By Fred Matera, CIO, Redwood Trust A lack of affordability will lead to near-term weakness,…
By Christian Knight.
If you are a real estate investor, I’m sure you have considered purchasing out of state properties. Maybe you already own investment properties across multiple states. As most investors will tell you, multi-state real estate investing can be quite difficult to execute. However, there are ways to increase your chances of success. Below is a list of four tips that will help you identify properties and maximize your opportunities as a multi-state investor.
Solidify your Business Model:
First and foremost, you will need to decide which investment method best aligns with your goals. If you are looking to make a quick profit with high ROI, the hot fix and flip trend may be an appealing option. If you are looking for a steady stream of income, the rental market is definitely calling your name. I advise selecting a business model and sticking to it before venturing to other strategies. This allows for a smoother and more efficient investment process, especially as you begin to branch out into multiple markets.
In addition to identifying your investment method, make sure that you secure financing that can support your business goals. If you want to fix and flip homes, consider finding an investment line of credit that works for you. CoreVest has several that are custom-tailored to the need of investors. If you want to buy and hold, make sure you find long-term financing that allows you to maximize your leverage and boost your rental income.
Research your Market:
Before investing across state lines, it’s important to understand the local market dynamics. Not all markets are the same. Choose the markets that best fits your business model. A good buy-and-hold market might not be so great for flipping, and vice versa. A few things to examine when researching multiple markets are state laws, population and economic trends in addition to real estate trends.
If you are looking to hold long-term rental properties, it’s important that you invest in states and counties that have landlord and owner-friendly laws. These laws will make it easier for you to evict non-paying tenants quickly and cut your losses. Areas with tenant-friendly laws can drag out the eviction process, which means you will be missing rental income for a much longer period. Next, make sure that you identify a market with a strong population and job growth. These markets will have a healthy supply of renters and buyers in need of a place to call home. In addition to the economic health of a local area, there are few key trends that all investors should investigate before purchasing an asset. Investors in the flipping market should analyze inventory, sale prices, how quickly homes are selling, and how many homes have sold in that specific market over the last year or so. Buy-and-hold investors should pay close attention to historical rents and occupancy.
Choose your Assets:
Like all investments, diversity is key, especially when investing across multiple states. Luckily for investors, there are plenty of options. Investors can choose between single family homes, individual apartments and condos, smaller 2-4 unit properties, and larger multifamily properties. It’s going to be important to identify which assets perform best in your market of interest since all markets differ.
In addition to asset type, there are other purchasing options to consider. Are you going to be able to do rehab work on the property? If not, exploring turn key assets may be a great option for you. Turn key homes are fully rehabbed, have paying tenants in place, and often have a management team in place. They are a safe alternative to doing the rehab work yourself, but typically have a higher purchase price and lower rate of return. Another way to diversify your portfolio is by purchasing section 8 housing. Section 8 assets are often sought after by qualifying renters and a large portion of your rent payment is subsidized by the government. It can be a great stable alternative for investors, depending on the market.
Focus on Operations:
Finally, operations are your most important key to success when it comes to multi-state investing. Make sure your investments are operating smoothly and efficiently. The best way to do so is by finding a property manager that you can trust if your assets are not self-managed. Expenses can add up quickly if properties are not well maintained, especially when the assets are scattered across the country. Make sure you assemble a team that is going to take care of your property like it’s their own.
In addition to hiring a trustworthy property manager, make sure that you are saving and allocating funds properly. If something needs to be replaced in a few of your properties, you don’t want to have to scramble to find the money for the repairs. Make sure that you are setting aside a healthy chunk of cash each month to account for potential costs. As they always say, it’s better to be safe than sorry.
While these are just some of the tips to improve your multi-state investing chances for success, there are countless other facets to consider. One underlining key, however, is the willingness to invest the time to do your homework before investing across state lines.
Looking for more tips or the capital to finance your multi-state portfolio? Our creative financing options have helped thousands of investors to fund more than 30,000 investment properties and close over $4 billion in loans. Are you looking to explore your options? CoreVest is the leading lender to residential and small multifamily real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions.