Houston is home to many property investors for a reason: there are some worthwhile investments in the area. If you’ve been investing locally for a while, you might be considering expanding your real estate portfolio out-of-state. Out-of-state investments can be worthwhile, but they’re not for everyone. For every reason to invest in property outside of Texas, there are plenty of reasons to keep it local.
1. It’s difficult to find the right management team
Unless you frequently visit the area, finding a team to help you manage an out-of-state investment is hard. You need a team that will help you succeed, which means they need to have your best interests in mind.
For out-of-state property, it’s risky hiring individuals to perform the tasks needed because there’s no way to verify their reputation with the Better Business Bureau, Yelp, or any other source. What if you’re being overcharged and tasks aren’t being performed? You can’t just pop over to make sure your property is in good shape and everything is being handled. If you want to verify the performance of your team, you have to buy a plane ticket and travel. That’s not convenient or cheap.
Even if you’re lucky enough to have good tenants and an honest management team, it may not last forever. Tenants turnover and complications arise unexpectedly.
The only way to prevent the uncertainties and risky potentials is to hire a property management company to provide 24/7 help. Even so, you’ll need to make periodic visits to verify they’re meeting your expectations in reality.
2. Evicting an out-of-state tenant is a pain
What will you do when you need to evict a tenant from out-of-state? Do you have an eviction lawyer to help you? Do you know the state’s eviction laws? Does your management team know the state’s eviction laws? Are they legally able to evict on your behalf, or would you need to buy a plane ticket to file the eviction papers personally?
State laws dictate the terms by which you can evict a tenant, and each state has a different process. To move forward with an eviction in any state, you need to first legally terminate the tenancy. How you can terminate the tenancy depends on state law and the terms of the lease and the reason for the eviction. In Texas, there are five reasons you can evict a tenant.
Most states require a 3-5 day “Pay to Quit” notice for tenants who haven’t paid the rent. When served this notice, they have the option of paying rent or moving out. If they do neither, you can begin the eviction process.
Another notice is the “Cure or Quit” notice given to tenants who are in violation of the lease agreement. This notice gives the tenant time to correct the violation or move. If they don’t correct the violation, you can evict them.
The harshest notice is the “Unconditional Quit” notice which orders the tenant to move out period. Most states only allow this notice to be given when the tenant has repeatedly violated a significant clause in the lease, has damaged the property, engaged in illegal activity on the property, or has been late with rent more than once.
If a tenant decides to fight the eviction, what will you do? Who will you pay to represent you? The process could drag on for months.
Dealing with these notices and starting the legal process of eviction is tough enough when you only need to drive several miles to the courthouse. The complexity is amplified when you have to hire a lawyer in another state just to make sure you avoid mistakes that can get you sued.
3. You probably won’t get the best deal
Buying property out-of-state makes it tougher to know what a good deal is. If you’re a serious investor, but you’ve only dealt locally, you know the Houston market like the back of your hand. Everything you know about Houston you can toss out the window when it comes to other markets.
Investing out of state means you’ll likely pay more for each property, and if you’re not careful you could end up paying more than market value. Since you’re not local, you’ll be hit with a variety of miscellaneous costs.
To make a wise investment in out-of-state property, you need to underestimate your income and overestimate your expenses.
4. You won’t be familiar with the economy
Regardless of the overall economy, each state, city, and neighborhood has their own economic conditions. Without living in the area of your investment, you won’t have an intimate view into the daily market like you have of the Houston area. Even if you visit, you’ll have to rely on other people to tell you about the area.
Sometimes bad neighborhoods don’t appear so bad on the outside. Do you trust the opinions of strangers? Do you trust social media contacts? What about the opinions of professionals you hire? How will you know they’re not downplaying conditions to stay hired?
5. State and tax laws are unfamiliar and complex
Investing out-of-state carries with it certain tax liabilities. The federal, state, and city taxes you’ll pay will be different from what you’re used to paying in Houston. Which tax bracket will you fall into? If you don’t know, how will you calculate your potential ROI?
Are you going to set up an LLC or a corporation out-of-state? What are the laws governing those entities? What will you do if your tenant sues you?
It’s not impossible to figure out state laws, but it takes time, money, and energy to do it. Your best bet is to talk to local property investors to understand what you’re getting into with your investment. What you see on paper doesn’t always match what happens in reality. You need to learn about local laws from experienced investors rather than attempt to decipher content you find online.
6. You’ll complicate your tax situation
Owning rental property and generating income in multiple states or other countries makes your tax situation complex. If you’ve always prepared your own taxes, you’ll need to pass that task to a professional to make sure it’s done right.
Help for Houston property investors
If you want to keep your investments simple by buying local property, Green Residential can help. We’re a professional property management company serving Houston, The Woodlands, Katy, Kingwood, and League City.
Our teams have decades of experience managing everything from single-family homes to 150,000+ square foot Class A office buildings. Contact us today for a free analysis to find out how we can help you manage your investment.