Q: I live in a community that is very expensive. The rent I pay is cheap, but it costs too much to buy a home here, near where I work.
However, I have saved up enough cash for a 5 percent down payment on a property that is in another state. I would use this property as an investment and try to rent it out.
Since I don’t live near where the property would be located, I am wondering if I should hire a management company to take care of everything for me.
A: While I don’t know if you live in Manhattan, many New York City dwellers (and those in other expensive metropolitan areas) are doing what you’re considering — renting a primary residence and purchasing a second or investment home elsewhere.
Since this isn’t going to be a vacation home for you — where you might want to take advantage of mountain, lake, or simply wide-open view — you need to spend some time working out the details of your investment property purchase.
I do wonder why you’d want to buy an investment property so far from where you live. Isn’t there anything you can afford that is more easily accessible? While you can hire a management company, it’s a far better idea to buy in a place where you visit frequently, so you can keep an eye on your investment.
A management company may take a sizeable portion of the rent you receive to manage and, perhaps, rent the property for you. And, you-ll still have to check up on the management company to be sure that all monies are accounted for.
If you decide to go this route, please interview several companies thoroughly before handing over the keys to the house.
Here’s another way to do it: If you buy an apartment building that either has a “caretaker’s cottage” or “engineer’s apartment” consider renting out one of the units to someone who is particularly handy and trustworthy to take care of the property and keep an eye on it for you. You can trade some or all of the rent cost for the physical management of the property.
I wouldn’t have that person collect rent, but those can be sent to your bank directly, or to you or you can arrange an electronic transfer into your business account.
If your plan to buy a property is in a vacation community, you may want to look for a condominium or vacation home that is in a large development.
Frequently, these large developments take care of the exterior maintenance of the buildings and offer rental property management and services. You can take advantage of the rental office, place your property with them and allow them to rent it for you. But be prepared to pay as much as half of the rent you receive for these services.
Finally, if your choice is to buy a single family home in a different city, make sure you have friends or relatives near buy to keep an eye on the property for you.
While you’ll still need to check on the property from time-to-time, this should help.