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Guide: Out-of-State Real Estate Investing

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Location, location, location. It’s no secret that housing markets across the United States vary widely in terms of average home values. For example, the median home price in California is about $578,267, while the median home price in Pennsylvania is less than half this value at $198,377.

If you live in an area where real estate values are very high, you might want to consider out-of-state real estate investing. Out-of-state real estate investments can provide you with more housing investment opportunities, particularly if you live in an area where demand (and prices) are exceptionally high. Our guide to out-of-state real estate investing will help you understand your options. 

Investing in Out-of-State Property

Purchasing real estate outside of your home state is more difficult and time-consuming than buying a home in your local area — but it isn’t impossible. Here are the basic steps you’ll take when you buy a property from out-of-state.  

  • Locate an investment area. Arguably the most difficult part of investing in a property from outside your state, you must first choose an area where you want to invest. Start by investigating the real estate markets of areas you’re familiar with: favorite vacation spots, towns you visited growing up or your old college town are all great places to begin.

You can also search for real estate markets by average price, housing affordability, mortgage originations and more. The ideal market to invest in will heavily depend on the type of real estate investment you want to make. 

If you plan to rent out the property, you should research each state’s landlord-tenant laws. However, if you’re looking to “flip” homes in need of repair, you might be more concerned with local property taxes. We’ll touch on a few housing market indicators you can use in your real estate investing search in the next section.

  • Choose a property and investigate further. Once you choose an area you want to invest in, you can use online real estate databases to see what’s on the market. However, you should never purchase a home solely based on online listings. Listings may be out of date, and they may not show you the full picture of the home’s condition.

Hire a local real estate agent or realtor to investigate the property on your behalf. He or she may be able to send you additional photos of the property and teach you a little more about the home in the context of the local housing market. Your agent will also be invaluable in helping you build a list of reliable repair technicians to call on if you decide to rent out your property.

  • Apply for a mortgage loan. When you find a property you want to invest in, it’s time to apply for a mortgage loan. Not every mortgage lender is authorized to issue mortgage loans in every state, so look for a lender that services your area of choice. For out-of-state investors, online mortgage lenders (like Better.com and Rocket Mortgage by Quicken Loans) can provide a convenient solution. Once you’re approved for a loan, you can submit an offer on the home.

Keep in mind that it’s more difficult to get a mortgage loan for an investment property than it is for a home you plan to live in. You might need to meet higher credit, income or credit requirements to qualify for an investment property mortgage.

  • Get an inspection. Before you close on your loan, be sure to get a professional inspection before you close. An inspection gives you a more intimate look at your home’s inner-workings and ensures that you aren’t buying a home with a ton of hidden problems.
  • Close on your loan. Once your inspection clears and your seller accepts your offer, you’ll close on your loan remotely. You can also choose to attend closing in-person if it’s possible for you to travel. 

Real Estate Investing Optimal Market

Out-of-state real estate investing opens a very wide range of cities, states and communities to invest in. How can you tell which area is worth investing in? Here are a few indicators to look for when you shop.

  • Housing starts: The number of housing starts in an area tells you how many new construction projects are currently in effect. If an area has a larger number of housing starts, it might mean that there will be more demand for housing, which increases rental rates and values.
  • Average home values: Take a look at how average home values in a certain ZIP code have changed over time. You can protect your investment by choosing properties in areas with rising home values.
  • Rental affordability: Rental affordability statistics tell you what percentage of an area’s population can afford average rent while spending about 30% or less of their income on rent. If you purchase a rental property in an area with higher affordability, you’ll have a larger selection of tenants — but you’ll collect less in rent. 

Best Investing Platforms for Out-of-State Real Estate

You don’t need to get a mortgage and manage a rental property from afar to invest in the real estate market of a different state. Real estate stocks, real estate investment trust (REIT) ETFs and real estate crowdfunding platforms can help you invest from your state with lower costs of entry and risk.

Learn more about a few of our favorite out of state real estate platforms below and learn how to invest in REITs and other real estate ventures. You can also read our full DiversyFund Review to explore the benefits and drawbacks of this unique platform. 

Minimum Investment
$500
Fees
No management fees
Get started securely through Diversyfund’s website
Minimum Investment
$500
Fees
No management fees
1 Minute Review

DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.

DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.

Best For
  • Those looking for an alternative investment beyond stocks and bonds
  • Individuals who aren’t sure they want to be landlords in the traditional sense
  • Investors who aren’t accredited
Pros
  • Only need to pony up $500 to get started
  • Open to investors all over the world
  • No expensive broker fees
Cons
  • You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
  • There’s only one real investment option, the DiversyFund Growth REIT
Minimum Investment
$10,000
Fees
1% – 1.75%
Get started securely through CrowdStreet’s website
Minimum Investment
$10,000
Fees
1% – 1.75%
1 Minute Review

CrowdStreet is a commercial real estate investing platform where people can invest directly in commercial projects. Unlike a brokerage firm, CrowdStreet isn’t a middleman. Instead, the platform acts as a marketplace where investors can pick and choose the best deals for their time horizon and strategy.

Available investments range from family living spaces to office buildings to storage facilities and investors can sign up for a free membership. Your investment options are limited to what’s live on the Marketplace and you’ll need capital to build a diverse real estate portfolio. Only accredited investors can access deals through CrowdStreet.

Best For
  • Investors looking for diversification away from stocks
  • Real estate investors interested in new opportunities
  • Accredited investors with lots of capital at their disposal
Pros
  • Unique opportunities available
  • Makes real estate accessible and understandable
  • Investors can devote capital to both debt and equity offerings
  • Offers quality education materials and answers to FAQs
Cons
  • Real estate is highly illiquid
  • Most properties require a minimum $25,000 investment
  • You’re limited to what’s on the CrowdStreet Marketplace
Minimum Investment
$1,000
Fees
2% – 3%
Get started securely through stREITwise’s website
Minimum Investment
$1,000
Fees
2% – 3%
1 Minute Review

Looking to diversify your portfolio and get into real estate? A real estate investment trust (REIT) that owns income-producing real estate may be a great place for you to start. Streitwise is a REIT that specializes solely in commercial real estate and has a low entry investment requirement of $1,000. Based in Los Angeles, Streitwise was created in 2017 by three veteran real estate investors who were frustrated that there wasn’t a good option for unaccredited investors to get into the commercial real estate market.

Streitwise focuses on investing in low-risk rental commercial real estate aimed at providing clients with consistent high-yield returns. The team invests in markets that are steadily growing and offer low-risk potential outcomes. While they’re still young and growing, the founders have built their business based on solid experience coupled with a vision for the future of investing. If you’re looking to diversify your current investment portfolio but feared real estate was too lofty a goal, Streitwise is worth exploring.

Best For
  • Investors looking to diversify
  • Investors with less than $200k in annual income
  • Passive traders
Pros
  • Consistent quarterly dividends
  • Low, transparent fees
  • Low investment minimum
  • Convenient and easy to use
Cons
  • Young company
  • Projections are uncertain
  • Limited portfolio
  • Limited technology
Minimum Investment
$500
Fees
0.85% asset management fee per year
Get started securely through Fundrise’s website
Minimum Investment
$500
Fees
0.85% asset management fee per year
1 Minute Review

Fundrise, a real estate investment platform, allows small investors to gain exposure to a diversified portfolio of real estate projects hand-picked by the Fundrise team. Investors can choose between a starter plan and three advanced plans, all designed to meet certain investing goals. Each plan gives you an exposure to a specific portfolio which comes in a form of eREITs and eFunds, custom-made products which are not traded on security exchanges.

Best For
  • Small real estate investors
  • Passive investors
  • Long-term investors
  • Beginners
Pros
  • Allows small investors to get exposure to commercial real estate
  • Diversification in the real estate sector
  • Goal-oriented investing
  • Relatively low fees
  • 90-day guarantee
Cons
  • Liquidity issues as eREITs and eFunds are not exchange traded
Minimum Investment
$5,000
Fees
Between 8% and 10% of the purchase price.
Get started securely through Roofstock’s website
Minimum Investment
$5,000
Fees
Between 8% and 10% of the purchase price.
1 Minute Review

Roofstock is a registered real estate broker and marketplace specializing in single-family rental properties. Unlike its competitors, Roofstock isn’t selling shares of properties through trusts or LLCs — they’re connecting buyers and sellers directly. Roofstock properties are carefully vetted by a qualified home inspector and come with a rental income guarantee. That’s right, Roofstock will pay you rent even if your property stays vacant.

Financial data on each property is available even to those who are not clients and nonaccredited investors are welcome to join free of charge. Cash and financing options are available when making a purchase, but Roofstock will tack on their own fees in addition to closing costs.

As the solitary owner of your property, you’ll be expected to fund repairs out of your own pocket. Still, Roofstock is a great way to get a foot in the door of the real estate industry and their fees are much lower than most of the competition.

Best For
  • Nonaccredited investors
  • Real estate investors with limited capital
  • Investors looking for income through rental properties
Pros
  • Free to sign up
  • No investment minimum
  • Ownership of real assets
  • Low fees 30-day money back guarantee
Cons
  • Single-family homes only
  • Need to finance repairs yourself
  • Requires down payments

Real Estate Risk and Reward

Out-of-state real estate investing comes with a number of unique advantages, including:

  • Enhanced affordability: If you live in an urban coastal area, local real estate may simply be out of your price range. Investing in more affordable states can allow you to own property without stretching your budget unsustainably thin.
  • Improved diversification: Even if you can afford your local real estate market, many investors choose to go out of state to add a layer of diversification to their real estate portfolio.
  • Access to more favorable landlord-tenant laws: If you live in a state with very strong tenant and squatter rights (like California) you may run into more issues evicting problem tenants and reclaiming your space after a tenant has been evicted. You can circumvent these laws by investing in a state with stronger protections for landlords.

Out-of-state investing also comes with a number of unique risks, including:

  • Inaccuracies in online listings: You can’t truly get to know a property without seeing it in person. Sure, you can look at photos and compare local property values — but you can’t smell mold or know that the thermostat isn’t properly calibrated from photos alone.
  • Unscrupulous contractors and property managers: Local property managers and repair professionals are an invaluable asset as an out-of-state investor. However, your distance from the property might put you at a higher risk of running into untrustworthy or shoddy contractors and agents who are looking to take advantage of your inability to verify the work.

Before you invest in a property out of your home state, be sure to weigh both the risks and rewards. 

Investing Out of State

Investing in real estate from out of state can be a challenge. But real estate investing no longer requires hours of driving and endless property tours. If you’re looking for a less active way to become a real estate investor, consider purchasing shares of a REIT instead.