Are you considering investing in out-of-state rental property but feel a little apprehensive? You are not alone. Many new investors get stuck playing out scenarios in which owning a rental property in another state doesn’t work, or believe it’s better to have your rental property within 30 minutes of your home.
While it can be a good strategy to buy in your market and keep an eye on your rentals yourself, it absolutely depends on where you live and how active you want to be in your investments. If you’re looking for rental properties for passive income, out-of-state investing often makes more sense than trying to find cash-flowing properties in expensive coastal markets.
Not all real estate markets are strong places to invest, and investing in the wrong market at the wrong time can really hurt your financial goals. Thanks to modern technology and property management companies, investors have more ways to invest in out-of-state rental properties.
To help you decide if this real estate investing strategy is right for you, we will break down the benefits of buying rental property in another state, questions to ask yourself to see if it is right for you, and factors to consider when choosing a market.
Quick Answer: Should You Invest in Out-of-State Real Estate?
Yes, investing in out-of-state rental property can be a really smart move, especially if you’re stuck in an expensive market like San Francisco, New York City, or Seattle, where the numbers just don’t work. When you partner with the right property team and management company, you get access to more affordable properties that actually cash flow, offer better returns, and help you spread your risk across different markets. And here’s the kicker: you avoid all the landlord headaches without having to be there in person.
Key Benefits:
- Cash flow that actually works: In affordable markets, the rent-to-price ratios make sense. You’re not bleeding money every month like you would in coastal California or New York.
- Better returns on your money: Markets where jobs are growing and people are moving tend to deliver stronger returns than the expensive, mature markets where everyone’s already competing.
- You’re not putting all your eggs in one basket: Owning properties in different cities means that if one market slows down, your whole portfolio doesn’t tank.
- Professional management just makes more sense: Let’s be honest, whether you live next door or three states away, hiring a good property manager is usually the smarter play for busy people who want rental properties that earn income while you sleep.
Main Challenges:
- You’re flying blind on the local market: You don’t know which neighborhoods are up-and-coming versus on their way down. That’s why having solid out-of-state real estate investing strategies matters so much.
- Distance makes everything harder: Can’t just swing by to check on a property or meet the contractor for coffee. Everything requires more planning.
- Every state plays by different rules: What’s legal in Texas might get you sued in California. Eviction laws, tenant protections, and property taxes all vary by location.
Success Factors:
Look for markets near major cities that have:
- Strong job growth
- Growing population
- Affordable investment property prices
- Laws that don’t make being a landlord impossible
- Solid property management companies
Here’s what many investors figure out quickly: turnkey real estate investing takes care of most of these headaches. You’re buying rent-ready properties that are managed by pros from day one.
Bottom line: Out-of-state investing works when you’ve got boots on the ground you can trust. That’s where RealWealth comes in. We help investors like you find properties in states where landlords aren’t treated like the bad guys and where the cash flow numbers actually work. We connect you with property teams we’ve already vetted who sell turnkey rental properties with professional management already handling everything. You can invest across the country without losing sleep over it. Join RealWealth for free and start exploring what’s available.
Benefits of buying Investment Properties out of state
While there are some disadvantages of investing far from home, the benefits often outweigh them. This is especially true if you have the right local property management team in place to help you. We’ll talk more about that later in the article, but for now, here are a few key benefits of investing in out-of-state rental property.
1. Affordability and Cash Flow
To enjoy the dual benefit of an affordable rental property that simultaneously generates positive cash flow, you need first to understand two critical market factors.
An affordable market is one where the average home price is no more than three or four times the average income. In this type of market, you can find great cash flow where the average home price is only double the average income.
In non-affordable markets, there is little cash flow, and the average home price is often 10 times the average income. New York City, San Francisco, and Los Angeles are examples of non-affordable markets where cash flow is low and the investment is high risk.
Moving away from high-risk areas by investing in affordable markets that offer growth potential can lead to better opportunities for higher cash flow.
This is where having a systematic approach becomes critical. Before investing in any market, you should conduct a thorough real estate market analysis to verify that the numbers actually work and the area meets your investment criteria.
Learn more about how to calculate income property ROI to determine if a property meets your investment goals.
Investor tip: Investing in out-of-state rental properties is our specialty at RealWealth. We regularly help our members (many of whom live in high-priced real estate markets like San Francisco, Los Angeles, and Seattle) invest in more affordable markets primed for growth.
2. Higher Return on Investment Opportunities
Did you know many states have pockets of real estate gold just waiting to be discovered and mined? That’s precisely why many investors develop out-of-state real estate investing strategies that focus on emerging markets with strong fundamentals rather than limiting themselves to their expensive home markets. These pockets typically meet a few critical criteria, such as being located in a desirable neighborhood, near employment opportunities, offering local amenities, and within a good school district.
If you purchase in this type of area at the right time, you can benefit from higher cash flow and also expect a higher return on investment (ROI).
With this in mind, to achieve the highest ROI, you will need to invest in undervalued markets experiencing population growth and job expansion.
For example, Jacksonville, Florida, has experienced a population boom over the past decade (the metro area has grown a whopping 24.1% since 2000), creating pockets of real estate gold in multiple zip codes. The expansion of the Panama Canal brought even more jobs to the Jacksonville area’s ports. It’s no wonder that future job growth is predicted to be 39.21% in the region over the next 10 years.
The moral of the story is simple: more jobs, combined with a population boom, equate to higher rental prices and a subsequent higher ROI for the savvy real estate investor.
3. Less Risk Due To Diversification
Diversifying your real estate portfolio lowers risk. This might seem like an obvious cause/effect; however, far too many people still adhere to the 30-Minute Rule, which creates a higher risk due to a lack of location diversification. By investing in out-of-state rental property, you can diversify your portfolio and make it more manageable and lucrative.
A property manager can help you with the latter by clearly outlining the pros and cons of each buy-and-hold area where you might want to purchase a rental property. By understanding the nuances of each buy-and-hold market, you can effectively determine if owning a rental property in another state will positively reduce your risk, diversify your portfolio, generate a higher ROI, and create a good cash flow.
4. Hiring a Property Manager is Often a Better Option
The plain and simple truth is that whether you live near your properties or far away, self-management is a full-time job. In this vein, managing real estate properties is not a viable solution for many investors, particularly those with full-time jobs or those seeking passive income for retirement.
This line of thinking begs the question, “If you already trust your local team to manage an in-state rental property, why wouldn’t you have the same trust for an out-of-state team?”
The reality is that professional property management is essential for successful out-of-state investing. If you’re wondering how to manage out-of-state rental property effectively, the answer almost always involves partnering with experienced local professionals who can be your eyes and ears on the ground.
Challenges of Buying a Rental Property in Another State
There are a few challenges you’ll face when buying investment properties out of state. Here are three:
1. You Don’t Know the Market
The first challenge in purchasing rental properties out of state is that you are unfamiliar with the local real estate market. You don’t know:
- The best markets for investment properties (or the ideal streets within those neighborhoods).
- The economic trends.
- How the population has changed (from a demographic and numbers standpoint).
- The local politics that might influence further development.
Simply put, unless you are pounding the pavement, you don’t have an intimate understanding of the local market. Take the time to research the best markets for rental properties to identify areas with strong fundamentals and growth potential.
Investor Tip: Remote investors focus their research on markets with strong fundamentals, transparent data, and established investor communities where information is readily available. Learn about the seven questions you need to ask to determine if a real estate market is good for investing.
2. You Don’t Know the Local Laws
The second challenge involves understanding the local laws. If you are a homeowner, you are probably very familiar with the legal procedures involved in purchasing or managing a rental property in your home state. However, real estate regulations vary from county to county and state to state. The good news is that a local property manager will know the ins and outs of the local laws, so you don’t have to constantly fret about staying up-to-date or spend time researching copious amounts of government sites, legal paperwork, and local tenant laws.
3. Distance
The third challenge is distance. If you purchase an out-of-state rental property and plan to self-manage, you will need to set aside the time and money required to inspect your property regularly. Additionally, you must visit the property at least once before signing the contract. Once again, a local property manager can save you some time and money by conducting multiple property visits at different times and days before you arrive. In this way, the property manager can give you a better picture of what life in the home looks like and, inevitably, whether it will be attractive to renters. Learn more about the importance of working with a good property manager.
Five Factors to Consider When Investing Out-of-State
Fortunately, the challenges listed above can be overcome with the help of a trusted local property team and property management team. While there is no golden rule for choosing an out-of-state investment property, five factors should always be considered.
1. Is it located near a big city?
Big cities have a lot to offer. They offer job diversification, convenient shopping, great nightlife, and a vibrant culture. Cities with more than one million residents also provide a large pool of potential tenants for your new rental property. Additionally, an estimated 40 percent of the population rents, meaning that in a city of one million residents, you’ll have access to approximately 400,000 potential tenants.
As a bonus, big cities often mean great suburbs; as we all know, the suburbs attract an entirely different sector of potential tenants. Remember that people usually prefer to live within driving distance of a large city and avoid commutes that exceed 30 minutes to their jobs. In other words, don’t buy too far away from the big city. Fortunately, your property manager can help you select the most desirable in-city neighborhoods or booming suburbs.
Understanding different types of rental properties can help you choose the right investment for your market.
2. Is it in a good market?
A good real estate market is defined as being “affordable” or “non-affordable.” For an investor, it is also determined by whether the market is a buyer’s or seller’s market. Every area in the country will have a different average Days on Market (DOM). However, a good rule of thumb is as follows: 30 days or less is a hot market, while 3 -6 months is a normal and healthy market. Additionally, a balanced market will have a 5-7 month supply available, while a buyer’s market has more than a 7-month supply and a seller’s market has less than a 5-month supply.
Finally, you will want to check the market for rental demand. Understanding market dynamics is part of your overall turnkey investing education. The more familiar you become with reading market indicators, the more confident you’ll be in identifying opportunities before they become apparent to everyone else. Here are some questions to ask:
- Are prices increasing or decreasing?
- Are properties sitting vacant for months on end, or are they being snatched up?
A local property manager can help you answer these questions and more as you determine the health of the local real estate market.
3. Is it in a booming market?
As its name suggests, a booming market occurs when prices rapidly rise. Generally speaking, you should avoid investing in booming markets due to their unpredictability and instability. With this in mind, if you are interested in a high-risk (but possibly high ROI) investment, you might consider a booming market if you plan on getting in early and out in time.
The latter strategy is best applied to vacation and retirement areas, where employment is not a factor but desirability is. Once again, a local real estate agent will be able to help you determine if the booming market is a bubble that is about to burst or if you can jump in at precisely the right time to make a profit.
4. Does the area have a low median or average home price?
A median home price represents the middle of the road, while an average home price is calculated by adding the prices of sold homes and dividing by the number of homes sold. Together, median and average home prices tell the story of the market. Remember that an affordable market will have an average or median home price of 3 or 4 times the average income.
A non-affordable market will have average or median prices 10 times higher than the average income. Ideally, you want to invest in out-of-state rental properties in affordable markets to increase your cash flow and anticipated ROI.
Investor Tip: The 1% rule can help you quickly evaluate if a property’s rent-to-price ratio makes financial sense.
Many investors find that turnkey rental properties in affordable markets offer the best balance with properties in areas where the numbers actually make sense, without having to manage renovations from across the country.
5. How strict are the local landlord laws?
In most cases, high-priced markets tend to have liberal tenant laws. For example, both San Francisco and New York have rent control laws that benefit tenants but negatively impact landlords.
In these types of areas, many laws are designed to protect tenants as the cost of living continues to increase. While this is great for tenants, it can negatively impact landlords’ profits and investment opportunities. With this in mind, a lower-risk strategy is to invest in rental properties in landlord-friendly states.
While no one wants to think about evicting a tenant, it is essential to consider protecting your investment. The first step towards protecting your investment is to purchase a rental property in the right area. You’ll also want to keep in mind that landlords receive significant tax benefits that can enhance your overall returns.
Investor tip: While purchasing an out-of-state rental property comes with challenges, the benefits tend to outweigh the risks. With the help of a trusted local team, you can successfully diversify your portfolio by investing in out-of-state rental properties. To make the right investment choices tho, you must carefully weigh the pros and cons as they apply to your financial well-being. This is where RealWealth can help.
Members invest with confidence because they choose to work with a network of vetted property providers and trusted local property managers, which provides them with out-of-state off-market rental properties that offer higher ROI opportunities, lower risk, and increased cash flow. Join RealWealth.
5 Questions To Ask Yourself Before You Choose To Self-Manage
To help you answer the above question and further determine if self-management is a good option, here are five other questions you must carefully consider.
- Are you available and willing to manage your property on a full-time basis? In other words, can you take on property management as your full-time job?
- Are you up to date on local landlord laws?
- Can you manage contractors and ensure they are doing high-level work?
- Can you run potential tenants’ credit checks and perform background checks?
- Do you honestly believe you are the most qualified person to manage your property?
If you answered “no” to any of these questions, you should strongly consider hiring a professional property manager regardless of your proximity to your investment property.
Your Step-by-Step Roadmap for Out-of-State Investing
Ready to get started? Here’s how successful investors approach out-of-state rental property:
First, educate yourself on how to buy rental property and earn income while you sleep. One of the reasons people join RealWealth is because of our education—free weekly webinars, annual live events, property tours, and an extensive archive of articles that walk you through every step of the process. You’re not just getting information; you’re getting a proven roadmap from investors who’ve been doing this successfully for over 20 years.
Then, identify target markets using the criteria we’ve outlined above. Many investors find it helpful to narrow their focus to 2-3 markets rather than trying to evaluate dozens at once. If you’re unsure what market is best for you, you can schedule a free strategy session with a RealWealth Investment Counselor who can help you match your investment goals with the right markets and opportunities.
Next, connect with vetted professionals. This is where RealWealth really shines as we’ve already done the heavy lifting by vetting property teams, analyzing markets, and establishing relationships with experienced providers across the country. Our members get direct access to turnkey rental properties and property managers who’ve been thoroughly screened and have proven track records.
Finally, if you want a more hands-off approach while still building your portfolio, consider real estate syndications for passive investors as an alternative. Syndications allow you to participate in larger deals with experienced operators handling all the day-to-day management. View our current syndication offerings.
How RealWealth Can Help You
At RealWealth, we help investors acquire affordable turnkey rental properties with positive monthly cash flow and potential for appreciation. When you become a member, you have full access to our free educational resources and property teams that sell professionally managed rental properties in the top markets nationwide. Membership is 100% free, yes, free, and there is no obligation to purchase. If you think investing in out-of-state rental properties is right for you, join RealWealth today!
Frequently Asked Questions
RealWealth members get access to turnkey rental properties in carefully selected markets, complete with pro formas, projected ROI, and property management already in place. Once you connect with a turnkey property provider at RealWealth, they will send you their available inventory of off-market rentals, which may include single family homes, multi-family homes, and new construction homes. These listings are ideal for investors seeking passive income real estate opportunities in landlord-friendly states. Join RealWealth.
The best property management companies for out-of-state investors have strong local expertise, transparent processes and fees, and proven systems for tenant placement and maintenance. At RealWealth, we spend months vetting property management teams to ensure they are experienced and set up for success with our investor members. For tips on how to find a good property manager, read Why Property Management Is Important & How to Find A Good One.
When you join RealWealth, you’ll get access to a network of trusted real estate attorneys who specialize in working with real estate investors. These professionals understand the unique legal considerations associated with out-of-state ownership and can help ensure that your transactions are structured securely and efficiently. Members can connect with other recommended resources, including lenders, 1031 exchange facilitators, accountants, and additional real estate professionals.
Many investors choose to buy rental properties in another state because they seek better returns, geographic diversification, and more affordable entry points. To help you figure out if buying rental property in another state is right for you, read Is Investing in an Out-of-State Rental Property Right for You?
The key factors to research are job growth, population trends, affordability, rent-to-value ratio, local landlord laws, and economic diversity. If you are ready to start analyzing markets, we’ve outlined helpful steps in How to Do a Real Estate Market Analysis Like an Expert.
Common risks include poor property management, rent defaults, unreliable contractors, high repair costs, tenant damage, and being unfamiliar with local regulations. The best way to mitigate them is to work with trusted, vetted teams who specialize in helping remote investors. Learn more about what to look out for in Five Types of Real Estate Investing Risks & How to Reduce Each.
Discuss the property management company’s operations and systems with key personnel. Ask about their local market experience and whether they also invest there. Research reviews from other investors. Find out the vacancy rate, management fees, rent collection process, maintenance response times and fees, and communication practices. At RealWealth, our vetting process typically takes around 90 days, although it may last longer. We look at every aspect of the business, including background checks, to ensure they meet our high standards. Learn 5 Tips on How to Manage Out-of-State Rental Property.
Key metrics include cash-on-cash return, cap rate, rent-to-value ratio, and long-term appreciation potential. If you are a RealWealth member, you’ll gain access to real estate pro formas and discounted tools, such as DealCheck, that can help you accurately analyze potential cash flow and ROI before making a purchase.
The answer depends on your comfort level and whether you have property management in place or if you are self-managing. Some investors with property management visit their investment property once or twice a year. Others may never set foot on their property. With technology at our fingertips, like video calls and digital photos, staying updated has become easier. However, this does require a level of trust with your local property management team.
RealWealth has been connecting investors with vetted turnkey real estate opportunities for over 20 years. We offer free education through weekly webinars, articles, and podcasts, and we thoroughly vet property teams and resources so you can invest remotely with confidence. Learn more about what sets us apart in Who Are the Best Turnkey Real Estate Companies?
Smart investors rely on a combination of economic data, local market research, and expert guidance to identify strong out-of-state opportunities. Understanding what makes a location attractive for rental property investing is essential before you commit capital. Start by reading our guide on How to Determine If a Real Estate Location is Good.
Comparing markets means looking at job growth, population trends, rent-to-price ratios, and landlord-tenant laws to find the best opportunities for your investment goals. We recommend using both comparative market analysis and neighborhood-level research to make informed decisions. Learn the process in How to Do a Comparative Market Analysis and How to Do a Neighborhood Analysis in Real Estate.
We highly recommend working with a CPA and tax specialist who is knowledgeable about real estate investing, its tax benefits, and understands the rules and regulations for both the state where you live and the state where your property is located. Typically, you’ll report rental income on your federal and state returns, if applicable, as some states have no income tax. Our list of investor resources includes CPAs experienced in multi-state real estate tax strategies to help you maximize deductions and manage compliance. Find a CPA.
Yes! Investors can complete 1031 exchanges and legally avoid paying capital gains taxes when buying like-kind properties in different states, provided both properties are in the U.S. RealWealth partners with qualified intermediaries who can help you defer taxes while upgrading into stronger out-of-state markets. Learn more and get help with a 1031 exchange.
Markets with strict tenant laws, high taxes, or slow job growth, such as California, New York, and Washington, can make investing in and managing properties more challenging. The markets RealWealth recommends focus on landlord-friendly, high-growth markets with strong fundamentals—such as Texas, Florida, and certain states in the Midwest, among others—where investors can find better cash flow and appreciation. Start researching where to invest out of state in the Best Places to Buy Rental Property.
The best way to build a team you can count on is to work with a turnkey real estate company, such as RealWealth, or a real estate network that already has established relationships with property managers, lenders, and contractors. RealWealth members gain access to trusted local teams in multiple markets, making it easier to invest remotely with confidence. Join RealWealth to find your next out-of-state turnkey rental property.
