Property Location Quality Is THE Most Disrespected Fundamental

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As long as I’ve been doin’ this, the one axiom virtually every real estate investor will echo as if his daddy said it first, is, everybody now, “Location, Location, Location!” Yet if we took a sneak peek at what many of ’em own, it would be easily apparent that there was a slip between the axiom and the cup, so to speak. Granted, those who specialize in quick turns have, and no doubt will continue to do well in um, less than blue ribbon areas. Not all of them, but a sizable minority. I was one of ’em. If you’re not the one stuck with the pig location, just the pretty girl profit, you’ve accomplished what you set out to do. I get it. And that’s not a backhanded shot at those who do well in poor areas. There’s a buyer for every property, right? You’re doin’ good things for that community.

But what about long term investments?

For a good part of my childhood I lived in a suburb of L.A. known as Norwalk. It was, at least back then, a mostly lower middle class place where salt of the earth types lived while they worked hard for a living. One of our neighbors had a rich uncle who used to visit them a few times a year. He lived on the west side of L.A., and owned ‘a company’. One time he showed up in a brand new 1962 Mercedes 300 SE. It was yellow with a carmel leather interior. Best of all? It was a convertible! Talk about gorgeous. I used to think he paid around $10,000 U.S. dollars for it, but have since learned he paid WAY more than that. No matter.

I remember how the fathers on our block said he’d wasted his money, how they cost so much to maintain, etc. About 20 years later I found myself in the area and drove by to see the old ‘hood. Wouldn’t ya know it, my neighbor with the rich uncle was still there! Guess what was in their garage?! Yep the 300 SE convertible. It looked like it was a few years old. Uncle had passed away the previous year, and left it to them. It had well over 250,000 miles on it, with its second valve job just a few thousand miles old. It ran like a top. I was jazzed. Their uncle had been right about buying quality at a higher cost.

Lesson learned

Even considering how much he’d paid for it new, there it was still goin’ strong — and reliable. He’d driven it for the rest of his life — 19 years. He’d saved big bucks by opting for big time quality. Am I suggesting you buy all your real estate investments in Beverly Hills? Of course not. But I am sayin’ there’s a priceless lesson to be gleaned by how insisting on blue ribbon quality of location for your long term real estate investments will act as guardians for your ultimate retirement income.

Keepin’ with the auto analogy, think about the now famous saying, “You can pay me now, or you can pay me later.”

Investors who allow themselves to believe comprising location quality for lower prices today won’t hurt them tomorrow, will not only pay later, but dearly. Do not accept less then the best when it comes to buying properties aimed at providing retirement income. The paying later part? It lasts the rest of your life. 

Not a happy thought, is it?

About Author

Jeff Brown

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

11 Comments

  1. Someone gets it! Thank you for sharing this perspective. Quality should be one of the essential elements when looking to invest—from car, to a home, to the purchase of land. Great anecdote by the way.

    Drew

  2. Jeff, great post here. Popular neighborhoods in nice areas = reliable tenants and quicker turnovers. Obviously I am not speaking in absolutes, but after managing dozens of properties, I most often advise my client’s to stay in historically performing neighborhoods for buy and hold. The proof is in the pudding. It takes a little longer to find the right deal, but it is almost always worth it. It keeps you liquid if you find yourself needing to sell too. Also – as an investor in tangible goods, isn’t it nice to drive by your property, your investment, and take a little pride in it?

  3. Great article Jeff. I know investors that buy in bad neighborhoods and even call them “disposable houses”. They are only concerned about today’s cash flow.

    It would be so much smarter to go up to a level that would provide cash flow now, and increased resale value later.

  4. Thanks Sharon — Like I said, if we’re talkin’ about short term thinking, location becomes less of an issue much of the time. You hit it on the head — down the road they’ll realize their mistake. Sad thing is, it’ll probably be far to late to adjust.

  5. Hey Jeff, too just reconfirm your point, my dear son sold that hood property in SE DC this summer for a 100% gross profit in 2 years, some other fool decided to go the 203k/section 8 route on the 4 plex–thanks to your guidance, I never have had to tell my son–“I told you so”, he knows he got pretty lucky this time by getting an excellent return along with all the management headaches–hopefully he realizes how easily things could have gone differently and he would be hating that deal! Life is short, eat desert first by buying the best property you can afford in the best locations and let time work for you–it is impossible to quantify the risks/costs of bad locations–i.e. keep huge sominex accounts!

  6. Jeffrey Gordon on

    Jeff, funny story today from son Tyler in D.C. His latest duplex buy, remodel, and hold got the CO today from the inspector. So it is full on getting it rented across the street from the “hood liquor store”, but 1 block to Nats Stadium and a block to the proposed DC United Stadium.

    As you know Ty likes being on the leading edge of development and knows he is taking higher risks, but at 31 with a large cash reserve account, and a good job feels like this is his best option. That being said, he says he has been getting a lot of tenant interest on the phone, but it seems there has been an epidemic of “flat tires” that leads to a text message from the potential tenant letting him know they are not going to make the appointment–the last one today was outside at the curb when she sent the text :O.

    Ty has had a good run, I imagine that “learning experience” is waiting out there for him, I just hope it is not to brutal!

    j

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