Why Do Some Long Term Real Estate Investors Remain Local?

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This is me asking the over 90,000 members here about their thoughts on staying local, when the investment is, by definition, long term in nature. One of the principles on which I base decisions concerning where solid opportunities might reside, is the use of ‘macro analysis’. That is, learning in detail how a specific region and/or state views various related subjects about which investors of all stripes care deeply.

Here’s an incomplete list of what I include when considering a new (to me) region.

1. How does the state and various local governments view both personal and business taxation?

2. Are they friendly or antagonistic towards investment capital?

3. Generally speaking, are people moving into or out of the state?

4. Are businesses moving in or out of the state?

5. How are landlord/tenant disputes handled in their court system? (i.e., sanctity of contract, or ignore contract?)

So here’s the question:

As  a long term real estate investor, besides ‘being able to drive by’ your properties, what factor(s) convince you to keep your investment capital at ‘home’, knowing there may be more attractive markets in which to invest?

There’s no ‘wrong’ answer here. OK, let ‘er rip!

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About Author

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.

33 Comments

  1. John Harris on

    I like to invest in what I know. I know my home market much better than anywhere else. I’ve had investments out of town but there are always other factors that you don’t consider. And when you do have to visit the property or be local for various reasons it’s nice to be able to “drive by”.

  2. My expertise was buying Southern California properties at a discount, fixing them and reselling them. Many of the skill sets required to do this transition nicely into buying rental properties under market value, fixing them and renting them.

    California has some unique advantages and disadvantages.

    I believe my model of buying heavy fixers, financing them with private parties works much better if they are close to home. It is a full-time job for me, so why not choose to live as close to the market as possible?

  3. This has nothing to do with long term or short term investing. It has everything to do with knowing your local market inside and out as well as staying on top of property management.

    I agree with John. I want to be able to drive by and supervise my rehabs about every other day. I want to be able to drive by my rentals about once a week. I have about half my rentals 15 minutes away and the other half about 40 minutes away. I am ashamed to say the half that are further away do not get the attention I would like. My long term goal is to sell those ( hopefully to the renters) and focus on property closer to where I live.

    Real estate is local. Management is local. We live in the Chicago metro and like most markets, there is more opportunity than I can take advantage of in 2 lifetimes. I bought 3 houses last month and am negotiating now on 3 more. I just don’t believe you have to get in an airplane to find opportunity.

    I also am not a big fan of the gurus that tell you to armchair invest and do all your work on the computer and fax machine. I have made a number of small mistakes on my own. Every big mistake I have made is when I turn over control of my investment to someone else. Despite their fancy talk, they generally don’t know as much as I do.
    So unless you live in Washington DC or some other market where there are no real estate bargains, I would just invest near where you live. Enjoy your spare time with your family.

    • Hi,
      I am in the Washington DC market, where I have to travel to Baltimore, MD for the deals. I go up there every saturday to fix/check on the properties.

      However, I understand where the author is coming from. I have 2 properties, almost finished with one, going to start on the next. After going through this, Its really hit or miss on quality contractors at reasonable rates (the good ones you have to pay a 2x premium which really hurts the pockets), and dealing with the city on regulations is a pain in the butt.

      I have decided for my two next properties, I will take a year long sabbatical, go to my home town (which is on the west coast), and invest there because I have now seen the regional differences in how the city/government interacts with businesses. The unknowledgeable and unhelpful city government workers make it so that its not worth me investing more money than I already have. When i am getting fines and getting threatened with liens for having weeds in my yard, I need someone to help me get to the bottom of this, and not keep passing me around while im on the phone on hold. I have learned through experience, not all city governments/laws are this disfunctional. Also, different regions have a completely different set of skills of contracting. Yes, there are rock bottom deals and high rents, but the law is too tenant-leaning. So, this is a lesson I have learned the hard way, but if you’re activtely doing real estate investing, everyone will learn this eventually.

      My lesson learned- check the local government, get reviews from other investors before buying. They may not be worth it, and its easier to invest in another city.

  4. Jeff Brown

    Loving this, thanks for the opinions.

    And Steve, don’t blame ya one bit. But I wasn’t talkin’ about buy/fix/and sell stuff. Keep turnin’ and burnin’!

  5. Thx for the tips. In my job I have to move every couple of years so the tips you provided gave me more ways to understand the market.

  6. I’d venture that in today’s climate, it may be beneficial to invest in localised, professional and honest TEAMS that know particular areas like the back of their hands – and then capitalize on any particular area you’ve already established a team in when the time is right.
    You mention states (as in US states), but the same applies for countries and continents as well, in my opinion. Our specialty is Japan, but my partner, who will shortly have funds released in USD and Euros (NOT a good time to exchange to Yen), is currently in the process of sourcing a US team to facilitate US properties. Yes, our knowledge there is limited at best, but we know how to pick a good team that we’re confident with – this will save us, in this particular case, at least a 20-30% loss that we would’ve incurred had we stuck to “what we know”.
    This is just an example, but I can think of quite a few other reasons why sticking to your own back yard isn’t always the most profitable and safe idea. What happens if your backyard is over-saturdated for the next five years? Yes, you could sit on your hands and wait, but you could also do something else elsewhere until the next cycle comes along.

  7. Good comments, no one right answer.
    I would agree if you fix and flip, being local makes sense.
    For buy rent and hold, buying out of area is AOK.
    I have bought in Austin and I am looking in Raleigh Durham also.
    I subscribe online to several local newspapers.
    In Austin the Austin American Statesman. In Raleigh Durham it is the Observer.
    If you read local paper, skim business, political and RE sections, you can get a good sense of what is going on in a City. Do this for a period of a few months and you get a sense for what is going on.
    Subscribe to Trulia so you will get updates on new rental and sale listings.
    Go visit the area for a few days, talk to the waiter or waitress, talk to the guy at the hotel who checks you in. Talk to people in the restaurant. Stop in at a few open houses, talk to the agents. Walk some neighborhoods, talk to people in their front yard. On the plane, talk to folks, do they live where you are going? It is fun and they have no skin in the game. They aren’t trying to sell you anything. They will give you the truth.
    My first night in Raleigh, where they have a free bus that does about a 30 minute round trip thru various downtown neighborhoods, I rode the loop twice and talked to the bus driver – he gave me lots of good info.
    Review school districts, check Craigs List…..
    AND retain some good locals on your team, and buying out of area is not a problem.

  8. I have local properties I treat like long distance. I think starting out, staying local can help from getting burned by shady property managers, contractors, or professional tenants. Not saying local prevents that, but its certainly helps a bit. Once an investor has improved their skills, becoming flexible is important.
    To me its no different than trying a new type of real estate investing without getting good at your current one. Build your skills and then expand. I consider local investing like the bunny slope.

    Jason

    • John Harris on

      Good point. I agree it’s more important to stay local when you are still learning. In my case I haven’t outgrown the local market yet. Still plenty of opportunity here.

      • I can’t argue with that. I hyper focus in my market, but I also moved into the market to learn even more. The connections I have made are extremely valuable. I can honestly say I would not have made them unless I was local.

        That said, learning to pull myself out of the day to day management of the properties is much harder to do when staying local. Its all about time. Its just to darn easy to drive over and take care of an issue myself. Long distance can be a great boost in managing time effectively, there is little other choice.

        In a local market, there is the advantage of knowing the market better than an outsider, but there is the disadvantage of having only one market. You are subject to the whims of that market. Ex. Had you bout 4 years ago in Cali you may be stuck holding properties longer than you wish, had you bought up in North Dakota, you would have buyers lined up without even putting the house on the market.

        No right or wrong answer unless it doesn’t fit an investors plan.

        Hey Jeff, gotta love these topics.

        Jason

    • Joanthan Sowinski on

      I like this approach of having local properties that you treat as long distance. Once I stabilize my rentals I plan on implementing this technique…speed up the learning curve and build the confidence to look to other regions to invest.

      Assuming the original question asked “why do some LONG TERM real estate investors remain local?” implies long term experience and not long term goals, I cannot respond due to my short term experience. I agree that local markets are easier to get into initially for a number of reasons: knowledge of market, lending opportunities, self-management…why people don’t branch out after that or initially cant say but suspect it is the almighty fear of the unknown.

      I can say however, that I plan on migrating from my current target/farm area to other markets once I build my knowledge base, experience, confidence and wealth.

      It would seem to me that investing in different locals, like utilizing different REI strategies; it is a good way to diversify an otherwise monotypic investment.

      • Jeff Brown

        Hey Jonathan — If you inferred my question to have meant the length of the investor’s experience, I shoulda structured it more clearly. I was referring to investors who invest for the long term, vs those who invest for short term profits.

        Many investors don’t have the choice of learning on their local markets, as their capital is quickly transferred to the local black abyss if not slaughtered altogether. The real question is whether or not beginning investors have enough relevant data to make that decision.

  9. Jeff
    I am going to jump on the “learn in your own market” wagon.
    Many moons ago, I worked for a freind and his managment co which managed properties in 3 cities in Texas that he owned. Being a hands on type of guy, All I did was travel everyday of the week while trying to spend time at each property at least one day a week.
    I am still burnt out traveling on the job.
    Don

  10. Jeff Brown

    Hey everybody — I love this thread to death.

    Speakin’ only for myself, I pose these questions: Why would I have left my own hometown market in 2003, after doing business there for almost 35 years? Was I bored? Did I crave more road trips? :)

    It turned my business and personal life upside down for almost two years. The bottom line reason I left? I learned the hard way that ‘staying local’ is not a magic bullet, but a crutch many use in order to remain in their comfort zone. I speak from the heart, as that was why I didn’t leave San Diego earlier, which hindsight has overwhelmingly shown me I should have.

    That’s not to say staying local in a particular market is wrong, not at all. What I’m saying is that you should realize the opportunity cost — both ways. Maybe you gage your market on the ’10 scale’ as a 7. OK, I get why you might opt to stay. But at least do so knowing you coulda been in a far away ’10’ market — yielding ’10’ results. Nobody understands comfort zone more thoroughly than I do. It was the reason I left San Diego a year or two later than I should have.

    The opportunity cost in San Diego then, and now, is pretty expensive when calculated in terms of dollars received in ultimate retirement income. In the majority of cases, San Diego investors can literally double or triple retirement income by moving to a superior market. It usually goes silent a few seconds when I ask them if that fact makes it worth ‘being able to drive by’ their current portfolio. Oops.

    In the end, everyone must do what makes the most sense to them. It’s their investment capital, it’s there retirement.

  11. Arn Cenedella on

    I would love to invest in my local market which is San Francisco mid peninsula – Menlo Park Palo Alto San Carlos. You can buy a 60 year old 4plex with 1 bedroom 1 bath units for $1.2M or $1.3M that will generate annual gross rents of $81,600 and net income before debt service of $44,880. This NOI will service about $700,000 in loans. So if you want to put $500,000 to $600,000 down to break even, that is one option.

  12. Just coming back from 2 week trip to North Carolina with my girlfriend. Trip more for fun than anything else plus we are starting to figure out where we may retire to. But I did look at some real estate too. The numbers are not as good as they are in Austin for example but North Carolina is beautiful. Charlotte Raleigh Durham etc. Good places to live. The Bay Area is great as is San Diego but there are plenty of other great areas in the good ol USA to live and invest. Did not buy anything this trip but NC is a market I will keep an eye on.

  13. Steve Toohey on

    I’d love to get out of my local market and would like to hear some tips from those who have done so successfully. Bottom line is that I am a very hands-on investor (buy and hold) and do about 90% of the rehab and maintenance myself. Management/maintenance are additional expenses that can really add up on out-of-area properties. Also, knowing your market is obviously huge. There are some great ‘deals’ right now in several parts of the country, but unless you have extensive knowledge of the market, you may risk a significant portion of what you have worked so hard to build. Adding perhaps one additional area is understandable with a significant amount of study, but for a small investor to add much more than that sounds a bit like rolling the dice…

    • Steve, this is exactly how our current business started – by facing this exact same conflict between what we knew well and where we haven’t yet ventured.
      Up until 5 years ago I only had property in Australia – where cap gain slowly crawled down to a (slightly downward sloping) halt and didn’t seem to be going anywhere for several years, even in the best of areas – couple that with the fact that cashflow is a typical pathetic 3-5% on rent and our thorough knowledge of the local market – we knew after several months of searching and contacting reliable contacts that, aside from gambling on a mining town that could be here today and gone tomorrow, there doesn’t seem to be anything really attractive around anymore FOR OUR PREFERRED BUSINESS STYLE (in this case, pre-rented, zero maintenance, no short/flip selling of any sort).

      We decided to look elsewhere. Elsewhere, being an Australian-Japanese family, seemed like a no-brainer – but how to start? Lo and behold, we discovered that, while we spoke Japanese and were allowed to trade freely in Japan, we knew nothing about Japanese real-estate. So we started researching. Hard. And started contacting (a whole lot of) people. We were comfortable doing THAT, because no matter how local you are, you’ll always have to hire someone to do something for you, and the skills of picking out the best teams is something you usually learn as an investor very early in the game (often through a few well-placed and painful mistakes, but learn you do).

      Several years later, not only are we moving all of our personal, liquidable funds to Japan, where business is booming for us for several years now, we’re doing alot of it without even visiting or laying eyes on the property EVEN ONCE – the team there is THAT good, and the legal/regulatory system that strict. We also realized that there are a great many people in the world who aren’t even vaguely aware, in much the same way that we weren’t, even though half of us grew up there, of what Japan has to offer for someone who speaks the language and knows where to search – and this turned out to be the best business venture we could ever dream of – not only are we making great money and helping others in the process, it’s also a hell of alot more fun than just sitting around sipping martinis and hoping our money grows (I know alot of you will disagree, and that’s perfectly cool ;))

      And in Aus…well, I still have one property there. One of the best spots in Melbourne, which is one of the best cities in the country. Rent pays a spankin’ 3.8% p/a (maintenance and vacancies not withstanding). The value’s exactly the same as it’s been for the past five years (which is a huge bonus in today’s climate). The only reason I’m still running local with that one is because the tenant is pregnant and I don’t have the heart to vacate until she’s all settled in with her new baby. Otherwise there’d be nothing stopping me. :)) Thank god I got the rest out and didn’t stick to “what I knew”.

      • Steve Toohey on

        Thanks Ziv, good insight. I am going to study several areas here in the states that I’m very interested in – perhaps I will add one out-of-area property and work through all the issues. I always believe in stretching beyond my comfort zone… it has always resulted in something positive. I just need to be very careful at this point and not make any costly mistakes. Thanks again, Steve

      • Hey Ziv — I’m in my home office, having just read this comment, and smiling. You just elegantly described the journey I traveled away from my own market. Very well said. I suspect you’ve inspired many to at least research areas outside of their local market, if only to gain some perspective.

  14. Great thread here. We invest locally because it is what we know and we manage our properties directly contracting out to skilled tradesmen when needed. It would be a big jump for us to buy out of our area. As a part time investor, we’d have to do a lot of research to narrow down our search to a couple areas we could visit. I’m not one to buy sight unseen so we’d have to visit more than likely a few times or for a longer time to ID houses and a partner team to do the management and maintenance. The returns would have to be quite a bit better for all this to be worthwhile.

  15. These are all great points and I enjoy hearing points of view from around the world. Another great truism is that real estate markets are constantly changing. For the next year or two, there are more foreclosures and great deals in my Chicago metro than I can handle. I would not even waste time driving out to Rockford ( 90 miles away) to find a deal. The sun is shining and it is time to harvest the hay.

    Eventually, the foreclosures here are going to get purchased and rehabbed and rented or sold. So what is today a huge buyer’s market will gravitate towards normalcy and eventually a sellers market. So by having a broader mindset, an investor can always be looking at markets where there are great deals.

    • Great point Gary! I am looking at these trends as well, since I am on a buy and hold, long-term-quit-my-day-job plan.

  16. I am buying a US property from a seller in Ireland. He was eaten alive by unnoticed issues costing him serious money, relying on an average at best property manager, being unable to do or check anything himself.

    I in no way agree to buying out of your area, for many reasons.

    I don’t like hard money, I like to know my area, and I don’t like depending on others I barely know.

    • Ken – sorry, but it sounds like your buyer was more a victim of bad DD than anything else. Aside from the cheaper phone calls to his ill-selected team members, he could have had the same experience purchasing in Dublin, with a bit of bad luck or “good faith” (investors’ self-forgiving equivalent of gambling on someone’s smooth words and little else).

  17. Aloha BawdGuy!

    Hawaii’s real estate is not cash flow positive, 9 times out of 10, so it makes no sense to invest locally at this time.

    So for us, the mainland is the place to seek and find. With an ocean between us, the boots on the ground team is key, and probably the most important factor for us to invest away. Their finger on the pulse becomes our finger on the pulse.

    Interesting comment about Japan, Ziv. Will show it to our son who wants to move over there in the very near future.

    Mahalo,

    Aunty

    • Pleasure, Aunty. If he wants information, contacts or advice, feel free to email – doesn’t have to be real-estate related, we’re friendly folk here ;)

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