While it sometimes makes sense to invest in a property off your beaten geographic path, bundling your single-family rental (SFR) investments in one or two markets you know well can help you better manage your growing SFR portfolio.
Although many investors can make it work as long-distance landlords, keeping your properties concentrated in a few regions can help you save time and money.
If you are thinking of expanding your rental portfolio, you may want to consider setting some geographic boundaries. Here’s why:
You’ll be able to master the landlord laws for your state.
Landlord laws, including the steps you must take to evict tenants, vary widely by state. For instance, in Washington D.C., landlords must give a 30-day notice before terminating a lease for nonpayment of rent. In states like Vermont, Wisconsin, Minnesota, Massachusetts and Tennessee, landlords must give a 14-day notice. In Arkansas, the landlord can evict a tenant if the rent is late by only five days.
Other differences exist in collecting and returning security deposits, how much access the landlord has to a property, and rent increase notices. It can be a lot to keep track of, so bundling your growing SFR portfolio within one state means you only have to research one set of laws.
You can simplify your state tax returns by bundling your growing SFR portfolio.
Similarly, state tax laws vary widely, too. Presumably, you have a reliable tax accountant to help you manage your investment income and tax filings. But tax experts tend to specialize in the states where they reside as well. You can reduce your tax prep costs and simplify your state tax returns if you keep your growing SFR portfolio limited to one or two states. Additionally, if you hire W-2 employees to help you manage your rentals, you only need to worry about state-mandated insurance within that state.
You can develop strong relationships with local vendors.
Finding good contractors to work on a compressed timeline and get your investment property ready for renting can be challenging. Most investors have had the experience of contractors who do not answer phone calls or simply fail to show up on the first day of work. If you can find a few good contractors and keep their pipelines full, you can eliminate rehab delays, saving time and money. This is easier if you tend to purchase SFRs in a single area and build relationships with local vendors and contractors.
You’ll be able to maximize the power of word of mouth marketing.
Building relationships in one region can also help when you’re looking to fill those newly renovated rentals. Millennials and young families, especially, often rely on word-of-mouth to make purchasing decisions. If you build a reputation as a fair landlord renting solid homes at a good price, you may soon have prospective tenants coming to you–which can save you a bundle in time and marketing costs.
Your travel costs will decrease.
Some investors prefer spreading out their growing SFR portfolio as an excuse to travel for business. But if you prefer to stay close to home, bundling rentals in your region makes sense. Finding good investment opportunities and managing those SFRs is easier and less expensive if you can eliminate long-distance travel.
Whether you choose to keep your growing SFR portfolio nearby or opt to branch out depends on your personal situation and your goals as an investor. The possibility exists of missing out on far-flung opportunities if you limit your investments to a 50- or 100-mile radius. But if you find an up-and-coming area with growth potential, you can save time and money by bundling your growing SFR portfolio.
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5 Arch Funding is not a tax advice expert, law firm or accounting firm. The content of this article is informational only and is not intended as tax, legal or accounting advice. Consult your own tax, legal or accounting professional for guidance.