6 Tips for Out-of-State Investors Interested in Alabama

6 Tips for Out-of-State Investors Interested in Alabama

Real estate investors enjoy the benefits of diversified portfolios, appreciation, and passive income, among other perks. But what if you don’t currently live in one of the best markets for real estate investing? The good news is that state lines don’t have to end your investing career before it truly begins.

If you’re not interested in investing in your local real estate market, an out-of-state locale like Alabama might offer lower prices, higher demand, or otherwise better fit the bill. In other words, modern real estate investors are no longer limited to their immediate geographical area and can find success buying investment property out-of-state.

Reasons to Invest, Even From Out-of-State

While there are countless reasons that investors choose to explore real estate, particularly out-of-state, some of the primary benefits include:

  • Passive income. Investment properties can bring in revenue with little work on your part, through both monthly rental income and home appreciation. 

  • Diversification. Spreading your investments around can minimize risk, boost profits, and reduce volatility. This includes diversifying your portfolio (stocks, rental properties, etc.) as well as your real estate markets.

  • Appreciation. Real estate values and rent rates historically rise YoY. 

  • Tax benefits. Qualifying real estate investors can take advantage of various tax write-offs and deductions.

  • Increased choice. With the right team, you can explore, evaluate, and purchase investment properties in diverse markets across the country.

Challenges of Out-of-State Investing

Buying rental property out-of-state isn’t always a cakewalk. You’ll want to develop a thorough understanding of the unique challenges you might face as an out-of-state investor. These include:

  • Oversight. Unless you live in Alabama, you won’t be around to manage the day-to-day operations of your rental property. You’ll need to find someone you can trust, ahem, to ensure your investment stays in tip-top shape. 

  • Tenants. Some markets, like Alabama, offer more highly-qualified renters than others. Because profit relies largely on finding the right residents, you’ll also want to ensure there’s plenty of demand.

  • Local rules and regulations. Each state has its own set of laws, customs, and norms when it comes to real estate investing. You need to develop a thorough understanding of each investment market’s rules and regulations, or work closely with a local expert.

  • Risk. There is always a degree of risk that comes with investing in real estate, out-of-state or otherwise.

Like any investment, you may encounter a few road bumps. Luckily, a little research and self-reflection ahead of time can help you approach out-of-state real estate investing with the confidence to overcome.

Why an Alabama Market

Location, location, location! When it comes to out-of-state real estate investing, finding the right market is critical. Alabama is home to many ideal investment markets, with Birmingham and Huntsville emerging as frequent favorites. 

Birmingham boasts a rich history, lively tourism industry, and extremely affordable housing. In fact, the city has been named one of the most affordable in the nation. Highly-ranked school systems, easy access to public transportation, and a strong economy also make Birmingham attractive. The art, culture, and food scenes definitely don’t hurt, either!

Huntsville similarly offers residents a low cost of living and high quality of life. The number of local jobs has shot up 13.4% in the last five years, but building permits have actually decreased. That means seriously high demand and limited supply. Prices also remain steady and predictable, unlike those on the coasts. A thriving economic landscape, characterized by job growth and a strong university system, round out this appealing city.

ROI in Alabama

Return on investment (ROI) plays a critical role in any investment. Before you purchase a property, you’ll want to develop some insight on potential ROI.

To do this, subtract the cost of the investment from the total expected return. This figure is considered the net profit. Divide the net profit by the original cost to determine a property’s ROI.

ROI Graphic

Keep in mind that this figure doesn’t factor in applicable fees, interest, or maintenance costs, and that it’s only a projection. Speaking with an expert can further clarify what you could expect to earn from a specific Alabama investment.

Networking in Alabama

In real estate, it’s not what you know, it’s who you know. Networking from another state can seem daunting, but connecting with local Alabama experts in any way can help set you up for success.

To connect with other investors in Alabama, consider online forums, virtual or in-person networking events, and good, old social media. Real estate investing is a highly social industry, and many people are more than willing to share their successes, failures, and recommendations. All you need to do is ask!

Choose a Alabama-Based Agent and Property Management Company

Once you’ve done some networking, it’s time to decide on partners. If you don’t live in Alabama, and your investment property isn’t down the street or across town, assembling the right team becomes the name of the game. Your real estate agent and property manager play a large role in the success of your out-of-state rental property.

You’ll want to consult a local agent who can provide specific Alabama knowledge, expert communication skills, and, potentially, even off-market deals. Ideally, this person will have extensive experience in brokering investment transactions and a portfolio of out-of-state clients.

In the same vein, your property manager will be your eyes and ears on the ground. Their job is to regularly inspect your property, interact with your residents, and report back to you. You want a property manager with high standards, extensive experience in single- or multi-family investment properties, and clear, frequent communication.

If you’re interested in an all-in-one solution, we can help! Evernest provides a local team of real estate professionals, from agents to property managers, in investment markets across the country. That includes Alabama. We can help clarify your buy box, find potential properties, make offers on your behalf, get property management in place, and place highly-qualified residents, all while you sit back, relax, and profit from a successful rental portfolio.

Get an Approval

Unless you’re a cash buyer, you’ll need to consider financing when purchasing out-of-state investment properties. Like any real estate deal, getting preapproved can streamline the process. Research applicable lenders, consider asking an expert for advice, and work with the lender to determine just how much you’re approved for. Completing the preapproval process before you begin the official search can help clarify your buy box, guide your strategy, and make your offers more competitive.

Get an Inspection

Successful real estate investors live and die by property inspections. This step provides priceless information on the Alabama home in question, and should never be downplayed or ignored once you’ve found a property.

If you’re buying an out-of-state rental property, odds are you don’t want to be intimately involved in the day-to-day. If you receive a negative or shoddy inspection and decide to move forward without any adjustments, you’re asking for trouble. Not only could you spend valuable time, energy, and resources fixing issues down the line, it could be an unenjoyable or even dangerous place for residents to live.

Great property managers (like ours) perform regular, thorough inspections to keep your property in tip-top shape. Extensive notes, photos, and prompt repairs all help ensure residents and investors alike remain happy.

Final Thoughts

Out-of-state real estate investing is an ideal way to take advantage of this red-hot real estate market, tap into favorable price-to-rent ratios, and overall grow your real estate investment portfolio. While the process may initially seem daunting, taking it one step at a time or partnering with an all-in-one solution, like Evernest, can help.

Source: This content was originally written for Evernest and published at Evernest.co.