Whether you want to invest directly or passively in out-of-state real estate, you have several options. I’ve invested using most of these strategies myself, and some are definitely easier than others. Stay open-minded as you explore the best ways to invest beyond your own backyard.
1. Land Flipping
You don’t typically need to see land parcels in order to flip them.
Flipping land is just as much a business model as it is a real estate investment strategy. It requires three main skill sets: outbound marketing to find great bargains, underwriting (property valuation), and marketing the land parcel to buyers.
I dabbled in the land flipping business for a few years, along with a partner. We sent direct mail to out-of-state owners who had owned their parcels for at least a few years, making a generic offer in our initial letter. The offer was around 25% of the lowest land values in the county.
If they called or emailed us back expressing interest, we would then do property-specific due diligence. We’d look at factors like zoning, layout, access to roads, natural features such as ponds or forests, and so forth. We’d get a sense for the true market value of the property, after looking at comps and figuring out the best use of the land. From there, we could negotiate with the seller and only let ourselves go up to 30% to 40% of the property value.
Once purchased, we started marketing the parcel for sale on every platform where people look at land, and sell for at least a 100% profit.
2. Turnkey Rental Properties
Over the last decade or so, a new type of flipper has entered the market: turnkey rental flippers that specialize in selling to out-of-state buyers. After renovating a rental property, they market it for sale to long-distance investors.
Often, they offer full-service property management as well, to continue servicing the property. They handle all maintenance and repairs with their own crews, and ultimately, they aim to forge long-term relationships with their clients.
I know some reputable turnkey rental sellers and managers who do right by their clients. But there are plenty of shysters out there as well, who know they can cut corners in the renovations because their buyers will never see the work with their own eyes.
As you explore new markets to invest in, vet turnkey sellers just as carefully. Speak with as many of their clients as possible, ideally including some local ones who have seen their renovation work firsthand. Also, look for turnkey sellers who offer full property management at reasonable prices and who guarantee their initial repairs for the first year.
3. Short-Term Vacation Rentals
Some investors look to mix business and pleasure by buying vacation rentals in their favorite destinations. They often buy in-person, unlike long-distance turnkey investors who typically buy sight unseen.
There’s nothing inherently wrong with buying vacation rentals in a market you love or using the property yourself periodically. But these investors tend to run into trouble because they let their emotions get the best of them. They justify buying a second home by telling themselves, “It’s an investment,” even though the numbers don’t work.
True investments should make you money, both in annual cash flow and in appreciation. If you buy a property that costs you money—but which you enjoy using personally—you’re buying a second home that you sometimes rent out, not a true investment property.
When running the math, use realistic numbers for seasonal occupancy and rents, lost rents to personal usage.
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