{"id":96882,"date":"2018-02-17T14:30:15","date_gmt":"2018-02-17T21:30:15","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=96882"},"modified":"2021-03-16T13:49:40","modified_gmt":"2021-03-16T19:49:40","slug":"invest-high-priced-markets","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/invest-high-priced-markets","title":{"rendered":"“I Live in a High-Priced U.S. City. Can I Still Invest in My Local Market?”"},"content":{"rendered":"

\u201cI\u2019ll be right over to take some photos,\u201d my agent said to the woman on the phone, who was calling to list her property for sale while I sat in my agent\u2019s office, \u201cand I\u2019m actually sitting here with one of my biggest clients. Do you mind if I bring him over to look at your property?\u201d<\/p>\n

I followed my agent to the woman\u2019s house. I knew the location well, because I owned another house on the street already. I was actively looking for a house to flip, and this neighborhood could work well.<\/p>\n

After my agent signed a couple of documents with the woman, the property owner gave us both a tour of the home. \u201cI just need to get out of this town,\u201d she complained. \u201cMy family has all recently moved to California, and this house is keeping me here. I just don\u2019t have the money to repair it.\u201d<\/p>\n

I made her an offer that day, which she readily accepted: $16,000. Yes, that\u2019s right: $16,000. The house wasn\u2019t in terrible shape, but it did need a good deal of work to get it up to rentable standards. But for many of you reading this book right now, you are thinking, \u201cJust $16,000 for a house? That\u2019s insane.\u201d<\/p>\n

Yes, it is. That was the lowest-priced home I have ever purchased. To brag a little more, my 24-unit apartment complex only cost me $565,000. Also crazy, right? I mean, in some areas of the country, you can barely buy\u00a0the lowest-end home for what I paid for my apartment complex. So is that the secret to my success? I\u2019m just \u201clucky\u201d enough to live in an area where prices are cheap?<\/p>\n

It\u2019s a perfectly valid question. Sure, I am located in a very low-priced area, and I know that there are some areas where prices are astronomically high. Many major metropolitan areas, such as New York, Los Angeles, Denver, Seattle, and Washington, DC, have prices well above the national average. If you live in such an area, this article is for you. I want to share a few thoughts I have concerning high-priced locations and how you can still invest while living in such a place.<\/p>\n

Are You Looking for Homes on Sale?<\/h2>\n

How much do you pay for a gallon of milk? Three dollars? Four dollars? Five dollars? These are all prices I see when I shop for milk, but I never spend more than $2.50. How is it possible that I can get milk for $2.50 a gallon while others are paying up to double that?<\/p>\n

It\u2019s because I\u2019m actively looking for a deal. My $2.50 a gallon for milk is not normal; it\u2019s a sale.<\/p>\n

In the same way, the property prices I talk about are not normal. No one lists a home for $16,000 like the one I mentioned earlier, even in my area. Often, seasoned investors like me talk about the cheap prices we are getting to make a point (as I\u2019m doing in this very section of this book), but remember that those prices are not retail prices. That home was actually listed at over $30,000 (still a low price, I know), but I knew the seller was motivated, and I could solve her problem quickly.<\/p>\n

Are you actively seeking a deal?<\/p>\n

When you pull up your list of nearby homes for sale, are you simply looking at the average sale price and trying to compare that with the $16,000 deal I got? If so, you will be very disappointed. The average price for a home in my area is more than ten times as expensive than what I offered. I\u2019ve seen only a few properties that cheap, and most have major problems. The $16,000 deal was a special deal. The apartment complex for half a million dollars was also special. I only buy special deals. They are not once-in-a-lifetime opportunities, but they are also not everyday deals.<\/p>\n

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\nRelated:<\/strong> How the \u201cSecond Wave of Suburbanization\u201d Will Change Housing Markets as We Know Them<\/a><\/em><\/p>\n

I forget now where I heard it (probably the BiggerPockets Forums), but to find a good deal, you should look at 100 homes, offer on 10 and get only one offer accepted. This means that just 1% of the deals that look promising\u00a0actually are.<\/p>\n

What does this mean for your business?<\/p>\n

It means you need to look at a lot of properties. You can speed up the time by having very defined standards that you follow, but in the end, you are simply going to need to look at a lot of properties and try to find a great deal!<\/p>\n

Next, let\u2019s talk about relativity. And no, we\u2019re not going to talk about Einstein.<\/p>\n

Is the Price Relative?<\/h2>\n

Let\u2019s go back to that analogy about milk. I have a bit of a riddle for you: When would it be the same for my budget to pay $5.00 for milk as it would to pay $2.50?<\/p>\n

The answer, of course, is if I made twice as much money. In other words, if I suddenly made double my income but spent double the amount on milk, the percentage of my income I\u2019m spending on milk wouldn\u2019t change.<\/p>\n

This is also true in real estate. A home that sells for $100,000 in one area may produce $1,000 per month in rent. However, that same style house in another area may sell for $300,000, but the rent may be $3,000 per month.<\/p>\n

It\u2019s all relative! So before you instantly assume you live in an area that is too expensive to invest in, decide first whether the math still works. Many times, it will!<\/p>\n

Often, certain investments are working in your town, but they are just not working at your financial level. In other words, the numbers work, but they are so high that the barrier to entry is keeping you out. If so, there are creative methods you can use to get involved. For example, forming a partnership, raising private money, or engaging in real estate wholesaling can allow you to still be involved. There are also a lot of creative ways you can invest in properties that require far less money, which I talk about in my book, The Book on Investing in Real Estate with No (and Low) Money Down<\/em><\/a>.<\/p>\n

I understand, of course, that in some areas, a home selling for $300,000 still may only rent for $1,000 per month. I understand that in some areas, the relativity between rent and price is out of whack. Sometimes, properties are just not worth buying.<\/p>\n

What then?
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\nRelated:<\/strong> 3 Reasons I\u2019m Still a Buyer in Today\u2019s Real Estate Market<\/a><\/em><\/p>\n

What Is Working in Your Area?<\/h2>\n

Perhaps your goal is to buy and hold single-family homes in Manhattan. I\u2019m sorry, but that\u2019s probably not going to work out real well for you. Each location is optimal at certain things, but not at everything. If the math doesn\u2019t seem to work on a certain type of investment in your area, perhaps it\u2019s time to consider what is working.<\/p>\n