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What to Know Before You Invest in Out-of-State Real Estate

Investing in out-of-state property appeals to people for a variety of reasons. If you live in a market with stratospheric housing prices, it’s likely crossed your mind to invest in a lower-cost area. Or maybe you want a place for your college-age child and roommates who can subsidize a mortgage with rental payments, or a vacation home to enjoy or rent out when you’re not there.

An important consideration when investing in real estate is the return on investment (ROI). For many people thinking about markets outside their own, factors like lower purchase prices, reduced property taxes, housing regulations favorable to rentals, and potential appreciation rates can lead to a great return. While out-of-state investing may be appealing, it also comes with challenges.

It’s always a good idea to look before you leap. Below are some caveats.

Get to know the market intimately. In your own neighborhood, you likely know where the best shopping and school districts are located—and which areas are less desirable. This is not always the case in an unfamiliar area. Familiarize yourself with the area in which you plan to purchase property.

Find out about local codes and regulations, not just by reading them but by asking property owners in the area about how they work out in real life. Also, if the home is located on a street with mostly renters, is there a high eviction rate due to failure to pay? What are the local laws on short-term rentals if that’s something you plan to do? These are just a few questions that out-of-state investors take into consideration before purchasing.

Look at the property yourself—and get it inspected professionally. Online photos typically make properties seem better than they are, so it’s important to see it for yourself. When you make that visit and still want to move forward, find and hire a reputable local inspector to take a thorough look before you buy. In addition, less-experienced investors may want to consider purchasing a property similar to properties they’re personally familiar with in order to have a good grasp on what types of repairs and ongoing maintenance to expect.

Figure out your actual costs. Buying a rental property rather than a primary residence may incur additional fees and costs. You’ll likely need a bigger down payment, pay a higher interest rate, and be charged more for homeowners’ insurance. Take particular note of the tax implications, which vary from state to state, and check with an accountant on the impact of such a purchase.

Understand the need to outsource. When you see the property and talk with the inspector, get a sense of whether you’ll have to do major repairs. If they are significant, a contractor will likely be necessary.

Be realistic about how much maintenance will cost for the yard and other basic upkeep. If you’re renting the property and can’t be on-site regularly, an experienced property management firm will be essential. They can ensure rent gets collected on time and that the terms of the rental agreement are being followed, including the renter’s treatment of your property.

Be prepared to visit the property even after things get settled. Even with trusted people on the ground, you’ll still need to show up and make sure everything is intact and up to code. This is something important to factor in since it will require both time and money. If the out-of-state property is being purchased as a vacation home, this will be easier, but still keep in mind that you may need to visit more often than planned to deal with any issues.

Most importantly, protect yourself and your investment:

  • It’s key to ensure your business is set up to properly do business in the given state. This process includes researching the state’s regulations and filing all of the appropriate organization documents.
  • Another important protection measure is to ensure you aren’t being scammed when it comes to the property or properties in question. With any real estate transaction, it’s important to know who you’re dealing with. At Attorney’s Title Group, we give real estate investors peace of mind knowing that we ensure that the party on the other side of the deal is legitimate and has proper standing to buy or sell the property. As a law firm that handles many investment property transactions for out-of-state investors, we know how to navigate these transactions for our customers.
  • It’s important to work with a trusted real estate attorney to avoid title issues or correct existing issues. Our team works to fix real estate defects, ensure all liens and judgments are removed, and we handle other potential issues that arise that may jeopardize your investment. Because we are a law firm with experienced real estate attorneys and title specialists, we’re able to quickly remediate title issues.

If you are serious about buying property outside of the state where you live, be sure to do your homework. Get in touch with the neighborhood, neighbors, repair and service contractors, a property management company (if needed), and local real estate professionals.

At Attorney’s Title Group, we are a real estate law firm and title company with a significant amount of experience with handling title and closing deals in Arkansas for out-of-state investors. We’re also able to assist with closings in Tennessee and Mississippi. If you have questions or need to get your closing scheduled, give us a call at (501) 734-2233 or email us: