Say Yes to Long Distance Landlording
by Kevin Ornter, CEO
Despite a few common misconceptions, deciding to be a long distance landlord can create a number of tremendous investment opportunities.
Long distance landlording allows you to invest outside of local markets and enables you to capitalize on developing markets, or buy property in a more affordable location. For some, owning property in a specific location provides opportunities for tax deductions, while others like the idea of having a home in a particular area they hope to return to someday.
Of course, being an out-of-town landlord isn’t without its challenges; troubles with tenants and difficulties ensuring the rent is paid on time rank at the top of the list. And of course, there’s always the financial risks that may follow from purchasing property in an unfamiliar market.
But the good news is that these obstacles don’t have to hold you back. These days, it’s easier than ever to be a long-distance property owner. A growing number of investors and landlords are seizing the chance, and picking up properties that are outside of their locales.
If you’re considering investing in out-of-town properties, here are some tips for each stage of your long distance landlording journey to help ensure that you’re able to get the most out of your investment.
Do the Math
When investing in out-of-town properties in popular areas, it can be tempting to jump the gun to get in on the action. But just because it’s in a hot market, doesn’t mean it automatically qualifies as a solid investment –it’s still important to do the math. Calculate all of your estimated expenses and make sure the property will pay for itself. Pay careful attention to the actual return, instead of the gross yields that local agents may provide. Add up monthly mortgage repayments and running expenses. Include taxes, maintenance, repairs, insurance, as well as property management, or HOA fees. Also, consider any potential upfront costs. Will the property need any repairs before you can rent it out? Up-front expenses are a significant cost to consider since any time and money that you have to spend initially will immediately cut into your profits.
Research the Area
Conducting research ahead of time is an important step that will help you to determine the financial viability of an investment. While both local and out-of-town properties require research, purchasing property in a market that you’re unfamiliar with will require a bit more diligence. Don’t assume that buying a property cheap is a great investment; you will want to make sure that you’ll be able to keep the property occupied. Be sure to research demographics, and find out if the area is one that’s poised to experience growth. Look into new local developments, which can help you gauge the local job market. Determine what the CMV (current market value) is for nearby properties, and find out what other similar properties are renting for. Have a look atZillow orTrulia to see what other rentals in the neighborhood are listed for. Don’t operate on assumptions; be sure to do your homework up front.
Try to Establish Local Connections
Once you’ve purchased an investment property, it’s important to establish connections in the local area. While you shouldn’t rely on the neighbors near your rental to keep you up to date on everything, it’s a good idea to connect with them, and ask them to call you if they notice anything suspicious. Having friends or relatives in the area can also help, but it’s best not to have to rely on them for everything. After all, this is your commitment –not theirs! Try to touch base with local businesses, and compile a list of contractors: groundskeepers, locksmiths, plumbers, and electricians so you can call them at a moment’s notice if something needs repaired at your rental. Having a pre-established network in place can be a lifesaver. When an issue arises, you’ll be able to refer to your list and will know exactly who to call.
Check in on the Rental
It’s a good idea to check in on your property periodically. Showing your face at the rental sends a positive message to tenants that you care about your property, and lets them know that you are still in the picture. Don’t forget to budget in the expense of traveling to and from the rental at least once or twice per year, ideally more often. Of course, if you have a property manager or some decent connections in the area, these trips can be more infrequent. Keep in mind though, that any travel expenses to and from the rental can be deducted since the trip is for business.
Make It Easier: Hire a Professional Property Manager
Choosing a good property manager is a must for landlords who live a significant distance from their rental properties. A reputable property manager can take a tremendous burden out of long distance landlording, and can make it easy to own and operate multiple rentals in different locations. It’s worth noting that not all agencies are created equal, and finding an experienced and reputable property management company is especially important when investing in out-of-town properties.
Don’t miss out on an excellent opportunity simply because the property happens to be located out of town. Many professional investors have had tremendous success investing in properties that are outside of their local regions.
Being diligent with research upfront can prevent major problems down the road. Taking the time to check out all of the facts before you buy, and establishing your rental to run independently of you being around 24/7 is a wise strategy that will help you to set your investment up for success.