Buying Rental Property Out of State​

Last updated: January 9, 2025

Investing in rental properties is a proven way to build wealth, but opportunities in your local market might be limited by high prices or low returns. Buying out-of-state rental properties opens up possibilities in more affordable and more attractive markets, offering better returns, diversification, and access to emerging opportunities. However, success requires careful planning, diligent research, and leveraging the right tools and professionals.

This guide will provide a step-by-step roadmap for buying rental properties out of state, covering everything from market research to financing, insurance and property management.

Why Invest in Out-of-State Rental Properties?

Affordability: Your market may be prohibitively expensive or overly competitive. The price you pay matters -- as the saying goes "you make your money on the purchase". Out-of-state investments allow you to tap into regions with lower property prices and lower competition.

Higher Returns: Many out of state markets offer more attractive value -- i.e. rental yield, free cash flow, cash-on-cash return than your home market.

Optionality: With out-of-state investing, you have more options. You're not limited to your local market which may not always present attractive investment opportunities.

Diversification: Investing across multiple markets reduces risk tied to any single local market and economy. The counter-argument to diversification of markets is that building scale in each market is important as it presents opportunities to more reliably and cost-effectively manage your rental properties.

Emerging Markets: Growing areas with increasing job opportunities and population growth can lead to significant appreciation and higher rental demand.

Is Buying Out-of-State Rental Property a Good Idea?

Yes, but it is not without very real risks, and ultimately depends on your preparation and goals. While managing properties remotely poses challenges, building a strong local team and leveraging technology can help overcome these hurdles. If you’re ready to do the homework, out-of-state investments can deliver excellent returns and portfolio diversification.

Steps To Buying a Rental Property Out of State

1. Research Potential Markets

Identify markets that align with your investment objectives:

• Median Home Prices: Look for affordability relative to rental income potential.
• Average Rents: Ensure sufficient cash flow after expenses.
• Job and Population Growth: These indicators suggest stable or growing rental demand.
• Property Taxes and Expenses: Include these in your cash flow analysis.
• Landlord-Tenant Laws: Favorable laws can protect your investment.

Resources such as ChatGPT, real estate forums, online tools, and local economic reports are invaluable for market research. Here are some of the most attractive markets for out-of-state rental property investing:

• Huntsville, AL
• Prattville, AL
• Little Rock, AR
• Fayetteville, AR
• Jonesboro, AR
• Conway, AR
• Rogers, AR
• Orlando, FL
• Tallahassee, FL
• Orange Park, FL
• Augusta, GA
• Columbus, GA
• Warner Robins, GA
• Macon, GA
• Athens, GA
• Savannah, GA
• Ankeny, IA
• Des Moines, IA
• Cedar Rapids, IA
• Indianapolis, IN
• Greenwood, IN
• Lexington, KY
• Montgomery Village, MD
• Parkville, MD
• Jackson, MS
• Hattiesburg, MS
• Meridian, MS
• Lansing, MI
• Grand Rapids, MI
• Ann Arbor, MI
• Charlotte, NC
• Gastonia, NC
• Raleigh, NC
• Fayetteville, NC
• Columbus, OH
• Oklahoma City, OK
• Greenville, SC
• Columbia, SC
• North Charleston, SC
• Rock Hill, SC
• Simpsonville, SC
• Knoxville, TN
• Chattanooga, TN
• San Antonio, TX
• Harrisburg, PA
• Carlisle, PA
• Madison, WI
• Kenosha, WI

3. Sourcing Properties

Finding the right property is crucial for investment success. Consider the following methods:

• Off-Market Properties: Use platforms like OfferMarket to access off market deals not publicly listed.
• Turnkey Rentals: These are fully renovated properties, often with tenants and property manager in place. They’re perfect for investors seeking a hands-off approach and cash flow from day 1.

Evaluate each property’s location, condition, and rental potential to ensure it meets your criteria.

---

---

4. Build a Local Team

A trustworthy local team is essential for navigating an unfamiliar market. Key players include:

• Real Estate Agents: Specialize in investment properties and know the local market.
• Property Managers: Handle tenant relations, maintenance, and rent collection.
• Inspectors and Appraisers: Ensure property condition and fair market value.
• Contractors: Address repairs and renovations.
• Mentors: Networking with other investors in the area can also provide insights and recommendations.

Organization is critical, so keep track of these team members in a spreadsheet, CRM or property management software.

5. Conduct Due Diligence

Thorough due diligence minimizes risks. Steps include:

• Reviewing inspection reports.
• Analyzing rental income potential.
• Assessing neighborhood desirability.
• Verifying local zoning and rental regulations.
• Interview property managers.
• Reviewing deals with mentors, experienced investors you trust, property managers.

Ensure you understand all aspects of the property and market before committing.

6. Understand Financing Options

Financing out-of-state properties is a critical step. A popular choice for investors is the Debt Service Coverage Ratio (DSCR) loan, which bases approval on the property’s cash flow rather than your personal income. This is ideal for rental properties generating consistent income.

For 30 year rental property mortgage financing, consult with lenders experienced in DSCR loans to understand terms, rates, and requirements.

For projects involving the BRRRR method, connect with a competitive lender that offers a Fix and Rent loan or "BRRRR loan" which is a streamlined loan to purchase and rehab the property and then refinance into a DSCR loan once the property is rented.

---

---

7. Secure Landlord Insurance

Protect your investment with comprehensive landlord insurance, covering:

• Property damage.
• Liability claims.
• Loss of rental income due to covered events.

Work with an commercial lines insurance agent familiar with investor financing requirements to tailor coverage to your property that meets lender guidelines and your risk appetite.

---

---

8. Close on the Property

Once financing and due diligence are complete, proceed to closing. Hire a local real estate attorney (i.e. via a title company that is recommended to you) to ensure compliance with state-specific regulations. Verify all legal and financial documentation before signing.

9. Hire a Property Management Company

Managing a rental property remotely requires reliable property management. A good manager will:

• Market the property and find tenants.
• Collect rent and handle tenant communication.
• Coordinate maintenance and repairs.
• Ensure compliance with local laws.

It is ideal to have already interviewed property managers referred by trusted and experienced investors prior to closing as part of your due diligence process.

Turnkey Rentals: A Hassle-Free Option

Turnkey rentals are ready-to-rent homes, fully renovated, often already leased (tenant-occupied), and in some cases already with a property manager in place. They’re ideal for investors seeking a hands-off experience. However, turnkey rentals typically cost more and therefore deliver lower returns, so weigh the convenience against your financial goals.

Legal and Tax Considerations

Understanding state-specific landlord-tenant laws and tax implications is vital. Consult with a real estate attorney and tax professional to ensure compliance and maximize benefits. Consider setting up an LLC for liability protection and potential tax advantages.

The Role of Technology

Leverage technology for efficient management:

• Virtual Tours: Showcase properties to prospective tenants remotely.
• Property Management Software: Streamlines rent collection, maintenance requests, and financial reporting. This allows you to keep tabs on your investment, manage your property manager, and avoid surprises.
• Online Platforms: Use real estate intelligence services like PropStream for market research, sourcing off market properties, and even to track your portfolio to make sure you don't have any liens.
• On-demand Repairs: If you're self-managing from out-of-state (not recommended) use Uber-style handyman services like Thumbtack to coordinate repairs.

Real Stories: Lessons from Successful Investors

An OfferMarket member purchased a turnkey single family rental property posted on our investment property marketplace by a distressed landlord. The property was renovated the year prior and has already been filled with a tenant. Let's take a look at the numbers:

At the time of purchase (2021)

• Purchase price: $105,000
• Market value: $130,000
• In-place rent: $1,250/month
• Market rent: $1,400/month
• Annual taxes: $890
• Annual insurance: $500
• Property manager: No
• Cap rate on purchase price: 12.9%

Current status (January 2025)

• Market value: $145,000
• In-place rent: $1,450/month
• Annual taxes: $960
• Annual insurance: $550
• Property manager: No
• Repairs and maintenance, since purchase: $1,000
• Capital improvements, since purchase: $0
• Tenant turnover, since purchase: None
• Cap rate on purchase price: 10.9%

Because this property was truly turnkey, the tenants take care of the property, and there has been no turnover, there has been hardly any expenditure. Just a septic tank pump and a couple plumbing and electric maintenance calls. The rental investor got lucky with tenants who want to stay in the property, and who care for the property as if they own it. The rental investor has inquired about local property management but as of yet there has not been a need.

For each of these ideal out-of-state rental property investing outcomes, there are many more that did not go so smoothly. A great property manager is hard to find but worth every penny as they make your investment truly passive.

Buying first rental property out of state

If you're just getting started with out-of-state rental property investing, the goal is to keep it simple. It's easy to suffer analysis paralysis. If you're wondering how to buy out of state rental property, these are the things to focus on:

• Narrow your focus to one market -- spend some time researching the best markets for turnkey rental investing that align with your goals (cash flow, appreciation). Frequently ask yourself if the future you will be happy to own one or more properties in this market, or if the future you will be asking "why did we do this?". By this we mean, for example, buying a property in a rough neighborhood in Detroit will leave you regretful if the market doesn't turn around. Just like a stock investor focuses on the fundamentals, so too should you focus on the data including home price appreciation, population growth, median household income growth, tax rate, insurance pricing, poverty rate. You should strive to become an expert in this market, confident that it will be a good place to allocate your capital over the long term.
• Turnkey, high quality -- you don't want to be dealing with maintenance issues taking your time and draining your cash flows and reserves. Have an appraisal and home inspection and review with an experienced mentor or property manager.
• Work with an investor-focused agent -- clearly define what you're looking for and be ready to act quickly once you find a property that meets your criterial (price point, market rent, condition).
• Work with an experienced property management company -- interview multiple property managers, ask questions that get to the heart of how they run their business, how they manage properties, how they handle leasing, their unique perspective on the market.

Can I buy rental property out of state?

Yes, you can buy rental property as an out-of-state investor. There are no laws prohibiting you from doing so, though there may be laws that require a property manager if you are not within a certain proximity to the rental property. For more on this, read Do I need a business license for rental property​?

Final Thoughts On Out-of-State Investing

Out-of-state rental property investing offers significant opportunities, but it requires careful planning, research, and a strong local support network. Assess your goals, risk tolerance, and commitment to managing remote investments. Being out-of-state forces you to delegate because it's not practical to be hands on and actively manage -- this sets you on a path to truly passive investing, allowing you to spend time on other things, like finding your next rental property. With the right approach, out-of-state investing can become a cornerstone of your wealth-building strategy.

---

Grow and optimize your rental property portfolio with OfferMarket

OfferMarket is a rental property investing platform. Membership is entirely free and includes access to the following:

🏠 Off market properties
💰 Private lending
☂️ Landlord insurance rate shopping
💡 Community & insights

Our mission is to help you build wealth through real estate. If you are not already a member, we hope you will accept our invitation to join us!