The pros and cons of a long-distance rental investment
Investing in real estate isn't for the faint of heart. The upside is obvious — you get a chance to diversify your portfolio, collect what could be a steady stream of rental income, and have someone else's money paying the mortgage on a property that could gain a lot of value over time.
But investing in real estate carries risk. Your property might sit vacant, leaving you to cover its mortgage — or worse. Your property taxes could rise. Things could break. Or a tenant could do far more damage than what their security deposit covers and leave you on the hook for the bill.
When you invest in a long-distance rental, the potential for complications could increase. Since you're not there all the time to oversee the property, your tenants might have an easier time violating your rules (such as smoking when the lease forbids it or having pets when they're not allowed).
Also, being many miles away from your rental makes it challenging to address repair issues as they arise. You could hire a property manager who's local to oversee your rental for you, but that'll eat into your profits.
Coastline Equity says that property managers typically charge fees as a percentage of monthly rent collected. A common range is 4% to 12%. Maintenance fees may be extra.
On the other hand, buying a long-distance rental investment could make it possible to tap into a less expensive or less saturated market, and one that is emerging. If your local area is filled with available rentals, there’s more competition. And if your local area is expensive, a rental property may not fit into your budget. So going outside your immediate geographic area could work to your benefit.
Also, buying a rental property in a new area might afford you the opportunity to spend time and discover another place you enjoy. If you’re fairly young and unattached, you might even look forward to visiting a different city a few times a year to check in on your rental (and potentially getting to write off that trip as an expense on your taxes). And as a retiree, you might appreciate the change of scenery.
Also, depending on the nature of your long-distance rental, it could serve as a vacation spot for you. This may not work with a property you rent out on a yearly basis. But if you live in the mountains and buy a rental property 300 miles away near the beach that you rent out week by week, you can block off a few weeks to enjoy that property yourself. And that way, you can visit a favorite area repeatedly without having to worry about securing lodging.
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
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Learn MoreHow to make smart long-distance rental investment decisions
A 2024 Clever survey found that 90% of residential real estate investors have lost money on an investment. And 87% have regrets about investing in real estate. So if you’re going to buy a long-distance rental property, it’s important to do your research.
First, get the scoop on the local market. This may be easier with the help of a real estate agent who knows your prospective area very well and who will be familiar with the local rental trends. Find out what vacancy rates tend to look like and ask for numbers to see what sort of rent you can reasonably expect.
There are certain types of areas you may want to focus on for a long-distance rental. First, areas with highly rated school districts tend to be a draw. You can research school districts here.
Secondly, college towns tend to be perpetually busy, with students and staff alike needing housing on a year-to-year basis. The same holds true for areas with large hospital systems. Medical residents often need housing close to work. The same holds true for areas with booming job markets or industries.
You can also look at rentals that are in close proximity to attractions like theme parks, beaches, and ski resorts. But again, it pays to work with a real estate agent, because some of these areas may be fairly saturated with rentals already.
Another thing you may want to look at is up-and-coming neighborhoods — those that are being developed but aren’t quite there yet. Neighborhoods in this category often allow investors to get in at lower price points and then profit when property values soar.
You'll also want to be mindful of local landlord-tenant laws in any area you opt to buy. To this end, you may need — not just a good real estate agent — but an attorney as well.
If you're going to buy a long-distance rental, you'll also need to have the right support system in place. That could mean hiring a competent property manager (or property management company) familiar with the area and that can handle day-to-day operations effectively. Alternately, it could mean maintaining a list of trusted contractors in the area you can call in a pinch.
There are also different online tools landlords can use to manage their rentals, like Avail or Rent Manager. It pays to explore different options to see which platform you find easiest.
Finally, before you buy a rental property in an area you’re not familiar with or close to, spend some time there and talk to the locals. That may give you enough insight to decide whether you’ve chosen the right location for a long-distance rental, or whether you’re about to make a decision that groups you with the other 87% of those who regret such an investment.
In the end, if you decide that buying a rental property outright isn’t for you, you can always explore other ways to invest, such as with real estate crowdfunding platforms.
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