A lot of eager investors living in high cost-of-living areas are faced with $500,000 starter homes that don’t even cash flow. This has become a common problem, where many local markets have become too expensive to generate meaningful returns.
This leads many investors to start considering new markets. Out-of-state rental property investing lets you access markets where $150,000 - $300,000 can still buy a decent rental property with more attractive cash flow potential. But buying rental property hundreds of miles away from home comes with real risks that can sink your investment if you're not prepared.
This guide shows you some savvy ways to evaluate out-of-state markets, avoid the biggest mistakes, and find properties with the potential to generate the returns you need.
Why invest in rental property out of state?
There are four key reasons why investors purchase rental property out of state:
Target geographic areas with strong population and job growth. Think Dallas, Tampa, or Nashville. Cities adding jobs attract renters willing to pay market rent.
Diversify your rental property portfolio with markets that match your investment strategy. Mix high-cash-flow markets like Cleveland with appreciation plays like Raleigh.
Focus on the type of returns you're looking for. If you’re looking for $500+ monthly cash flow per property, $250,000 houses in Memphis might deliver better cash-on-cash returns than $600,000 condos in San Diego.
Lower operating expenses in markets with fewer regulations, lower property taxes, and landlord-friendly laws. For example, Texas has no state income tax and fast eviction processes, while places like California have rent control and months-long eviction timelines.
Advantages of Owning Out-of-State Rental Property
Some real estate investors swear by the 30-minute rule, which says only buy properties within a 30-minute drive of your home so you can easily check on them, make repairs, etc.
That might work if you live where great rental deals are plentiful. But if you're in a market where median home prices are $500,000+ and cap rates are under 4%, the 30-minute rule could destroy your portfolio's financial performance.
Here are some top advantages to being a long-distance real estate investor:
1. Rental Property Is More Affordable
Successful real estate investors know that money is made when the property is purchased, not when it's sold.
Let's say you have $30,000 to invest. In a $300,000 market, that's a 10% down payment with higher monthly payments. In a $150,000 market, that's a 20% down payment with lower debt service and stronger cash flow from day one.
Here's how the numbers break down:
$300,000 property: $270,000 loan at 6% = $1,618/month payment
$150,000 property: $120,000 loan at 6% = $719/month payment
That $899 monthly difference goes straight to your cash flow. This also does not include the extra cost of mortgage insurance required when you have a down payment less than 20%.
2. Match Markets with Your Investment Strategy
Location is a significant determinant of your investment outcome when it comes to rental property.
For example, family-friendly suburban areas like Plano, Texas can be attractive for single-family investors targeting families who want good schools and safe neighborhoods. Dense urban neighborhoods like downtown Nashville attract young professionals willing to pay premium rent for walkable access to entertainment and jobs.
Before researching out of state markets, decide what your investment strategy is:
Cash flow focused: Target markets with low purchase prices and strong rental demand.
Appreciation focused: Target growing cities with job diversity and population growth.
Balanced approach: Mix of both in different markets.
3. Diversify Your Investment Portfolio
Diversifying an investment portfolio is a key strategy to reduce risk.
That's why tech-focused investors buy NASDAQ-100 ETFs instead of individual tech stocks, spreading risk across 100 companies instead of betting everything on one.
Real estate diversification works in similar ways. Instead of owning three properties in one city (where a major employer leaving could hurt all your properties at once), some investors choose to own properties in 2-3 different markets with different economic drivers.
Drawbacks to Out-of-State Rental Property
In our estimation, the biggest challenge to buying rental property out of state is committing time and effort to understand markets you don't know.
Here are some potential problems to watch out for when investing in markets that are less familiar:
1. Skipping Due Diligence and Buying Property Sight Unseen
To avoid this costly mistake, conduct thorough online research and work with a local investor-focused real estate agent and property management company. Get professional inspections and request detailed photos/videos before making offers.
One strategy is to look for a turnkey home, or one with a tenant already in place. When the property already has tenants, cash flow begins the day escrow closes instead of waiting months to get the property ready and find renters.
2. Landlord-Tenant Laws Favor Tenants Too Much
Some markets have laws heavily favoring tenants. While rental demand may be strong, regulations that make evictions difficult or expensive can limit your returns.
For example, California requires 30-60 day notices for most evictions and the process can take 6+ months. On the other hand, Texas allows 3-day pay-or-quit notices and evictions typically complete within 30 days.
Thoroughly research local laws by:
Talking to local property managers who deal with evictions regularly
Joining local real estate investor groups on Facebook, Reddit, or BiggerPockets
Reading your state's landlord-tenant handbook
Where to Look for Out-of-State Rental Property
Here are the best ways to find out of state rental property that matches your investment strategy:
1. Use a Property Listing Site Built Specifically for Investors
Unlike generic listing sites built for casual browsing, the Stessa investment property marketplace comes with built-in metrics like cap rate, gross yield, and projected rent to help you compare deals with confidence.
Key features include:
Investor-focused filters: gross yield, cap rate, cash on cash return
Proprietary metrics: rent range, neighborhood score, crime score
Map layers for visualizing market data
Property characteristics filtering
Instant buy box alerts
Be the First to Know When Your Ideal Opportunity Arises
Looking for a 3-bedroom single-family rental with a pool? Or a triplex with $2,000+ projected rent? Or anything in Little Rock with a 7%+ cap rate? Use specific property characteristics and investment metrics to build your custom buy box, and Stessa will notify you the instant matching properties hit the market.
Unlock Your Investment Edge with Smarter Underwriting
Stessa's parent company has provided institutional investors with powerful intelligence for years, and now brings you that same analytical edge. Access proprietary metrics like projected rent and neighborhood scores on every listing to analyze opportunities with confidence. Easily adjust models for your specific scenarios, ensuring no surprises come tax season.
Buy Without the Hassle
Ready to make an offer on your next investment property? Stessa connects you to vetted agents who specialize in working with investors, so they understand rental property analysis and can handle the buying process while you focus on finding your next deal.
2. Local MLS
There are hundreds of different MLSs across the U.S., each with unique inventory and local market data.
Speaking with local real estate agents who work with out of state investors is often the best way to learn market pros and cons. Look for agents who:
Work with other out of state investors regularly
Understand rental property investing (not just homebuyers)
Can provide market rent comps and expense estimates
3. Zillow
Housing data from Zillow Research helps investors analyze detailed real estate market statistics. Zillow offers three key data sets:
Zillow Home Value Index (ZHVI) provides seasonally adjusted typical home values and market trends by region and housing type
Zillow Rent Index (ZRI) provides estimated market rent by region and housing type
Zillow Inventory and Sales reports provide data on sold homes, sales counts, median sale price, and median price reduction during listing periods
Tips for Buying Out-of-State Rental Property
The system for buying out of state rental property varies by investor, so there's no one-size-fits-all formula.
However, these general guidelines help minimize risk regardless of your specific strategy:
Target markets with strong economies, population and job growth, and low unemployment rates: For example, cities like Dallas, Raleigh, and Tampa consistently rank high in job growth and population growth metrics.
Use rental property analyzers to forecast potential returns: Input purchase price, expected rent, taxes, insurance, and management fees to calculate cash flow, cap rate, and cash-on-cash return before making offers.
Minimize time to cash flow by investing in a rental property that’s in good condition and with tenants in place: Cash flow starts immediately instead of waiting months to find renters.
Begin the loan application process early: Some lenders require additional paperwork for out of state purchases compared to local financing.
Hire an experienced local property manager who works with out of state investors. Ideally, you want to look for managers who:
Provide monthly financial statements
Handle maintenance requests quickly
Have systems for tenant screening and placement
Consider professional property management companies like Mynd, which operates in over 40 markets across the country and specializes in single-family rental management.
Wrapping Up
Buying out of state rental property comes with risks, but investing the right way helps minimize those risks while maximizing your portfolio returns.
Key reasons for investing out of state include increasing cash flow and portfolio diversification.
Affordability, matching markets with investment strategy, and better returns are three main advantages to buying real estate out of state.
Turnkey rental property and experienced local property management help reduce the risks of investing outside your home state.
The best places to find out of state rental property are local MLS systems, Zillow market data, and investor-focused listing sites like the Stessa investment property marketplace.