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Have you ever wondered if you can buy a rental property in a faraway city where the housing prices are much lower than those where you live?
I have entertained that thought from time to time, especially given the expensive real estate market in the DC area.
What holds me back is the thought that I would have to either manage the rental property from a distance or hire a property manager, neither of which I want to do.
Today, we have a guest post from J at MillennialBoss.com. J will share with us the story of how she and her husband have successfully managed their rental property out of state for the past year.
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J is a twenty-something who dabbles in entrepreneurship and real estate while working full time in tech.
J blogs about financial independence and millennial career hacking on her blog, MillennialBoss.com.
She and recently launched FIRE Drill podcast where she interviews guests with amazing side hustles, real estate empires, and investing strategies.
The dilemma
“What now?” I asked my husband as we hung up with our realtor.
The buyer couldn’t get financing after we extended the contract three times, and we were STRESSED.
Carrying an expensive mortgage plus paying rent in Silicon Valley meant that we were running low on cash.
We didn’t want to put the house back on the market and go through that stress again, especially now that we were living in a different state.
Plus, we had a $450 water bill from when our realtor (our neighbor) turned on the sprinklers every day in August so the buyer (his investor friend) could have a nice green lawn when he moved in.
Good thing we didn’t respond to the peer pressure from the realtor to let the tenant move in before closing.
For all of these reasons, we decided to rent out the house.
Property manager – Yay or nay?
I blasted our listing all over Zillow, Craigslist and military listings (since we lived near multiple bases).
I also looked into getting a property manager. I had an intense job, and my husband wasn’t keen on managing a property out of state. Plus, we needed someone to show the house to perspective renters.
I called a few places and looked up more information through Google, but the 10% of rent standard cost of property management just didn’t add up.
We didn’t buy this house as an investment property, and we would barely break even with the rent, before paying the fee.
Our house was also just 15 years old (a baby in my eyes), and we couldn’t justify paying someone over $200 per month to likely do nothing.
We decided to forge ahead and manage the entire thing ourselves.
Managing rental property out of state
That was over a year ago and we’ve been successfully managing our own rental property out of state since.
Here are the 5 key things that enable us to be our own out-of-state property managers.
1. We rely on our existing network.
We lived in the state where we own our house for almost five years. We have plenty of friends and acquaintances that we could rely on for help.
We don’t ask for favors from friends though. Instead, we think about people we know who could benefit from helping us, and it would be a win for us both.
For example, we needed someone to host a few open houses for us so we could show the house to perspective renters.
We immediately thought of the young graduate student who we used to pay to walk our dog when we were at work.
She was looking for extra cash during the school year, and we were willing to pay her $20 to show someone the house for 15 minutes.
2. We made an agreement with the tenant up front.
When we found the tenant, we let him know up front that we were out of state, and that we would require a little more effort from him to maintain the house, including the yard.
Setting expectations with the tenant upfront was the best thing ever. We aren’t responsible for shoveling the driveway, mowing the yard, landscaping or plowing. The tenant does all of that.
We bought him all of the tools he needs to maintain the yard. (I wish we still had kept ours from when we lived there, but we sold them when we thought we were selling our home).
3. We find the help we need on Google.
The emergency plumber I found on Google was expensive, but he was much less expensive than paying a 10% property management monthly fee and for repairs on top of that fee.
The one time our kitchen sink leaked, we called a repairman and connected him directly with the tenant for scheduling. The tenant preferred it that way since he didn’t want to work through us as a middleman.
I happily paid the $250 bill over the phone.
Many big chains make it super easy for the landlord to pay over the phone and the tenant be the contact for the repairman.
4. We automate as much as we can.
We used the website LeaseRunner to do the background check and create the lease. LeaserRunner had state specific lease templates, so we leveraged the one for our state and added our own lines in as needed.
We would have used LeaseRunner’s online payment system as well, but our tenant does not want to do online payments. He sends us a check every month in the mail.
Some months, it takes a few days to get to us, but we carry extra cash in our checking accounts. We would prefer a good tenant who doesn’t bother us than getting the check on the first day of the month.
We also notified our Home Owner’s Association (HOA) that we have a renter in the house. The HOA now contacts him directly instead of going through us. Phew.
5. We’re on the same page.
When we agreed to rent the house, my husband and I committed to it 100%. I grew up seeing my Dad be a landlord and my Mom complain about it.
I knew how important it was for a relationship to be on the same page about managing a rental property.
Now admittedly, my husband and I are not equally chill about being landlords. We were on a ski trip with friends when we got a call from the tenant about the kitchen sink.
I could see my husband’s stress level rise as he was answering the call. He doesn’t love landlord duties. Luckily, his wife can Google any problem away, and we had the whole thing handled in 15 minutes.
What’s next for this house?
Our first lease was for 9 months. The tenant wanted the flexibility to buy a house and didn’t want to commit to a long lease. As we were approaching the 9 months end, we proposed an extension of another 9 months.
We wanted to time it right so that the house wouldn’t be vacant at the end of December, when it would be really hard to find renters or put it back on the market. We also selfishly wanted to have a stress-free holiday.
Our lease is up this March.
We’ll make a decision in early February whether to sell the house or continue to rent. If out of state property management continues to be this stress-free, then we’ll likely continue with it.
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What are our long term goals?
I’m actually looking to acquire our first true investment property next year.
I recently started a podcast where my co-host and I interview people who have achieved financial independence. I’m inspired by the folks who have built impressive rental property cash flow and Airbnb empires at a young age.
Check out FireDrillPodcast.com or search for us in iTunes/Google Play to follow my rental property journey and get inspiration from the incredible guests we’ve been lucky to get on the show.
What are your thoughts on being an out-of-state landlord? Do you have any advice on how best to manage a rental property in or out of state?
Related:
A Landlord’s Worst Nightmare Comes True
7 Lessons From Our 1st Realtor Experience
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My husband and I manage one now and he is so not on board with it. I saw his stress level rise too and I thought it wasn’t worth it considering we already had a house on bnb and my parents wanted their own house out of state (which we have to flip the bills for eventually). To me, being a landlord is one of the difficult side gigs there is especially for shy types like me and hubby.
Being a landlord is not easy, and managing an out-of-state rental is harder. Some hire a property manager locally to take care of the issues. It’s nice to be able to delegate. The down side is you have to pay. It seems J has handled remotely pretty well. Good luck, J.
The key to having a successful out of state rental is to make sure you have good renters that will hopefully stay for a while. You should bend over backwards to make them happy by keeping the rent consistently low and quickly addressing any issues that come up.
I’m 100 percent in this camp until I looked up the Airbnb revenue in my zip code for similar properties. We have the potential to make more with Airbnb but I’m sure the extra headaches won’t be worth it. We’ll probably sign these tenants to another lease if possible.
We own an IP within our state and employed a real estate agent to look after it. The laws governing rental properties in Australia is a lot different than in the USA. While the lessee is expected to maintain the property, landlords are allowed to have biannual checks on the property to make sure everything is still in serviceable condition.
Our agent costs us 4% of rents (tax deductible) to look after the property and it’s been worth it. I really do not want to front the lessee or wake up in the middle of the night to fix a leaking pipe, an electrical fault etc. We feel our sleep and our sanity is more worth the hassle.
I disagree with keeping rents low because it is counter intuitive and it hurts your pockets in the long run. A rental property should be treated as a business and its value should be representative of the value of the surrounding areas. Our existing renter maintains the property well and is in general not a nuisance, so I do not mind throwing in a few carrots to keep the renter long term. We were willing to negotiate the rent and accede to a small discount request from the renter when it was due for renewal. In this way, we thought it was a win-win situation. Make the renter believe they got a good deal out of it with a discount and they will jump through hoops to upkeep the property for us.
With regards to whether it is wise to sell the property really boils down to a myriad of factors including running costs, how much the property will make if we sell it, its expected market cap, ROI, opportunity costs, selling and closing costs, tax implications etc. If the IP is located in a good neighbourhood (location, location, location) and is in good demand, it might be better to hold on to it. The way my wife and I see our IP is, if we hold on to it for the next 2 years, what can we do with the money? Will the property beat an index fund investment year on year?
An IP is an illiquid investment and it takes time to get the money out if you need it in a hurry so these are among many of the things we have to balance. At the current moment, the prices in Sydney are off the charts. We acquired our investment property 3 years ago and since then we have been achieving an average of 8% price growth in the area (not including rental income) so it’s been doing well for us. We were very fortunate in managing to catch the boom.
Best of luck with your property decision. No matter what decision you made, please don’t look back and lament. We all make decisions with the circumstances and information we are given at that time frame. Hindsight is always 20/20.
cheerios
We have one outside our city, which is pretty far and being a landlord outside of town isn’t easy (at least for us). Overall, our relationship w/ our tenants is great. Things were going good until our one of our tenants’ units got broken into when he was on vacation — everything valuable was stolen.
Although we provided support and resolved the issue quickly to ensure safety, he became extremely emotional about the situation and we can totally understand why. Since this event, he’s been paying late rent (we had to chase him), and he isn’t acting like himself. We still need to figure out what’s going on. The good thing, at least, is that our other tenants are still stable (nothing happened to their unit).
I admit this has been very stressful especially when the property is far away. Having a horrific break-in is something new to us, but we’re hoping we’ll become better dealing w/ these types of situations. Hopefully we can blog and share our experiences one day as we become more familiar with this stuff. There’s still a lot for us to learn in this area.
That sounds awful! I’m so sorry that happened and for the tenant’s reaction since. I know some credit cards offer thousands in property protection. My CSP does and makes me feel safer about my stuff.
I’ve contemplated being a landlord for the last year or so. I haven’t pulled the trigger and started to invest part of the money I put aside for a rental.
I want to buy a second property! It doesn’t come without its headaches but it’s a paying job.
We’re going into our fourth year of owning our out of state rental property and I do pay the property management fee because I went into this expecting to be very hands off. Both my husband and I are working full time and now have a full time toddler – managing from afar wasn’t an option for us even if it was allowed by our particular locality (it’s not).
Like with most things money, PiC is on board with what I do as long as I’m doing it myself. This whole thing was my idea and I like to be the sole decisionmaker. He’s totally cool with that and leaves all the details up to me. If I insisted he be involved beyond listening to updates, just because I couldn’t handle making decisions on my own, it’d probably be an issue but luckily our arrangement works out quite well exactly how we have it.
I currently pay for an annual warranty on the house and appliances but I’m considering canceling that when I change property managers.
My original plan was to buy a new rental property every year or two but I’ve been too risk averse and too busy to select our next one yet. That’s probably going to be a 2018 goal – pick up our second proep
Oops – property!
What do you get with the warranty? I had one when I bought the house but never used it. I’m curious if this is something I should add now again?
Great post. I’ve always thought about buying rental properties, but was always worried about the hassle, especially when the properties are far away. Sounds like you guys have it covered, but I’ll stick with stocks:)
Great post. I live in NYC so investing here is very expensive and probably won’t cash flow. I bought an out-of-state property in the Midwest and a property manager takes care of it. It’s great that you can cut out the PM costs but I probably couldn’t do it since I don’t have that network and have never actually been there! Luckily, the rent covers the PM costs and then some. If I ever leave NYC and had rental property here, I think I can do without a PM since I have a network here.
Great post. I would like to eventually manage my properties remotely when I move one day. It is definitely doable and especially if you automate things and have a list of vendors and people in place.
Excellent post, actually I find out a rental property at Dubai, but the house back on the market and go through that stress again, especially now that we were living in a different state.
Hey! Exactly the Google was expensive, but he was much less expensive than paying a 10% property management monthly fee and for repairs on top of that fee.
Thanks for such good info…
This is a brilliant post, thank you for sharing these great tips. I think you are right with mentioning how to manage rental property out of state. I am sure many people will come to read this in future. Thank you for this article! This is really very informative for us.
Managing a rental property out of state is not an easy task, and if someone says it’s easy, they are lying to you. I’ve seen a lot of people try to manage their rental property, but they face a lot of problems.