plan to enlist help. The two primary options are self-management and property management. 

Self-Management Considerations 

Many frugal investors are keen to save on costs and outside personnel. And while it’s true that you can possibly save thousands, some of that initial savings may not be worth the risk involved. Self-management is a suitable option for investors who: 

• Have no qualms about being strict with tenants on rent, repairs, etc. 
• Have a comfortable working knowledge of state and federal laws (including tax laws) 
• Belong to an association that provides help, financial guidance, or community support 
• Are extremely educated about the local housing market in the desired location 

Property Management Considerations 

If you’re confident in the decision to invest in a rental but equally sure that you want some help, property management services provide a safety net. Although there’s a cost, the hands-off peace of mind allows many investors to rest easily, knowing that their property is secure. Property management is perfect for owners who: 

• Prefer to screen and collect rent from tenants through an intermediary 
• Are short on time and don’t wish to be on-call for minor situations or emergencies 
• Want outside marketing expertise to advertise and fill vacancies 

• Want a professional opinion on market trends and real estate analysis  

Other Circumstances that Lead to Long Distance Ownership 

From time to time, the decision about whether to own an out of state property happens quickly or is not made by you. This could take place when: 

• You have to move for an emergency or life transition and don’t wish to sell your current house 
• You inherit property rights from a family member and choose to keep ownership 
• You or a family member serves in the military or special forces and is reassigned or stationed in another location 

Any of these situations may force you to quickly learn how to manage a rental property from out of state. Fortunately, it may turn out to be a profitable and even enjoyable investment. 

Best Practices for Managing an Out of State Rental 

No real estate investor starts their journey as an expert landlord. The process is a learning curve, requiring mistakes and lessons along the way. Fortunately, by implementing a few best practices, you can avoid major headaches and hassles in the world of property ownership. 

Create automation systems 

What’s the secret sauce for how to manage a property from out of state? Many experienced investors agree that automated systems play a huge role in success. This is especially true for rent collection systems, which can be done online and without the need for paper processes and mail-in checks. 

Maintain a local contact person 

Most experts agree that having a local point of contact makes all the difference when you need a quick answer or want to visually confirm something about the property. While property management services fill the need, a local friend or family member could also serve as an emergency contact.  

Put legalities in writing 

Whether your legal obligations include drawing up a lease, making regular tax payments, or signing a property management contract, any legal factors should be signed in writing. Verbal confirmation is never foolproof, and it won’t stand up in court should a situation ever warrant legal action.  

Written legal contracts protect you, your tenants, and the professionals you trust to help run the business. 

Always inspect 

Having an inspection protocol in place is an obvious step when you can’t see a rental property in person.  

Although not always, some out of state tenants could bend the property rules or make structural changes that aren’t permitted in the lease. While property management providers can mitigate a lot of this stress, you may be able to hire property inspectors regardless of your management preferences. 

Be a united front 

If you invest alongside a spouse or partner, commit to the project together and agree to communicate thoroughly about any problems. Similarly, if you invest with a business partner, agree beforehand how you’ll handle issues relating to tenants, payments, and home upkeep.  

Need Help Managing Your Out of State Rental? 

When it comes to being an out of state landlord, you’ve got a lot on your plate. Filling vacancies, keeping up with marketing tasks, and making repairs all adds up. Not only do these chores cost time, they can also cost you more money than you bargained for.  

If you’re ready to lighten your personal responsibilities as an investor, allow the Property Management professionals at Century 21 Northwest Realty to come to the rescue. If you want help navigating lease contracts, filling openings, collecting payments and more, our team can assist. 

Let us help you find your first tenant!