By Jeanette Joy Fisher
Over the past few years, real estate investors, hungry for
break-even or positive cash flow rental properties, purchased
income properties out of state. California investors bought
houses in Florida, Texas, and Oklahoma. Florida investors
purchased houses in Louisiana. Texas investors purchased in
Vegas. Many of these investors made millions of dollars
of the appreciation in hot markets.
On the other hand, in 2005, some beginning investors lost
hard-earned investment capital or only made a meager profit
because they failed to do their homework on the out-of-state
area's real estate market and customs.
If you 're thinking about buying investment properties in a
different state than you're accustomed to, beware of these
Surprise # 1 - 'These (extra) costs are the norm in this
Besides extra closing costs like pricey surveys, common in
Florida but rare in California, other surprise costs included
higher transfer fees and taxes. Property taxes in Florida cost
much more for investors in Florida than in California. On the
other side of the country, out-of-state investors were shocked
by California's state tax held in escrow: 3.8% of the
property's SALES price, no matter the actual profit made. In
other words, an investor who made a quick profit of $20,000 on
a fast flip could have more than the profit held until the
year's income tax filing.
Surprise # 2 - 'You can't lease this property!'
New home developers and many Homeowners' Associations (HOA)s
prohibit property owners from leasing their properties. Some
these restrictions got passed, without the investor being
notified, during the property purchase phase. You must read
fine print to see if any clauses prevent the rental of the
property. Home builders, to keep the value of the neighborhood
up, added restrictions requiring the purchaser to occupy the
home as a primary or secondary residence.
Surprise # 3 - 'This house will only rent for $750 per month,
This was one of the top mistakes made in 2005. Large real
estate investing groups, selling out-of-state properties to
local investors, inflated the rental income. Because so many
houses were purchased in a limited area by investors, a rental
glut lowered the expected income. This created hardships for
investors who suddenly had to pay out hundreds of dollars a
month instead of reaping promised profits.
Surprise # 4 - 'You can't sell this house, now!'
Some investors who couldn't rent the out-of-state property
decided to sell because the values did rise significantly
the house was built or during the purchase time. However, many
investors were stunned when they were told they couldn't sell
the property within the first year after purchase.
prohibiting real estate investors from quick-turning their
properties is a trend that is growing increasingly popular
Surprise # 5 - 'Houses don't appreciate 30% per year here!'
Perhaps you've attended or been invited to a high-power
investment seminar that promotes out-of-state real estate
investing. Some of these 'investor clubs' really are promoters
who receive kick-backs in real estate commissions, property
management fees, mortgage loan fees, and even fire insurance
premiums. They tell stories of huge appreciation gains, which
are probably true. However, not all areas enjoy significant
appreciation--year after year.
Don't make the costly mistake of not fully researching the
complete market customs and restrictions in the area where
you're thinking about investing. If you can't afford to go
check out the area in person, choose another area that you can
Copyright © 2006 Jeanette J. Fisher
About The Author: Jeanette Fisher offers FREE "How to Start
Real Estate Investing Teleseminar," free ebook, "The Truth
about Making Money Flipping Houses." Ever wonder how those
multimillionaire real estate investors got started? You might
be surprised at how easy it is to buy your first investment