With annual rent yields for the single-family real estate market increasing by 91% over last year, landlords and real estate investors are looking for rental properties outside the local market. Buying investment properties in other states with better market values can maximize monthly rent income and cash-on-cash returns.
This article reviews the benefits of owning out-of-state rental property and provides tips on how to manage out-of-state rental property remotely.
Benefits of Owning Out-of-State Rental Property
Check out the benefits of how to rent out a house in another state.
Affordable Real Estate Markets
One of the key perks of owning an out-of-state real estate investment property is the flexibility to find more favorable home prices and rental market values in a different city or state.
For example, the average home price in New York is $716,097, and rental properties bring in around $3,750. Annual cash flow for a New York investment property would be -$26,604 over five years. In Florida, home prices are $390,856 on average, and rent is around $2,800. This works out to be $41,924 in annual cash flow over five years.
Lower Property Taxes
Owning multiple rental properties can lead to tax benefits, especially for real estate investment properties in states with landlord-friendly tax rates. Operating expenses can be cheaper for out-of-state real estate properties in areas with fewer regulations and lower property taxes. You might also be able to write off travel expenses for visiting a rental property out-of-state.
Diverse Real Estate Investment Portfolio
Real estate investing in out-of-state properties helps avoid relying on the local housing market. Purchase prices, appreciation rates, mortgage payments, taxes, rental market conditions, and other factors could become unsustainable for managing a rental property in one location. Distributing investment properties across various states can improve cash flow and potentially lead to higher overall returns.
Align Investing Strategies
Buying a rental property out of state makes it easier to choose a location that matches your real estate investing strategy. For instance, family-friendly neighborhoods close to schools might be great for investing in single-family rental properties.
On the other hand, densely populated downtown districts will typically attract millennials and singles willing to pay higher rent prices for smaller units in multi-family rental properties.
How to Manage Property Out-of-State
Managing a rental property out-of-state remotely presents unique challenges. However, proper planning and the right property management tools are the keys to understanding how to rent out a house in another state. Here are some tips for managing a rental property as an out-of-state landlord.
Hire a Local Property Manager
As an out-of-state landlord or real estate investor, having a local property manager can help deal with day-to-day issues, screen tenants, and advertise vacant property listings. While it’s an extra cost, having a property manager can save you stress and time. Hiring rental property managers is generally cheaper than hiring a professional property management company.
Understand Local Real Estate Market Laws
Fair Housing Laws for an out-of-state property might differ from those in your local market. Some differences could involve landlord and tenant rights, insurance requirements, maintenance standards, disclosure notices, and other rental property regulations. Always consult a legal professional to stay on the right side of the law.
Stay Organized and Accessible
Keeping your finances and all aspects of property management organized can’t be understated for managing an out-of-state rental property, both for long-term and short-term rentals.
How to Keep your Rental Finances Organized
Open a separate business bank account for your out of state property. With Baselane Banking, you can organize all your rental finances on one platform, and maximize your earnings by using the built-in bookkeeping, cash flow analytics, and reporting.
Baselane banking is created specifically for real estate investors. You can handle all your property finances on a single platform with no account fees, a high yield of 4.25% on all balances (including business checking accounts), and up to 1% cash back on your debit card.
In addition to everything you would expect from an online bank, Baselane also offers virtual accounts and debit cards, integrated rent-collection tools, and automated bookkeeping services that make tax time a breeze.
Keep Your Property Management Organized
Keep detailed notes on lease agreements, maintenance requests, schedules for making repairs, emergency contacts, and seasonal requirements. Also, make sure tenants and property managers can easily get a hold of you for any concerns or issues.
Use Rental Property Management Software
Leverage modern technology to make property management tasks more manageable. Use smart home technology to monitor rental properties remotely. Consider investing in a mobile access control system that allows you to control building access from anywhere.
Automate Rental Payments
Collect rent online to cut down on chasing tenants for late payments. If you’re using a property manager, you can use Baeslane to collect rent and have the property manager do everything else. Offer tenants the option to pay rent online using a debit card, credit card, or ACH bank transfer. Tenants should also be able to set up recurring rent payments. This saves time, eliminates the need for mailed checks, and creates an easy-to-reference record for tax purposes.
Visit Out-of-State Rental Property
Although frequent visits are optional, managing a rental property in another state requires a few in-person check-ins. Perform routine inspections inside rental properties to identify potential maintenance issues, like leaky roofs or plumbing problems. Routine inspections can also reveal upgrades for curb appeal and smart home technology that could increase rent prices.
Which is Better: Self Management or Property Management Software?
There are two ways to manage an out-of-state rental property—self-management or using property management software.
For real estate investors on a budget, the option to self-manage a property themselves may seem appealing. You could save money initially, but there are some risks that might not be worth it.
Self-management can work for landlords or investors who:
- Don’t mind being firm with tenants about rent and repairs
- Have a good grasp of state and federal laws (including taxes)
- Are part of a group that offers support and financial advice
- Know a lot about the housing market for an out-of-state rental property
Baselane Property Management Software
Baselane property management software can help simplify all of the moving parts of managing rental properties in another state. Simply sign up and link a bank account or open a free Baselane banking account to start collecting rent online and automating bookkeeping and accounting all in one place.
Baselanes property management software is ideal for landlords and property owners who:
- Want to automate tenant screening and online rent collection
- Are tired of managing multiple logins and spreadsheets
- Have several bank accounts for multiple properties and are having a hard time keep their rental finances organized
- Need help with evaluating market trends and real estate returns
Baselane rental property management software replaces dozens of spreadsheets and logins with an all-in-one platform for landlords and real estate investors. This software streamlines finances for one or multiple rental properties with automated income and expense tracking, online rent collection, and high-yield landlord bank accounts.
Managing out-of-state rentals requires strategic planning and modern tools. Key practices include engaging a local property manager, comprehending local real estate regulations, maintaining organization, and adopting property management software. Regular visits to the property also prove essential for direct evaluations.
Are you ready to simplify out-of-state rental property management? Sign up for a free Baselane account to get banking, bookkeeping, accounting, and rent collection all on one platform.