3 Important Things to Look Out for when Buying Real Estate
Buying a home is likely one of the most significant purchases most people will make in their lifetime, and the process can sometimes seem overwhelming. If the property you have your eye on is in a different market, or out-of-state, the usual transaction challenges multiply.
It is essential not to be discouraged, however, as investing in out-of-state property can be lucrative, especially if you notice that a market and it's demand is growing, or if you cannot afford to invest in real estate in your area. Investing out of state can also be a smart move if you wish to diversify your holdings.
If you're buying a property purely for investment purposes and intend to rent it out, it is even more crucial that you do your due diligence. From the inspection, to the appraisal and until the deal in finalized, with the correct advice and thorough research, you can ensure that your purchase is a sensible financial decision.
Here are the main things that you must consider when purchasing a single-family rental investment out of state.
Research the New Market
When you invest in an unfamiliar market, it is crucial that you research the area and its local economic conditions, not only at the neighborhood level but also at the city and state level. It is imperative that you find reliable professionals who can educate you about the market, as well as conducting your own research and asking questions.
Real estate laws differ between states and cities, so it is crucial that you understand all of the laws and regulations that affect property ownership and property taxes in your desired investment market.
Useful professional contacts in the area can be worth their weight in gold — literally! Purchasing a property for investment is a business decision and should be approached as such. A team of experienced professionals such as real estate agents, property managers, and contractors could be crucial to your success or failure. Take the time to find people that you trust and enjoy working with.
Do Not Skip the Inspection
Once you have found your perfect out-of-state investment property and negotiated the terms of the sale, you will have the opportunity to have a home inspection conducted by a professional inspector. This is a crucial part of the real estate transaction and should not be ignored.
A home inspection is a thorough examination of the condition of a home and is typically performed before the seller and buyer exchange keys. An inexpensive way to uncover any repairs or faults with the house, a home inspection can save you from purchasing a property in need of costly repairs.
If you are purchasing an out of state property, the home inspection becomes even more crucial. Homes in unfamiliar locations may face different wear and tear challenges to what you might expect. An experienced home inspector will inspect the general condition of the house and will assist you in understanding any issues that may be present.
A home inspector will also look at major systems such as the electrical wiring, plumbing, insulation, as well as structural features of the home such as the roof. Having an inspection on the home by a certified home inspector is almost a pre-insurance policy, and is even more crucial when buying out of state.
Have an Appraisal
Whether you're purchasing the property in cash, or financing the deal, having the property appraised by a licensed appraiser is a wise decision — and could save you from walking into a bad deal.
Typically, when a property is financed through a lender, an appraisal is required before the loan can be approved. This is to protect the lender from lending more than is needed for the home and taking on additional risk, and for the buyer to ensure that they are not overpaying for the property.
One of the benefits of paying in cash is that as a buyer, you are not required to have an appraisal of the home. It is important to remember that this isn't always a benefit, especially if you're purchasing out of state and unfamiliar with the area. Ensuring that your property is accurately appraised before closing could save you a lot of trouble when it comes to recouping your investment, as no one wants to own an upside down house!
If you’ve been considering investing in the Indianapolis real estate market, but you live out-of-state, it’s crucial that you seek advice from a knowledgeable professional with experience in the market. We would be happy to assist you with any questions that you may have! You can reach us here, and also check out our podcast for general financial advice and useful tidbits.