"My Take" article from Housing News Report by ATTOM Data Solutions
The lines are becoming increasingly blurred when it comes to local versus out-of-state real estate investing.
Thanks in large part to advances in technology that allow investors to find — and easily assess — the performance of out-of-town rental properties, as well as the range of management options that landlords and investors have at their disposal, what was once an arduous task that represented considerable risk is fast becoming commonplace. Reaching outside of their own local marketplace is becoming the preferred course of action for many investors and landlords; and in most cases, isn’t that dissimilar to the prospect of managing property in their own hometown.
The freedom of long-distance investing opens up significant opportunities for institutional investors and everyday landlords alike; chiefly, the ability to take advantage of markets that are better than what’s available in their own local vicinity. Taking advantage of the wealth of diversity in various markets across the states allows an investor to handpick investments with the greatest potential; allowing them to grow their portfolio far more quickly than they’d be able to if they were limited to the pool of properties in their own hometown.
At Renters Warehouse, we’re proud to support investors who are looking to invest in out-of-town properties. Our team provides on-the-ground local support; making it far easier for investors to outsource the nitty-gritty daily activities of property management; freeing them up to instead focus on growing their portfolios.
Benefits of Long-Distance SFR
The ability to invest in up-and-coming markets that may be better than what’s available in one’s own backyard is one incentive for investing across state lines. Out-of-state properties often offer a better ROI than anything that’s available in an investor’s hometown.
“People who live in depressed areas but don’t want to move for work or personal reasons may be better off renting in their hometown and investing in real estate where the economy is stronger,” writes Amy Fontinelle, financial journalist and personal finance expert, highlighting the value of long-distance SFR investing. “For example, if you lived in Las Vegas, the city with the highest foreclosure rate during the 2008 subprime meltdown, you might have wanted to buy property in a market where median sales prices remained relatively stable, like Charlotte, North Carolina.”
But in addition to the chance to earn a higher ROI, long-distance investing also gives investors the option to diversify. Investing in properties located across state lines can serve as a safety net; allowing investors to pad out their portfolio with a range of assets that add a measure of protection from local and isolated market fluctuations.
At the end of the day, diversifying is a safer strategy — and something that investing in multiple markets allows investors to benefit from.
Outsourcing Property Management
Getting started with long-distance SFR has never been easier. Having a team on-call and able to respond to any issues that arise at the rental at a moment’s notice is ideal — and something that investors can assemble themselves by seeking to form connections with local tradesmen and real estate agents.
However, the easiest option by far is enlisting the services of one professional to oversee all aspects of property management. Having a dedicated and on-call professional property manager to be your eyes and ears on the ground can prove to be invaluable and is something that many investors are making a central part of their investment strategy.
For what’s generally a flat monthly fee, investors can offload a time-consuming task and gain peace of mind knowing that their property manager will be taking on all of the chores that would otherwise require the full-time presence of a landlord — including filling vacancies, collecting rent, arranging for repairs, and handling emergencies. A dedicated professional can take most of the work out of SFR rental management.
Hot Markets for SFR
While investors can browse websites like Zillow and Trulia to gather insight into how different markets are performing, it’s always worth connecting with a local real estate agent; someone who’s familiar with the market and able to provide firsthand information on the current rental climate. An investor-friendly Realtor will also be able to set an investor up with an MLS listings search; notifying them as soon as a property that meets their criteria hits the market.
According to OwnAmerica, 2019 and 2020 will present new opportunities for SFR investors in markets that were not part of the “first wave” of institutional investment in the sector. During the first wave, markets like Atlanta, Charlotte, Dallas, Phoenix, Jacksonville and Orlando attracted unprecedented capital from institutions, but have caused many investors to seek opportunities off the beaten path.
Cities like Memphis, Denver, Philadelphia, Pittsburgh, Columbus, Charleston and Detroit make the list of new markets attracting investors of all sizes. As macroeconomic drivers change, new geographies come into focus for the second wave.
Investors can also use real estate data analytics company HouseCanary’s helpful rental index tool to analyze a prospective property’s performance — no matter where it’s located. With this tool, investors can see the effective gross yield for rental properties across each of the 50 states, or even check the yield of individual metropolitan areas.
Of course, extremely hot markets may be largely out of the reach of everyday investors. For more promising SFR investment opportunities, investors would be wise to heed HouseCanary’s advice on sizing up potential investments, and look for opportunities in niche, but promising markets.
“Homes located near good schools and public transportation, homes located near significant local landmarks or attractions, and homes with attractive attributes and features are often able to rent (or sell) for above the local average fair market value,” Alex Villacorta, HouseCanary’s executive vice president of analytics, recently told Forbes contributor, Ellen Paris. “That’s why even in areas with low EGY (effective gross yield) relative to the national average, you can almost always find homes that have higher-than-average EGY.”
The availability of “diamond-in-the-rough” single family rentals is evident in the 2018 Neighborhood Housing Index published by ATTOM Data Solutions, which analyzed nearly 11,000 U.S. neighborhoods based on neighborhood quality (i.e. schools, crime etc.) along with potential yields for single family rentals.
ATTOM found that among 2,188 neighborhoods with the highest neighborhood quality — those neighborhoods were assigned an “A” rating — there were 494 with an annual gross rental yield of at least 10 percent, led by neighborhoods in Fayetteville, North Carolina, Sarasota, Florida, York Pennsylvania, Tampa-St. Petersburg, Florida, and Louisville, Kentucky.
No matter what market you’re buying in, it always pays to be extra diligent when searching for an investment that will perform well. Never operate on assumptions, and don’t neglect to run the numbers; always ensure that they’re in line with your investment goals. At the end of the day the success of your investment will depend upon the viability of your individual purchase — so look to buy property that’s undervalued, or work to negotiate a deal so that the terms will put your projected net returns within your investment criteria.