What Should I Know Before Buying Rental Property in a Different State?

Read some of the main things to consider before investing in and letting a property in another state or offshore.

Filip Dimkovski
By Filip Dimkovski
Edited by Taj Schlebusch

Published May 13, 2021.

Buying and owning property is rarely easy or simple. When the property in question is in a distant location, the challenges multiply. Nevertheless, investing in out-of-state property might seem appealing if you live in an area where real estate is expensive.

Firstly, keep in mind that either you have to manage the rental property from a distance or hire a property manager, so choose what works for you.

Also, it may require constant pest control, termite treatment, roof shingle repair, gutter cleaning, hot-water heater replacement, dishwasher installation, and midnight plumbing.

The next thing you should know is that you should never invest in a market you do not know and have not scouted personally. Cash-flow math is key to making good cash-flow investment decisions, but so too are your personal beliefs of the market dynamics.

Lastly, when purchasing a rental property, especially rental property out-of-state, you're likely to encounter higher homeowners insurance rates, higher mortgage interest rates, and higher down payment requirements. Lenders consider rentals riskier than owner-occupant mortgages.

You'll also complicate your tax situation by owning rental property and earning income in more than one state. I’d advise you to hire yourself an income tax professional.