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Guide: Out-of-State Real Estate Investing

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Want to jump straight to the best? Diversyfund is definitely the best real estate investing platform for most people.

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 Listings may be out of date, and they may not show you the full picture of the home’s condition.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. 

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
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
Get Started securely through Arrived Homes’s website
Minimum Investment
$100
Fees
1% asset management fee
1 Minute Review

Arrived Homes is the latest player in the real estate investment industry. Differing from many of their counterparts, Arrived provides investment opportunities in the single-family homes, with a minimum investment of just $100.

Best For
Pros
Cons
get started securely through Groundfloor’s website
Minimum Investment
$10
Fees
No investor fees
1 Minute Review

Groundfloor is open to non-accredited investors and private individuals looking for active real estate alternative investment. Groundfloor has great volume with more than 10 investments. 

Individuals with small portfolios will also like the low $10 minimum and 0 investor fees. However, most of the loans are given to house flippers, and there is a risk of borrowers defaulting on their loans. 

Best For
  • Non-accredited investors: It is a good option for non-accredited investors who want to invest in an individual capacity.
  • Private investors with small portfolios: Groundfloor charges a relatively small premium of $10, which private investors with small portfolios find attractive.
  • Active-investors: Groundfloor is also ideal for investors who want to actively maintain and control their real estate portfolio.
Pros
  • Charges the lowest minimums in the industry
  • 0 investor fees
  • Open to non-accredited investors
Cons
  • Offers no bankruptcy protection
  • High rate of an uncured default
  • Many loans are for judicial-only states
Get started securely through Yieldstreet’s website
Minimum Investment
$1,000
Fees
average 1-2%
1 Minute Review

Yieldstreet is an alternative investment platform that allows you to access unique, diversified and expert-reviewed investments. From real estate offerings to works of art, Yieldstreet offers investments that have low correlations with the general markets, meaning they can act as a new source of portfolio diversity.

Yieldstreet’s platform is easy to initiate and use — open an account in just a few minutes and begin browsing available investments before your account is fully verified. Due diligence information is easy to find and clearly laid out, and most investments include additional resources to learn more about the investment’s industry or category. Although the majority of investments are only open to accredited investors, anyone can invest in Yieldstreet’s Prism Fund.

Best For
  • Passive income generation
  • Accredited investors
  • New investors looking for an intuitive platform
Pros
  • Wide range of expert-reviewed alternative investments
  • Investments that are pre-funded by Yieldstreet
  • Prism Fund open to non-accredited investors
Cons
  • Majority of investments only open to accredited investors
get started securely through Fundrise’s website
Minimum Investment
$1,000
Fees
0.85% asset management fee per year
1 Minute Review

Fundrise makes real estate investing affordable to investors. The easy-to-use crowdfunding platform gives you a fixed rate of return on top real estate properties in the U.S. 

Here’s why investing your money through Fundrise can improve your portfolio and earn you a reliable source of income.  

Best For
  • Investors with a limited financial budget
  • Investors looking to instantly diversify their portfolio
  • Long-term investors with at least 5 years of commitment
  • Investors looking to earn fixed returns higher than 8%
  • Passive investors who do not want to monitor the market regularly
  • Investors looking for a transparent investment process
Pros
  • Low minimum balance to sign-up for an account
  • Plenty of low-cost real estate investments
  • Many listed properties project a lower risk rate
  • Wide range of real estate investments in prime locations
  • Open to non-accredited investors
  • Regulated by the SEC
  • Consistent track record of high returns
Cons
  • Charges a fee on early withdrawals from investments
  • Customer support does not feature live chat
  • Liquidity issues as eREITs and eFunds are not exchange traded
Get started securely through FarmTogether’s website
Minimum Investment
$10,000
Fees
1% of your total investment + 1% per year in asset management fees
1 Minute Review

FarmTogether is a crowdfunding investment platform that allows you to pool money with other investors for agricultural opportunities. FarmTogether does have strict requirements for who can and cannot invest on the platform. 

FarmTogether’s platform is new and offers limited educational offerings. It doesn’t currently offer a mobile app, and it requires higher-than-average account minimums. However, as a newer platform, FarmTogether has potential that shouldn’t be ignored,  especially if you’re a higher-value investor looking for novel ways to invest directly in farmland real estate. 

Best For
  • Investors who want to invest in farmland real estate
  • Long-term investors who don’t mind investing in illiquid assets
  • Investors with a net worth of at least $1 million
Pros
  • Can invest directly in agricultural real estate
  • Can combine your investments with other investors for larger returns
  • Offers an easy-to-use platform that’s simple enough for total beginners
Cons
  • Higher-than-average minimum investments when compared to standard brokerage platforms
  • No mobile app currently available
  • Educational offerings are limited
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.  

Accelerate Your Wealth

DiversyFund accelerates your wealth creation by reinvesting cash flows from the properties — the DiversyFund Growth REIT is a public non-traded REIT designed to build wealth by investing in multifamily real estate and intends to build wealth over an approximate 5-year timeline. You don’t have to be an accredited investor to invest in Diversyfund. Open a Diversyfund account today.