Do You Need Private Mortgage Insurance?

Do You Need Private Mortgage Insurance?

Should You Purchase Out-Of-State Rental Property?

by Luke Fields

Whether you're relocating to another state and plan to put your home into rental service, or are simply exploring the idea of investing in rental property across state lines, you may be wondering about some of the potential advantages and pitfalls of being a long-distance landlord. Read on to learn more about some of the specific situations in which managing your property from out-of-state can benefit you, as well as situations in which you may be better off investing in real estate closer to home.

When does it make financial sense to rent out an out-of-state property?

There are a few situations in which -- assuming you can find the right rental property -- managing your rentals from another state makes good financial sense. However, for each such victory there is a parallel failure. Below are several factors that may directly impact your odds of success.

  • You live in a state without income taxes

If you live in one of the seven U.S. states with no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming, owning and renting an out-of-state property can be a very lucrative investment. You'll be able to enjoy the advantages of relatively low property taxes in adjoining states while collecting rents nearly tax-free (you will still have to pay federal income and FICA taxes on this money). 

It's important to keep in mind the corollary to this, as well -- if you live in a state that taxes income (even just non-wage income) and purchase a property in one of the states that does not tax income, you could wind up paying higher property tax rates for your rental property while still having to pay income taxes on your gross rental receipts. Unless you can find a screaming property deal, this may not be a wise investment.

If you've not yet decided on a state in which to purchase a rental property, you may want to compare local property tax rates in order to maximize your potential profit. Other considerations to keep in mind are the strength and desirability of the local school system, the income and job stability of your potential renter pool, and the proportion of foreclosures or abandoned properties in the area. 

  • You have a reliable property manager 

Being a successful landlord isn't just about sitting back and collecting rent checks -- you'll need to have a more proactive approach to managing your property. When you live out of state, this usually means engaging the services of an experienced property manager or management company in the area where your rental home is located. Otherwise, it can be difficult to manage repairs or deal with pesky tenants when you're not within easy driving distance of the property.

A property manager can not only help arrange and coordinate maintenance and repair work, but can also help screen and solicit tenants and even go through the eviction process if necessary. Using a property manager can help ensure that your rental home is maintained in the same condition it would be if you lived just next door (rather than a state or two away).

Generally, you'll pay a property management company in one of two ways -- either an up-front or regular monthly payment or a small portion of the rents collected. You may be able to negotiate a reduced fee if you use the same management company or manager for more than one rental.

How can you get started?

If you already own an out-of-state property, the most difficult task has been completed. However, by consulting a realtor or property management company like in the areas you're targeting your search, you should be able to get promising leads. 


About Me

Do You Need Private Mortgage Insurance?

Welcome to my website. My name is Larry Silva, and I want to talk a bit about private mortgage insurance. You may have heard the term PMI mentioned when you were in the process of purchasing real estate. When I first heard my lender talking about PMI, I was very confused. It was my realtor who sat me down and explained what private mortgage insurance was and when someone is required to purchase it. He told me that PMI is not lifelong insurance; it can be cancelled when the mortgage principal balance reaches a certain point. Once it was explained to me, private mortgage insurance was no longer a mystery or a confusing concept. I would like to pass on what I learned and hope that you find it to be of value.