How do you Know Where to Buy Long Distance Rental Properties?

Buying rental properties can be an awesome investment. One of the biggest advantages of buying rentals is the cash flow that comes in every month. For many people it is very hard to find cash flowing rental properties, because prices are too high in their market. I am located in Northern Colorado and I am thinking about investing in long distance properties, because I am having trouble finding cash flowing properties here. Our market is one of the highest appreciating markets in the country, which is great for my current properties, but it makes it harder to buy new rentals. When buying long distance rental properties how do you decide where the best place to invest is? Hopefully I can at least partially answer that question in this article by showing what I am doing to find a new market.

Is it worth it to invest in rental properties in another market?

In the past I have not seriously considered investing in another market, because I can get pretty good returns in Colorado. I did buy a turn-key rental in Ohio last year, but that was bought with my IRA and was an experiment to see how it would work investing in a turn-key. If I were to invest out-of-state again I would be buying houses below market, getting repairs done and finding a property manager myself. The main reason I have not seriously considered buying out of the area is because it would take a lot of work and I have a lot going on. If the deals were just slightly better in other states than what I could get here, I would not invest somewhere else. Here are the advantages of investing locally:

  • I have my real estate license in Colorado, which saves me a lot of money when investing. That license can only be used in Colorado.
  • I have many contacts in the area for contractors, lenders and investors.
  • I know my market very well, which is very important when investing.
  • I can have my team manage my rentals and I can keep a close eye on my rentals.

It is a huge advantage to invest locally, but if I am not making very much money on local rental properties it does not make sense to keep buying them here. I know there are other markets throughout the country that have much better rent to value ratios.

How much have housing prices increased in Colorado?

In my area in Northern Colorado our prices have gone from a $120,000 median sales price to over $220,000 median sales price in four years. In the last report I saw the median list price is up to $280,000! I used to be able to buy houses from $80,000 to $120,000, make $10,000 in repairs and rent them for $1,100 to $1,300 a month. Now I can buy houses for $150,000, make $10,000 in repairs and rent them for $1,500 to $1,600 month. Prices have increased much more than rents have, which makes it harder to make money as an investor. Both of these price points are assuming I am getting a great deal on the house. I would have to work really hard to find a $150,000 house that would rent for $1,500 or $1,600 even if it needs work.

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With prices increasing so much there is also the risk that prices could drop or rents could drop. I don’t think prices will drop anytime soon, but when prices increase that much it makes me a little nervous. I would be fine on my current rentals if prices dropped, but if I stretched my criteria to buy more rentals at even higher prices, I might be asking for trouble.

Here is a great article on if I should sell my rentals because prices are high.

How do you start looking for rental property locations?

I have a huge advantage when researching locations for rental properties. I run this blog, which gives me access to thousands of people investing all over the country. I talk to many investors for my podcasts, in my coaching programs and people who email me. I have a long list of areas across the country with much better cash flow than Colorado. Florida, Upstate New York, Midwest, Milwaukee and many other places have much better rent to price ratios. When looking for a new place to invest there are some steps you can take to narrow down your search criteria.

  1. Before you start looking out of your own state, increase the geographical area you search for rentals. If you only have to drive a couple of hours to find a good location to invest in, that would be more appealing than looking three states away. You would probably know the area better as well.
  2. If you cannot find a close geographical location, start looking in areas you are familiar with. Did you grow up somewhere different from where you live now? Do you have friends or family in a different area of the country? The more familiar you are with an area, the easier it will be to learn the market and find good deals. If you have family or friends in an area, they can help you learn a market and keep an eye on your properties.
  3. If you cannot find a suitable location where you know someone, where would you like to spend time researching a market? I think you have to visit any area you want to actively invest in and it helps if you have a little fun while you do it.
  4. Check out publications for the best rental property locations. There are many sites that will show you the best rent to value ratios. Do not blindly accept the lists of the best places to invest as the best places to invest. Many times these lists ignore things like cash flow (yes, some lists look at economic growth and completely ignore cash flow), taxes and other factors that make a good rental property.

Here is an article I wrote a while back with a list of good rental property locations.

How do you know if an area will be good for rental properties?

Once you have found a few places to research you need to know if you can make money in those areas. You also need to know if the economy is stable. Some areas may have great numbers, but a decreasing population and a shaky economy.

  • Is the population increasing or decreasing? A rising population is a good thing and is a major factor for economic growth.
  • Have housing prices been increasing or decreasing? It is not the end of the world if housing prices are decreasing. It might mean opportunity. If housing prices are decreasing and population are decreasing the area may be in trouble. If housing prices are increasing sharply it maybe hard to get a good deal that cash flows.
  • What risks are there in an area? Is the area susceptible to floods, natural disasters, economic down-turns or wild swings in housing prices? These risks can be overcome, but make sure you know what you are getting into. Houses close to the ocean or in flood plains will have very expensive insurance.
  • What are the property taxes? In Colorado we have really low property taxes. Some of my properties have taxes less than $500 a year. Other states have taxes ten times that or more! What may look like an awesome cash flowing property, quickly becomes a bad deal once you factor in the high taxes.

There are other factors to consider like crime rates, vacancies and prices points when deciding where to invest. To truly learn about an area you need to visit, talk to agents, talk to property managers (Florida, for example, just search property management companies in florida) and if possible talk to other investors in the area. In my Facebook group we are talking about different areas to invest in right now. You can find the group here.

How do you overcome the disadvantages of investing out-of-state?

I mentioned the advantages of investing locally here.

  • I have my real estate license in Colorado, which saves me a lot of money when investing. That license can only be used in Colorado.
  • I have many contacts in the area for contractors, lenders and investors.
  • I know my market very well, which is very important when investing.
  • I can have my team manage my rentals and I can keep a close eye on my rentals.

So how do I overcome these advantages when investing in another area?

  • I can get a real estate license in another state. It may take some time and I might have to pass another test, but I can do it. I would have to find a broker to hang my license with, but I could find a low-cost broker to do that with.
  • I know many people across the country who have contacts that could help me. I also know how to find a portfolio lender and believe I could find one in any market.
  • I could learn a new market. It would take time and effort, but I could do it. I could also use my contacts to help me learn markets faster.
  • I would have to take the time to find a great property manager. However, I do not have to rely on them to watch my properties for me. I could hire a third-party to take pictures of my properties, make sure they are rented and even value properties for me (BPOs).

I have a huge advantage when investing out of my area, because of the people I have met and know. But, there are many investors on this site, on other sites who are happy to share their knowledge. I also share many of my contacts and resources with people in my coaching programs.


There are many different areas to invest in across the country with great cash flow. If you don’t happen to live in one of those places it does not mean you cannot invest in real estate. It may take more work to invest out-of-state, but it is not impossible. I think it will be fun exploring new markets and finding new places to invest. If you have questions about investing out of your area or what areas are good, you can always send me an email: [email protected].

This post may contain affiliate links and I may be compensated if you make a purchase after clicking on my links.


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  3. Michelle Y. January 19, 2016
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