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Top 4 Reasons to Invest in Real Estate Other Than California

Written by James Swift

Investing in real estate can be a really good idea, with the proper guidance, and especially in lower cost areas outside of California. Many investors in the current real estate market in California find that investing in property there often is just too expensive to generate monthly cash flow.

If you are interested in investing in buying an investment home, here are X reasons why you should consider states besides California:

#1 Affordability

The biggest factor that causes real estate investors to purchase investment homes in other states is simply affordability. If you live in a higher priced area in California, such as San Francisco, it can be incredibly difficult to find affordable real estate investments. An expensive market such as California in San Francisco, Los Angeles and San Diego may simply have asking prices that are far too high for investors that do not already have substantial cash reserves.

Buying in a cheaper real estate market, such as Texas or Missouri, can allow you to buy more properties with the same money that would buy you just one in California. You will likely enjoy a better total return on investment.

When you invest in a less costly area, you may be able to even fund your retirement home of the future. What some people do is buy a vacation or retirement home in a less expensive area. They rent out the property for a few years and those tenants help the owner to pay down the principle until the investor is able to retire.

mortgage rate lock

#2 Landlord Regulations

California has many benefits and advantages, but many property owners there complain about the many regulations that make being a landlord more difficult.

For example, evicting a tenant in California can take several months. During the eviction process, you probably will not be able to accept rent, although in the end, the tenant will be responsible to pay it to you.

The court in your area has to schedule a trial to occur within 30 days of the request, and it takes about one hour at that point.

Another problem with landlord regulations in California is if the tenant has lived there for more than one year. In that case, the landlord must give the tenant at least 60 days to leave.

In many other states, it is possible to evict a tenant faster than in California, making other states potentially more attractive options for investors.

#3 Foreclosure Regulations

For investors who choose to seller finance their investment property rather than rent it out, this can be a real problem in California.

A foreclosure in California will take place when the buyer has not made four mortgage payments. Once this occurs, only then in California can you issue a Notice of Default on the house. Once this occurs, the foreclosure may take six months to one year to be done.

Also, California is what is known as a judicial foreclosure state. This means that the courts must be involved in any foreclosure. Involving the courts of course makes a foreclosure take much longer.

You as the lender have to show the court that you have taken all needed actions to solve the nonpayment issue and tried to obtain what you are owed through legal channels.

On the other hand, many other states have non-judicial foreclosures, which usually happen much faster than in California. The non-judicial foreclosure process is a foreclosure by power of sale, so there is no court involvement for most foreclosures. This means that the lender may sell the property that has payments outstanding on it without getting permissions from the court.

#4 Tax Reasons

Many states have lower income and property taxes than California, and this can save you thousands of dollars per year. You will need to consult with your CPA about the tax consequences of buying in a different state, but California does have high income and property taxes that take a big bite.

Considerations When Buying Investment Homes Out of State

Owning investment properties far from where you live can be very profitable, but there are considerations and challenges to consider:

  • Lack of knowledge about the area. Some investors buy out of state investment property in a low cost neighborhood, but are not aware that the area has a lot of crime and other problems.
  • Not knowing good rehabbers and related service providers in the area. Investors who do not know good people to take care of maintenance and service can end up paying much more. It is important to do careful research about possible service providers in that area before purchasing.
  • Challenges in getting timely rent: If you are not in the area, it can be difficult to get your payments when they are late. You should work with a good but affordable property management company. They will charge you approximately 10% of rents collected each month to manage your property. Shop California mortgage lenders now.

At the end of the day, many investors can buy more properties for less money outside of California, which helps them improve their bottom line. You just need to keep in mind the above considerations to get the best return on your out of state investment.

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