Are You Willing To Bet Your Retirement On Your Local Market?

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About 95% of my clients come from outside my home market. That makes sense when San Diego is home to less than 1% of the nation’s population. The diversity of client location is helpful to me in understanding what most markets in the country are experiencing, at least when it comes to real estate investing. It also helps when I put my own boots on the ground to see for myself.

Most real estate markets should be put into investors’ rear view mirrors when the end game is a healthy, reliably abundant retirement. However, many falsely extrapolate from that statement that the reasons are universally the same. Nobody would mistake my local market, San Diego, with say, Bellingham, Washington. Yet I’ve successfully told investors in both markets to Get Outa Dodge — by around 4:30 yesterday afternoon if possible.

I’ve learned over the years how much folks love their hometowns. Duh. This goes for places that endure polar winters, Death Valley summers, tornadoes, hurricanes, and the like. Roots are roots, and for most of us they go deep. How deep? I’ve had folks in East Toilet Seat, Minnesota tell me they prefer all four seasons vs the two San Diego seasons they called, Sunny, and Partly Cloudy. 🙂 They love where they live in spite of having to shovel snow from front door to car door in the winter. Then there’s the Scottsdale guy who not only doesn’t mind 114° heat requiring him to constantly protect his steering wheel, but loves trail biking in it. Go figure.

If I ever completely retire, a doubtful scenario at best, I’ll maintain a place in SD, but will have an out of state home as well. Maybe more. However, I’ll not have any local investment property. It simply doesn’t compare favorably at all with a few other regions.

When I made the decision back in late 2003 to abandon San Diego as an investment market, it was an emotionally difficult process. Still, I sometimes beat myself up a bit for being late by by a year, maybe two. Even after the painful local price correction, still underway in my opinion, the price/rent ratios here suck like a Dyson.

I mean, seriously, would you pay $350,000+ for a half century old duplex sportin’ just $28,000 a year in rent — before vacancies/operating expenses? Yeah, I pass too. Now, imagine the investor who, in 2005 paid $570,000 for the same property, same income.

Wonder if he’s still mad at me for knockin’ my local investment market’s ‘opportunities’?

Whether you’re in a west coast market with make believe price/rent ratios, or somewhere in the midwest where folks are fleeing for employment, and the chance to once again live in a neighborhood where most of the homes are actually, um, occupied — chances are your investment opportunities are inferior, big time, to a few far away markets.

The question you need to ask yourself, and I’m being as serious as a heart attack, is:

Are you willing to literally bet not only the quality of your retirement, but IF you’ll be able to retire on your local market?

Be slow, and ponder your answer carefully. There are those who retire well, and those who still rise early each morning for work. Many successful retirees never realize their long ago decision to leave their local market to invest elsewhere was THE pivotal decision, the catalyst for their ultimate success.

Getting to your retirement shouldn’t be against the odds. Just sayin’ . . .

About Author

Jeff Brown

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

10 Comments

  1. Henry B. Torn on

    Great article Jeff. So true yet so hard to sell prospective investors in out of state markets where the current and long term numbers make more sense. One of the greatest roadblocks I run across and I think is a legitimate concern is the actual quality and reputation of the local Property Management firm you hire. There really is no great methodical way of measuring up the out of State PM firm to run your out of State investment.

    There are however some great ‘turn key’ passive investment opportunities in markets where the price/rent ratios make sense and quality management so you may ‘sleep at night!’ High time to seriously consider out of State investment properties that cash flow and you can ‘steal’ on acquisition price vs. market highs. Not only do you enjoy positive cash flow and tax depreciation yet also a great hedge against Inflation!!

  2. Agreed Henry, but with one thought. Though I’ve fired my share of management firms, I put my own boots on the ground when vetting them. I’ve never had one start out bad, but a couple decided it was OK to slack after a year or so. Just replaced one a couple months ago. You can get solid out of state management. My clients get my boots on the ground. Those investors going it alone should make the same effort — saves a buncha time, money, and anxiety.

  3. Great article, I often wonder this myself. Not to say that Denver isnt good, but diversity is good and if I can step out of state and keep rentals in several markets, I dont have all the eggs in one basket.

  4. It’s very important to be smart about the real estate business… I know a ton of people that have lost it all because they had blinders on and just didn’t do their homework. NEVER put all your eggs in one basket and always have a back up plan on your exit strategies.

  5. Mark Anderson on

    Really good article Jeff. I happen to live in Memphis which is a market that many out of staters choose to invest in. The reason they buy here is exactly for the reasons you say in your article…they can’t get what they need in their own backyard. But just like Henry commented, without good property management, the out of state investing plan is destined to fail. That is probably the biggest reason people will continue to invest in their area even though the numbers just don’t make sense.

  6. My sister lives in San Diego and can never understand why we choose to stay in Ohio, but every market does have its advantages. I have seen many investors flock to Cleveland recently because of the extremely low prices of multi-unit homes. To be able to buy a duplex for $30,000-45,000 and rent each side for $700 can be a great investment. The investors who are experienced and know what they are doing can find deals almost anywhere, but its the inexperienced ones I do worry about. Thanks for the article.

  7. Kudos on the post, Jeff. In addition, many agents blindly tell ‘investors’ that their area is a great investment opportunity without the proper understanding/knowledge. I know my market gets flooded by people looking for investment properties, but our price/rent ratio is so misaligned that I could never in good conscience tell a client to proceed merely on the investment aspects. Affinity to the local area should have little (if any) to do with investment decisions. Looking forward to next week’s post.

  8. Good article, Jeff. After my step mom got tired of commuting from San Clemente to San Diego, she and my dad decided to rent an apartment in downtown. The apartment’s rent is $1250, where a similar condo would sell for $250,000-300,000, right? In addition, there are high HOA fees. I will be applying for jobs soon, and I’d really like to live in San Diego. If I do end up there, I was thinking I would buy a fourplex given that I’d hold on to it for at least five or seven years. To me, that would be better than paying rent for that period. Plus, I can qualify for an FHA loan and put only 3.5% down. You’re right, though, that solely for investment purposes, San Diego is out of the question.

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