Have you been thinking about purchasing out-of-state property? Investing in a hot, new out-of-state development can sound exciting and lucrative, but before you do so, consider the following advantages of buying real estate closer to your own home.
You Know The Area
You're likely to have a better grasp on the amenities of your own community. You've seen local neighborhoods grow and change; you know how the property values have varied, and what is likely to impact them.
No matter how much time you spend researching, you won't have the same home-grown knowledge of a property outside your town. Once away from home, you are a visitor who is dependent on your real estate agent and other advisers for information. Those folks all stand to make money by selling property to you, so keep that in mind when evaluating their advice.
You Can Recognize a Good Deal
When a property goes on the market in your city, you'll be able to take a tour of it, check out the neighborhood, and assess its value. Since you're more familiar with the market value of similar homes, or you may be working with a real estate agent who is also familiar with the neighborhood, you'll have a better grasp on the potential increase in value your rental property may have over time.
You lose those advantages when looking at properties in an unfamiliar area, and gaining comparable knowledge takes a great deal of work. Be sure to conduct your own research when exploring non-local properties. Check the demographics of the area, and explore it in person. Drive around, stop at local businesses, get comparisons, and see for yourself what rental units are going for. Ask about utilities and other fees that must be paid. The more research you can do, the better, although you will never know the place as well as your home city.
State, County, and City Laws Vary
As a landlord, you know exactly what's required by your state and civic agencies, as well as what new laws or proposals are in the works. In another state, different rules may apply. The learning curve for another area can be steep, and the penalties costly.
For example, Florida charges a tax on rents, and some large cities like Los Angeles and New York City have strict rent control laws. The different states impose restrictions on how much of a deposit a landlord can ask for, how quickly that deposit must be returned, what disclosures a landlord must make to a tenant, and eviction procedures. When you go into business in a different state, you must educate yourself about these rules. Take some time and explore online resources that outline each state's landlord-tenant laws.
You Can Manage Your Own Property
If you are a hands-on property owner, you know who to call and what to do to resolve issues when they occur. You personally show the property to prospective renters, make or oversee emergency repairs, and drive by on occasion to ensure that your property is in good shape.
If you live far away, you'll have to find a licensed property manager to do those things for you. That means you must put someone you don't know well in charge of a huge investment and hope for the best. For many, this is the most difficult part of owning an out-of-state property.
Buying Out of State Can Be More Costly
You know what you pay to own and rent out property at home, but some of the hidden costs of owning in other areas may surprise you. For example:
Buying in another state or area unfamiliar to you involves forfeiting some control and management of your investments, and leaves you dependent on the advice, expertise, and honesty of others. Your expenses will likely be higher, and they can sneak up on you. For these reasons, many investors prefer to stay closer to home, where they can monitor their property and know what to expect.
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