So you own/or are looking to own a property that’s out of state. Maybe you are moving and deciding that instead of selling your home, you’ll rent it. Maybe you bought it for someone else, as a way of helping him or her get on his or her feet and offer financial support. Or maybe you just really like the prospect of someone else paying your mortgage, helping you build equity.
Whatever the situation, owning property out of state can have its cons. So if you’re a beginner at the process, or are considering whether or not you want to be a landlord, here are 4 major topics to consider before committing to a property you don’t plan to reside in.
- First, what’s your home ownership experience? Is this your first house? Have you ever had to deal with ownership issues and repairs? I don’t mean changing light bulbs and painting rooms. Rather, have you ever had to experience costly repairs like fixing a roof, dealing with a heating problem, appliance installation or the inevitable plumbing problem that decides to happen in the wee hours of the morning? My point is, ownership comes with certain surprises that require immediate attention and money, which can be all the more difficult to deal with if you are an “absent” landlord.
- Second, have you ever been a landlord before? If you’ve never managed tenants before, out-of-state property investing might not be the best way to start. Absent landlords don’t pose the threat of a “pop in,” to check in on property use, collect rent that’s a bit behind or enforce the responsibilities delegated to the tenant. Being absent may instead require a trustworthy team of paid professionals, such as a real estate agent, contractor, or property manager, all of which cost money and may cut in the profits you hoped for. And don’t forget the tax implications too – a good tax professional may be necessary as well in order to handle out of state income.
- Third, what do you stand to gain from the investment? Have you done some research? Do you have a good idea about the surrounding area, the trends of the community, the demographics and the supply and demand of what you have to offer? What would make this investment a success and over what time period? Property is often best viewed as a long-term investment, not short-term.
- Finally, do you have a solid contingency plan? Real estate is not like other investments. You can’t just “sell” a property like you can sell a stock any given day of the week. More specifically, is your cash flow strong enough that you’ll be able to withstand lower rents and higher maintenance/vacancy costs than you anticipated? Do you have liability insurance?
There are a lot of pros to owning property, even if out-of-state. But just make sure you have all these questions answered before making this important financial decision. If you have questions or aren’t sure how to handle this type of life situation, give us a call. We’re here to align your personal values, vision and wealth.
The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations for any individual.