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Friday, 25 September 2015 05:00

Should you Invest in Out-of-State Rental Property?

Out-of-State Rental Property - The Inside Scoop

turnkey rental investingAre rental home loans in your area getting more expensive due to rising real estate prices? Property and mortgage has risen significantly in the past few years and rental portfolios are no different. Great rental properties are now harder to find. So should you look outside your operations area, probably another state? Let's find out.

What are turn-key rental homes?

Turn-key properties have various definitions. Generally, a property well-repaired and ready-to-move can be termed turn-key. If a rental home, it should be well managed by a rental property management firm and possibly on a long-term lease. Such rentals are becoming popular since you can buy them without having to deal with a local Realtor in that area. However, there is always an air of caution in turn-key properties since exact performance of out-of-state properties is hard to measure.

How is Buying Turn-Key Property same as Buying an Investment Property?

Turn key properties are a great addition to your rental home portfolio. They may not be available at rates well below the current market prices. But they have good returns potential, require fewer repairs and attract good tenants. In case of traditional rental home loans, the returns can be in the range of 15 to 20 percent. However, in turn key real estate, the returns can be around 10 percent. With turn key homes, you would want to pay a higher prices since the rental deal is already in place, the home is well kitted and you can simply start making money the day you sign the deed.

What these properties promise are a diversification in your rental properties. When buying a rental property, there are gems and there are stones. Turn key represent the gems meaning they more credible in the eyes of the lenders. A rental home in another state would not only help diversify the portfolio but also make the portfolio immune to extreme losses due to sliding real estate prices in home state.

Turn Key Properties and the Returns Quagmire

It all depends on the initial price and the rent ratio. There is on point in buying an expensive turn-key only to wait 30 years to recover the capital. For example, if a turn-key property is retailing at $50,000 and can generate around $700 or so in rent per month, it would be considered an awesome ratio. Such a cash flow can justify the long term investment potential as well as the timely repair expenses.

This bring us to the important question: Is it worth buying cheap rental properties? If you have cash, then it is always a good strategy to buy cheap rental properties. However, if you have to apply for rental home loans, go for decently priced ones and factor in the loan payments before calculating the actual profit.

Conclusion

Buying an investment property involves research. And in case of out-of-state rental homes, you need a good local dealer is you are new to the rental business. Do not go only or diversification and do the math about returns on investment.

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