If you’re looking to diversify your real estate investment portfolio, investing in property outside of your town or state can be a financially rewarding proposition due to a variety of reasons such as tax breaks or rental properties with a lucrative location that's appealing to renters. Here are five advantages of investing in properties away from home.
1. Getting An Early Foothold in Developing Market
Some areas have a hot real estate market. If you’re lucky and knowledgeable enough to get the heads up on it before it explodes, you stand to gain. You aren’t going to get access to many opportunities like this if you stick around your hometown. Keep an eye on business development trends and significant quality of life improvements in the areas where you are looking, such as city-wide infrastructure upgrades. Property values in those locations will most likely increase over time.
2. Different Tax Regulations
Investors who look to invest beyond town and stateboundaries can reap special rewards from various tax benefits. Each state has its own set of tax regulations that may make one location more advantageous than another. The lack of income tax is another regulation to pay attention to when you're crossing state lines for your rental properties.
3. Foreclosed Properties Offer Good Return on Investment
Out-of-state foreclosed properties are an alternative for investors who are unable to invest in their own town because of high property values. Purchase prices below market rates are the main advantage with foreclosed properties. By doing a little research, you can locate good properties that will see an assured appreciation in value. When you participate in a foreclosure sale, it's important to obtain and validate information about the property includingthe outstanding amount and number of lenders involved. Be sure to agree upon a time frame duringwhich the seller must moveout of the property.
Cities that offer the best deals on foreclosures include Tucson, where 43 percent of the properties sold are foreclosed properties, and Seattle, where foreclosures account for one-third of the property sales. Foreclosed properties in Pittsburgh and Boston sell at discounts of 48 percent and 49 percent, respectively.
4. Different Levels of Demand
Different towns offer different opportunities. College towns in particular offer many opportunities for owners to profit from property investments. Educational facilities typically draw people to these cities, and this makes finding renters in a college town easier due to the high demand.The demand for rented properties in college towns is also less affected by slowdowns in the real estate market.
However, college housing is a seasonal market that results in slow periods during the summer and in-between semesters. Other areas that are good for rental demand are those in developing areas with new businesses such as the Research Triangle Park area in North Carolina. This location has seen a massive increasein tech and biomedical businesses that has resulted in an influx of young professionals who aren't sure if they want to permanently settle down in the area. This has helped to drive rental demand.
5. Diversify Your Properties
Even the largest cities has certain trends when it comes to the types of houses and apartment buildings available for purchase. You also have limited geographical features to work with based on where you reside. Say you've always dreamed of having a house on the beach to rent or a mountain cabin -- availability of these features may force you to look outsideof your home town.
You can profitably invest in out-of-town properties by talking to people whohave done this successfully in the past. Purchasing out-of-city and out-of-state investment properties helps you expand your geographic reach as a landlord and helps you to diversify your portfolio. You may also come have the opportunity to get into a developing market, which then increases in value over time.