Three Reasons to Stay Close to Home in Real Estate Investing
You can build your wealth in your own backyard
One of my favorite investment types is real estate. In fact, my very first investment was a little, two-bedroom house in Portland, Oregon. I made $25 a month in cash flow, but it was the sweetest $25 I ever made. Finding that little house instilled in me a love for the hunt.
Today, I own thousands of apartment units that make millions of dollars every year; but honestly, the fundamentals I use to invest in those units are no different than the fundamentals I used to find and buy that little house in Portland.
I look for properties that can be bought below market, that have the opportunity to be improved, and through those improvements, grow in cash flow and value. It’s a pretty simple formula.
And for the most part, all of these units are close to home for me. The following are three reasons why.
1. Deeper knowledge
You want to keep your finger on the pulse of the area in which you’re investing. You want to know if the rents are going up or down, if businesses or stores are moving into the area, what the property values are doing, and if the overall trend in the area is increasing or decreasing.
These are just some of the factors that you want to stay on top of, so that when a property does come up for sale, you’ll be the expert on that area. You’ll know quickly whether it’s a property and an area that are worth pursuing further. This saves you a lot of valuable time and money—as well as a lot of headaches!
Some people think they can rely on brokers for this type of information, and to an extent you can—if you know and trust the broker, and you have the means to go and check out an area and property yourself. Remember, a broker’s job is to sell you a property, so you’ll need to look at everything they tell you with a critical eye. That takes experience. But until you’ve made many investments and built many relationships in the real estate community, there are plenty of properties right in your backyard. Become an expert at home before thinking of going to the next “hot market.”
2. Easier maintenance
If a problem arises on your property (and it will!), you don’t want to have to catch a plane, rent a car, go fix the problem, drive back to the airport, and catch a plane home. It’s a pain in the rear end, and it costs a lot of time and money.
As your investments get more sophisticated, and the properties get larger, you can hire a property manager to do some of this work for you, but trips still factor in. And until you reach a certain level of investment, it’s very difficult to find a dedicated and useful property manager. In truth, managing repairs from afar is more trouble than it’s worth.
3. Focused search
Finally, if you think that there are always better deals in other cities, you’ll spend all your time chasing down hundreds of potential properties all over the world. In the meantime, you’ll miss out on the deals sitting just a few miles away.
Are there good deals elsewhere? Certainly, but by focusing on a few key areas close to home and becoming the expert at little-to-no-cost, you’ll be amazed at the number of good deals that are right out your doorstep.
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