Investing in Real Estate in Another Market: Pros and Cons
WHAT YOU'LL LEARN
Why investors look beyond their own city for rental property
The real tradeoffs of owning a rental you can't drive past
How financing works for an investment property in another market
WHAT YOU'LL LEARN
Why investors look beyond their own city for rental property
The real tradeoffs of owning a rental you can't drive past
How financing works for an investment property in another market
Investing in real estate in another market can give you access to lower purchase prices, stronger rent-to-price ratios, and a way to spread risk beyond one local economy. The tradeoff is distance. You'll rely on a property manager and a local team, and you may face unfamiliar landlord-tenant laws, insurance costs, and tax rules. Out-of-market investing tends to work best when the market is chosen on data and the team is in place before you buy.
It's a conversation Atlantic Bay Mortgage Bankers have often with buyers in higher-cost areas: "My down payment would buy a lot more house two states over. Should I be investing there instead?" Sometimes the answer is yes. Here's how to tell.
Why Investors Buy Outside Their Own Market
Your home market may be a great place to live and a hard place to invest. When home prices climb faster than rents, the monthly rent on a local property may not cover the mortgage, taxes, insurance, and upkeep. Another market with lower prices relative to rents can make the numbers work where your own can't.
Diversification matters too. Owning rentals in more than one area means a slowdown in a single local economy, a major employer leaving, or a spike in insurance costs doesn't hit your entire portfolio at once. If you're still deciding between renting and flipping, Atlantic Bay's guide to buying a house as an investment property walks through both strategies.
The Pros and Cons Side by Side
Pros of Investing in Another Market | Cons of Investing in Another Market |
Lower entry prices may improve monthly cash flow. | You can't easily check on the property yourself. |
You can choose a market based on the numbers, not your zip code. | Property management fees reduce your returns. |
Rentals in different areas spread your risk. | Landlord-tenant laws vary by state and city. |
More inventory to choose from. | Insurance, property taxes, and HOA rules may be unfamiliar. |
Your investing isn't capped by your own market's prices. | You may need to file a state tax return where the property sits. |
How to Evaluate a Market You Don't Live In
When you can't rely on gut feel from driving the neighborhood, the numbers have to do the work. Look at five things before you look at listings:
Rent compared to price. If typical rents barely cover a mortgage payment on a typical home, cash flow will be thin no matter which property you choose.
Vacancy and days on market for rentals. Low vacancies mean steadier rent checks. High vacancy means you should budget for empty months.
Jobs and population. A market adding employers and residents tends to support rental demand. One that depends on a single employer carries more risk.
Insurance and property taxes. These costs vary widely by state and region, and in coastal or storm-prone areas they can erase what looked like a bargain price.
Landlord-tenant rules. Lease requirements, security deposit limits, and eviction timelines differ by state, county, and city, so know them before you own there.
Your Local Team Matters More Than the Property
When you invest from a distance, the people on the ground are your eyes and hands. Before buying, line up a property manager, a real estate agent who works with investors, a home inspector, and a contractor you can call for repairs. A strong property manager is usually the most important hire you'll make, since they screen tenants, collect rent, and handle maintenance calls you can't take in person.
Buying from a distance is more manageable than it used to be. Video walkthroughs, digital document signing, and electronic closings can cut down on travel, and Atlantic Bay's long-distance homebuying tips cover how to stay organized when you can't be there in person. For a candid look at what owning a rental involves day to day, see what it's really like to be a landlord.
Financing a Rental Property in Another Market
A mortgage on an out-of-market rental is typically an investment property loan, which comes with different requirements than a loan on the home you live in. Investment property loans may call for a larger down payment, from 15% to 25% depending on the property type, along with cash reserves after closing. Depending on the loan program, a portion of the property's expected rent may be counted toward qualifying, documented with a lease or an appraiser's rent estimate.
The property also needs to be in a state where your lender is licensed to lend. If you already own a home or other financed properties, Atlantic Bay's guide to multiple mortgages explains how carrying more than one loan affects qualifying.
The Bottom Line on Investing in Another Market
Investing in real estate in another market isn't riskier by default. It's riskier when you buy on price alone. Investors who pick a market for its rent, job, and cost fundamentals, build a local team first, and budget for management from day one can turn distance into an advantage. Before you start shopping, an Atlantic Bay Mortgage Banker can show you what you may qualify for on an investment property and how a new loan fits alongside your current one.
Frequently Asked Questions
Chances are, if you're wondering about it, someone else has too. Here are answers to some of the questions we hear most often.
Yes, you can finance an investment property in another state as long as your lender is licensed to lend in the state where the property is located. Investment property loans typically require a larger down payment and cash reserves compared to a loan on your primary residence. An Atlantic Bay Mortgage Banker can confirm whether the state you're targeting is one where Atlantic Bay lends.
Rental income from the property you're buying may count toward qualifying, depending on the loan program. Lenders generally document expected rent with a signed lease or an appraiser's estimate of market rent, and typically count only a portion of that rent to account for vacancies and expenses. Your Mortgage Banker can explain how rental income would be treated in your situation.
A property manager isn't legally required, but most out-of-state investors rely on one because they can't respond to tenant calls, repairs, or showings in person. Build management fees into your numbers before you buy, since they reduce your monthly cash flow.
Many states tax rental income earned from property located there, which can mean filing a nonresident state tax return in addition to your home state return. Property taxes are also paid to the local jurisdiction where the property sits. A tax professional can explain the requirements for the specific states involved.