Why So Many Investors Buy Out of State: The Out-of-State Advantage – Part 1

As a new real estate investor, you might assume that buying property close to home is the safest bet. But what if we told you that some of the best opportunities could be waiting for you hundreds of miles away? In this guide, we’ll explore why savvy investors are increasingly looking beyond their backyards and embracing the powerful advantages of out-of-state investing.

Out-of-state real estate investing offers access to more lucrative markets, better cash flow potential, and diversification opportunities. Investors can tap into high-growth areas, take advantage of lower property prices, and build a geographically diverse portfolio that minimizes risk and maximizes returns. This strategy allows investors to overcome local market limitations and capitalize on emerging economic hotspots across the country.

Intrigued? You should be! Whether you’re looking to expand your portfolio or make your very first real estate purchase, understanding the out-of-state advantage could be the key to unlocking your investment potential. So grab a cup of coffee, get comfortable, and let’s dive into why crossing state lines might just be your smartest move yet.

1. Access to More Affordable Markets

One of the most compelling reasons investors look beyond their local area is the stark difference in property prices across different regions. It’s no secret that real estate markets can vary dramatically from one city to another, but the extent of these disparities might surprise you.

Consider this: while the median home price in San Francisco hovers around $1.3 million, you could snag a similar property in a thriving Midwestern city like Columbus, Ohio, for just $200,000. That’s not just a difference – it’s a game-changer for investors looking to maximize their purchasing power.

This affordability factor plays out in several ways:

Lower entry costs allow you to acquire more properties or higher-quality assets with the same investment capital.
Reduced mortgage payments can lead to better cash flow, as your rental income is more likely to exceed your monthly expenses.
You might be able to buy properties outright, eliminating mortgage payments altogether and boosting your returns.
The potential for appreciation remains strong in many affordable markets, offering the best of both worlds: immediate cash flow and long-term value growth.

By looking outside high-cost areas, you’re not just saving money – you’re potentially setting yourself up for stronger returns and a more robust investment portfolio. It’s like finding a secret sale that only savvy out-of-state investors know about!

2. Tapping into High-Growth Areas

While affordability is crucial, smart investors know that the real gold mine lies in identifying markets poised for significant growth. This is where out-of-state investing truly shines, allowing you to cherry-pick locations with the most promising economic indicators.

So, what should you look for when hunting for these high-potential areas? Here are some key factors:

Population growth: A steady influx of new residents often signals increasing housing demand.
Job market expansion: Cities attracting new businesses and creating jobs tend to see rising property values.
Infrastructure development: Major projects like new transportation hubs or revitalization efforts can transform neighborhoods.
Lifestyle appeal: Areas becoming popular with millennials or retirees often experience rapid growth.

Take Austin, Texas, for example. Over the past decade, it’s been a poster child for explosive growth, driven by a booming tech sector, a vibrant cultural scene, and a steady stream of new residents. Investors who recognized this trend early have seen remarkable returns on their investments.

But Austin isn’t alone. Cities like Boise, Idaho; Raleigh, North Carolina; and Nashville, Tennessee are all experiencing their own growth spurts, each with unique drivers and opportunities. By casting a wider geographical net, you increase your chances of finding these diamonds in the rough before they become the next big thing.

Remember, getting in early on a rising market can mean substantial appreciation over time, on top of any immediate cash flow benefits. It’s like planting seeds in the most fertile soil – with proper care and a bit of patience, your investment has the potential to grow into something truly impressive.

3. Diversification: Spreading Your Risk

You’ve probably heard the old adage, “Don’t put all your eggs in one basket.” This wisdom is especially relevant in real estate investing, where geographic diversification can be a powerful tool for managing risk and maximizing returns.

When you invest solely in your local market, you’re essentially tying all your real estate fortunes to a single economy. If that market takes a hit – whether from a major employer leaving town, natural disasters, or broader economic shifts – your entire portfolio could suffer.

Out-of-state investing allows you to spread that risk across multiple markets. Here’s why that matters:

Different markets often move in different cycles. When one area is in a slump, another might be thriving.
Economic factors affecting one region (like oil prices in Texas) might not impact others, providing a buffer against localized downturns.
You can balance high-growth, higher-risk investments with more stable, cash-flowing properties in different areas.
Diversification allows you to take advantage of various local tax laws and landlord-friendly regulations.

Consider the example of an investor who, prior to 2008, had properties spread across Phoenix, Atlanta, and Dallas. While Phoenix and Atlanta saw significant value drops during the housing crisis, Dallas remained relatively stable. This diversification helped the investor weather the storm much better than if they had been all-in on a single, hard-hit market.

By building a geographically diverse portfolio, you’re not just protecting yourself from potential downturns – you’re positioning yourself to capitalize on growth and opportunities across a much broader playing field. It’s like having a real estate safety net that can also catapult your returns.

4. Escaping Local Market Limitations

Sometimes, the grass really is greener on the other side – especially when it comes to real estate investing. Many investors find themselves frustrated by the limitations of their local market, only to discover a world of opportunities once they look beyond state lines.

Common local market challenges include:

Extremely high property prices, making it difficult to find cash-flowing investments
Saturated markets with fierce competition from other investors
Strict regulations or rent control laws that limit profitability
Stagnant job markets or declining populations, hampering long-term growth potential

Out-of-state investing provides solutions to these issues by allowing you to choose markets that align perfectly with your investment goals. Whether you’re looking for immediate cash flow, long-term appreciation, or a balance of both, there’s likely a market out there that fits the bill.

Of course, the idea of investing in an unfamiliar area can be daunting. The key is to approach it methodically:

Start with thorough research. Use online resources, connect with local real estate associations, and consider visiting potential markets in person.
Network with other investors who are active in the areas you’re considering. Their insights can be invaluable.
Work with local professionals – real estate agents, property managers, and contractors who know the market inside and out.
Start small. You don’t need to go all-in immediately. Begin with one property and scale up as you gain confidence and experience.

Remember, every successful out-of-state investor was once a newcomer to distant markets. With the right approach, you can overcome the “fear of the unknown” and tap into opportunities that simply don’t exist in your backyard.

5. Leveraging Professional Property Management

One of the biggest concerns for potential out-of-state investors is the idea of managing a property from afar. How can you handle maintenance issues, screen tenants, or deal with emergencies when you’re hundreds of miles away? The answer lies in professional property management – a service that not only solves these problems but can actually enhance your investment’s performance.

Here’s why professional management is a game-changer for out-of-state investing:

Local expertise: Property managers know the market, understand local laws, and have established relationships with vendors and contractors.
Time-saving: They handle all day-to-day operations, from rent collection to maintenance coordination, freeing you to focus on strategy and growth.
Tenant relations: Good managers excel at finding and retaining quality tenants, potentially reducing vacancies and turnover.
Emergency handling: No need to hop on a plane for every issue – your management team can address problems promptly and efficiently.
Financial reporting: Regular updates keep you informed about your property’s performance without requiring constant personal oversight.

When choosing a property management company, look for:

A proven track record in the specific market where your property is located
Clear, transparent communication and reporting processes
A comprehensive understanding of local landlord-tenant laws
Positive reviews from other investors and tenants
A fee structure that aligns with industry standards and your investment goals

While there’s an additional cost involved, many investors find that professional management more than pays for itself through better tenant retention, reduced vacancies, and efficient operations. It transforms out-of-state properties from a potential headache into a truly passive investment opportunity.

Conclusion: Embracing the Out-of-State Advantage

As we’ve explored, investing in out-of-state real estate opens up a world of possibilities that simply aren’t available when you limit yourself to your local market. From accessing more affordable properties and high-growth areas to building a diversified portfolio and leveraging professional management, the advantages are clear and compelling.

Let’s recap the key benefits:

Affordability: Tap into markets where your investment dollars stretch further
Growth potential: Identify and invest in areas poised for significant appreciation
Diversification: Spread your risk and opportunities across multiple markets
Expanded opportunities: Overcome local market limitations and find properties that truly match your investment goals
Professional management: Turn distant properties into hands-off, passive investments

Of course, successful out-of-state investing requires thorough research, careful planning, and a willingness to step out of your comfort zone. But for those who take the plunge, the rewards can be substantial.

As you consider your next real estate move, we encourage you to think beyond your local boundaries. Start researching potential out-of-state markets that interest you. Look at economic indicators, property prices, and rental demand. Connect with other investors who have experience in these areas.

Remember, every successful real estate empire started with a single property. Your next big opportunity might be waiting just across the state line.

Stay tuned for Part 2 of our series, where we’ll dive into the practical steps of getting started with out-of-state investments. Until then, happy researching, and here’s to expanding your real estate horizons!