Debunking the Myth: Why Investing Out of State Can Be Safer and More Profitable
For many investors living in expensive coastal cities like San Francisco, Los Angeles, or New York, the idea of buying multifamily real estate out of state can feel risky. We hear this all the time from our investor base: the thought of owning property in Texas, Tennessee, or North Carolina—places you may never even visit—seems like a gamble.
But here’s the reality: investing out of state can often be less risky and more profitable than staying locked into your local market, especially if you live in a high-cost, highly regulated city.
Let’s break down why investing in out-of-state markets can be a smarter, more advantageous move for real estate investors than sticking with their back yards.
1. Favorable Regulations and Landlord-Friendly Policies
One of the biggest advantages of investing in states like Texas, Tennessee, and North Carolina is their landlord-friendly regulations. If you’re used to operating in a market like California or New York, you’re well aware of how challenging it can be to manage tenants, raise rents, or evict non-paying renters due to highly restrictive laws. Coastal cities tend to have policies that heavily favor tenants, often making it difficult for landlords to efficiently operate and maintain profitability.
In contrast, states like Texas and North Carolina have far more balanced regulations that protect landlords while still ensuring tenants are treated fairly. For example, in Texas, the eviction process is streamlined, allowing property owners to address non-payment issues quickly and legally, which means less risk for your cash flow. These regulatory frameworks offer more control over your investment, reducing the chances of getting stuck in situations where you’re losing money due to rigid tenant protections.
2. Strong Population Growth and Economic Expansion
States like Texas, Tennessee, and North Carolina are seeing explosive population growth driven by migration from high-cost states. For example, Texas gained nearly 4 million new residents over the last decade, while North Carolina saw an increase of about 900,000. This migration is fueled by job opportunities, lower cost of living, and a favorable business climate.
This is great news for real estate investors. As populations grow, the demand for housing skyrockets, driving up rents and property values. In states like California, where populations are starting to decline due to outmigration, long-term appreciation and rent growth prospects are far less promising. The job growth in markets like Dallas, Nashville, and Charlotte is particularly notable, supported by booming industries like tech, healthcare, and logistics, which continue to fuel the demand for rental housing.
3. Affordability Means Higher Cash Flow
Affordability is another key factor. The average price of a home in Los Angeles is now over $900,000, compared to around $300,000 in cities like Dallas or Nashville. This price disparity directly impacts your cash flow potential. Investing in a multifamily property in an expensive coastal market often results in razor-thin margins because the purchase price is so high, and rent control limits how much you can charge tenants.
In more affordable markets like Texas and Tennessee, properties can be acquired at far lower prices while generating strong rental demand, leading to much higher cash-on-cash returns. It’s not uncommon to see double-digit returns on cash-flowing properties in these states, especially with value-add strategies that allow you to increase rents and improve property value through renovations.
4. Availability of a Strong Labor Force for Value-Add Properties
Another major advantage of investing in markets like Texas, Tennessee, or North Carolina is the availability of a reliable, cost-effective labor force. When undertaking a value-add strategy, such as renovating or repositioning a multifamily property, you’ll need contractors, property managers, and maintenance teams to help you execute. In coastal cities, the cost of labor can be prohibitively high, and finding reliable workers is often a challenge.
In more affordable regions, not only is labor typically less expensive, but there’s also a strong pipeline of skilled workers available to stabilize and improve your properties. This makes it easier and more cost-effective to execute value-add improvements, which can significantly increase both your rental income and the property’s value.
5. Access to Better Cap Rates and Overall Returns
Cap rates in expensive cities like San Francisco, New York, or Seattle have compressed significantly, often falling below 4%. In contrast, cap rates in high-growth markets like Texas and North Carolina often hover around 6-8%, meaning you’re getting a better return on your investment from the start. The combination of lower acquisition costs, better cap rates, and higher cash flow potential means your overall returns can be significantly higher when investing out of state.
6. Technology Makes Remote Investing Easier Than Ever
One of the biggest concerns for investors considering out-of-state investments is the idea of managing a property from hundreds or thousands of miles away. But today’s technology has made remote investing easier than ever. From property management platforms that allow you to track income, expenses, and maintenance requests online to virtual tours that let you “walk through” a property without setting foot on it, it’s entirely possible to efficiently manage properties from afar.
Moreover, you can partner with a local property management team who understands the market and can take care of day-to-day operations while you focus on scaling your investment portfolio. By leveraging these tools and resources, investing out of state becomes a low-maintenance, high-reward opportunity.
7. Diversification Across Different Markets
Finally, investing out of state allows you to diversify your portfolio, reducing risk by spreading your capital across different markets. Relying too heavily on one geographic area, especially one as volatile as an expensive coastal city, can expose you to higher risks. By diversifying into growing, more affordable markets, you’re better protected against market downturns, local regulations, and economic shifts. This diversification can smooth out your returns and make your portfolio more resilient in the long run.
Conclusion: Don’t Be Afraid to Invest Out of State
The idea that investing out of state is inherently riskier is a myth, especially for those living in expensive coastal cities. In fact, by investing in places like Texas, Tennessee, and North Carolina, you can access better cash flow, more favorable regulations, stronger population growth, and lower labor costs—without sacrificing control over your investment. Thanks to modern technology and experienced local teams, you can build a profitable real estate portfolio in high-growth markets that provide both stability and returns.
At Ocean Ridge Capital, we specialize in identifying and acquiring multifamily properties in these high-potential markets, giving you access to opportunities that deliver both financial returns and long-term security. Don’t let location hold you back—expand your investment horizons and tap into the advantages of out-of-state investing.