Investing Locally: Why I Won’t Do a Deal More Than 30 Minutes Away

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Hey BP. I hope you had a great holiday season and are buckled down for a big 2015!

So let’s talk about geography today. It’s a big question that comes up early in the investing game. Where should you invest? There are many philosophies and strategies out there, all of which make sense to those that stand behind them. At the end of the day, it goes back to your goals.

For now, I only do deals within 30 minute drive of my office in Trenton, NJ. That may change in the future, of course. In reading this you may identify with my reasons for doing this and want to do the same. You may also realize that your goals in real estate investing allow you to do business all across the country! Either way, let’s get into it.

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The Passive Real Estate Investor

I am a full time investor and had intended to be one when I got started. I didn’t like my day job and wanted to be an entrepreneur. I also loved the numbers and the business of real estate so before I bought my first property, I knew I wanted to be a full timer.

There are many people out there who have no intention of quitting their day jobs anytime soon. These are called Passive Investors. Passive Investing is not to be confused with Passive Income, which is the beneficial way that most rental property income is taxed. Passive Investing is hands off investing. It’s done as a way to take advantage of the benefits of real estate investing without going through the day to day activity that comes along with owning real estate. For them, passive investing is appropriate because they don’t have to put much time in at all to get a return on their money. The money they make is not their primary source of income.

In other words, it’s leveraging Other People’s Time (OPT) to reach your real estate goals. Examples of Passive Investments are turnkey deals, private equity deals, and private loans. The Passive Investor is allowed to make the returns they are looking for based on the performance of the other side of the equation, the Active Investor.

The Active Real Estate Investor

The Active Investor is the house flipper, the active landlord, the General Partner. They are the ones who are doing the day to day activity to drive the investment forward. Passive Investors can invest anywhere they want, as long as they trust the Active Investor and are happy with the proposed returns on their money.

Related: Why Do Some Long Term Real Estate Investors Remain Local?

The Active Investor, on the other hand, is the producer of those returns and is compensated for that. They are dealing with the tenants directly, handling the contractors, and driving to get vacancies filled. The Active Investor needs to be close to the deal with their team to make this happen.

So my choice to be an Active Investor is the core reason I keep my investments close to my office. To take it further, here are things I can leverage by investing in my own backyard. These make me an even stronger Active Investor for the long term:

Building an Efficient Team

I have been able to build a team of support to grow the portfolio over the years. At first this was a group of independent contractors that I used regularly on my properties. In time we have grown it to a team of full time employees. Any one of our properties is within a 30 minute drive for my maintenance staff and my leasing team. They can be very effective and cover our entire portfolio easily with our office as a hub.

If we invested farther away from home, I’d have to find a new local contractor in the area or have one of my team members travel out to the property every time there is an issue.

Leveraging Relationships

I am local and so are all my banks and insurance providers. I can build a very close relationship with them, which has been valuable as we’ve grown.

Finding Deals Easily

Because I invest locally, I have turned over deals in odd places. I have purchased property right around the corner from my home. I own a small apartment building on the same block as my office. A small business owner down the street from my office is one of my best investors. These things came up because I’m in these areas every day, with my eyes open!

Managing the Culture of My Business

In being hands on Active Investor, I have control of the type of business I want to cultivate. We came up with a vision for our company – to Transform Lives Through Real Estate. We do that through offering quality housing to people and exceeding their expectations for customer service, through job training for our employees, and through helping our investors build their long term wealth. Being local to all the investments allows me to walk the properties regularly and meet with my employees and tenants in an effort to make sure we are moving towards that vision.

Related: Demographics: The Telling Real Estate Indicator You Should Analyze Before Investing

When I Will Break My Rule

So with all that said, I will break my rule one day and invest outside of a 30 minute drive from my office. Currently we manage our whole portfolio from our offices in Trenton and don’t require management on the site of our properties, simply because they aren’t large enough. I will do a deal that has enough units to justify an on-site management office, and in my areas that’s usually the case above 50 units.

With that in place, I can continue to hold the vision for our company without stretching my local team too far. We aren’t too far from reaching this, but until then I am keeping it close to home!

So let me know what you think – any other Active Investors out there that keep it local like me? Anyone actively invest properties from afar?

Let’s get a conversation going!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

39 Comments

  1. karen rittenhouse

    Hi Matt:
    Starting out, I did exactly the same thing by focusing on only 3 nearby neighborhoods. I was learning everything from the ground up and focusing close gave me the opportunity to learn the areas (demographics, pricing, construction types, schools, etc.) and to know, when the phone rang, approximate values and necessary repairs in each location.

    It also allowed me to easily multi-layer our marketing which makes it much more effective – they saw signs on our cars as we live, work and shop in those areas – we were in neighborhood newlestters, we sent letters and postcards, our business cards and flyers were in the local coffee shops, grocery stores, barber shops, everywhere. And nothing gets your phones ringing like neighbors seeing for sale signs go up quickly followed by sold signs.

    We have bought, sold and hold hundreds of properties all within a 10 mile radius of our home and office. Just the time saved in travel alone is priceless.

    Wholesales and flips are a totally different thing. Those we do further away. But even today, our holds are close to home.

    Thanks for sharing a great tip and insight.

    • Matt Faircloth

      Hi Karen,
      It’s great to hear from you – thanks for input. Also you made a good point about effective marketing. I am primarily a landlord and having many properties in the same geography helps us fill vacancies. We will get a call for a 1 bedroom we have, the prospect doesn’t like that one but ends up leasing something else we have 10 minutes away.
      Take care!
      Matt

  2. Daniel Morgan

    Great Post Matt

    I will love to hear how you tackle properties out your area once you u get to that point. You have very strong stucture around you so i would really like to see how u move that with u going forward.

    keep up the good work!

  3. Kevin Polite

    Great post. I am sometimes questioned why I don’t invest outside my 15 minute area. I work full-time, but from home so far this has worked out where I can still manage my properties and not take time away from my work. I also like your slogan making money while making a difference. I think as a long-term investor it’s an important point to make. If you only think about current cash flow (which obviously is very important) you may not have much cashflow down the road.

    • Matt Faircloth

      Hi Kevin,
      Thanks for reading! If you are managing the rentals yourself while you have a day job, having them close is of course a great benefit! Are you looking to grow your portfolio? If so you will come to a cross roads – quit your job or outsource the management.
      I’m glad you like my mantra also! I’ve used “Transforming Lives Through Real Estate” for a while and have also used “Make Money while we Make a Difference” too. It’s important to have a why that goes deeper than profits!
      Best of Luck!

  4. Richard G.

    Greetings Matt,

    Very, very interesting read, I think about this topic EVERYDAY. Passive Investor and Active Investor, I like how you distinguish the both as I meet them on a regular basis at the local REIA meetings. Some investors are just a little bit more aggressive hence ACTIVE investor! But there is a difference and I believe it just comes down to what that person is most comfortable with and maybe personality.

    Building an efficient team, Leveraging relationships, Finding deals easily, and Managing the culture of the business are all good principals for any investor staying local but what stands out to me is Finding the deals easily. There is nothing better then knowing your backyard, knowing local businesses, interacting face-to-face with agents and brokers and building your team – much easier! But I must admit I have been tempted and it would be interesting to know of any “close call deals” on your behalf. I just feel as an Investor your eyes are always open to the market and you never know when an opportunity will present itself. There have been several times when I negotiated a potential duplex deal in CT (less then an hour drive from the Bronx), potential condo deal in NC (where I use to live), or another duplex deal WV (since I have family that stay there) but then it comes down to the distance and I just reconsider. Your blog this week is eye opening and the points are noteworthy. Thank you –

    • Matt Faircloth

      Hi Richard,
      You bring up some good questions. I have not moved central NJ for 10 years and probably won’t leave the general area any time soon. So moving around the country doesn’t affect me but it would affect someone else with a profession that requires them to move frequently. Someone like that would want to look at Passive Investing in my book.
      Also, I did have some close calls over the years. It’s been tempting to do a long distance deal but as I said in the post, if I were to do one it would have to be something I could setup an on site management team.
      Take care,
      Matt

  5. Jonna Weber

    I am definitely in the close to home camp. It works for me – because it is my job and I invest in what I know. I get both schools of thought – and the more I learn, the more I realize the best type of investing is the type that works for that individual. No two paths are exactly alike. Thanks for the article!

    • Matt Faircloth

      Hi Jonna,
      Thanks for reading and for the post! I’m glad you enjoyed. It sounds like you are a realtor or involved in the real estate business. Yet another way to leverage your relationships on top of being local to the investment!
      Best of luck!
      Matt

  6. Mike McKinzie

    Matt
    When I first started, I would agree with you. In my first ten years, all properties were within ome hour of me. Today, only one of 25 is. And it is all over one little, four letter word, WORK. I do not want to work any more. At one point, my father and I had two Real Estate Franchises, two Escrow Companies, a construction company and a Courier/Delivery Company. Oh yea, and a Property Management Company! Then I saw both my parents get a terminal illness in their 60’s and never get a chance to travel and play. That made me do three things; annual physicals, better exercise/nutrition/ daily vitamins, and to make all my investments as passive as possible. Of my 25 investment properties, I have only seen three of them, two because I Used to live in them. Therefore, if you want to invest and, make it a job, you ideas are perfect. And if you want to get a tan on the French Riviera, and take three months to do so, my idea is perfect.

    One other thing, within thirty minutes of my house, you will have to spend $200,000 for every $1,000 of monthly rent. My personal residence is worth $600,000 and would rent for the most, $2.500 a month. I could take that $600,000 to many parts of the country and get $10,000 a month. And I do not live in a “good” area, lower middle class you might call it. If my house were five miles south, it would be worth over $1,000,000, and would rent for about $3,500 a month.

    • Matt Faircloth

      Hi Mike,
      Thanks for reading and for the comment. If you are living the life you described (3 months on the french riviera) you are my HERO! Lol.
      What you are describing is definitely Passive Investing as I described it in the article. You said it yourself – you don’t want to WORK for the investment anymore. I agree, and there will be a stage of my life when I am a Passive Investor also and rely in the income from my investments. I would be willing to bet that is the goal of most people in the business. That being said, the Active Investor as I’ve defined it is working day to day, for now, to grow their portfolio so that they can retire one day.
      You also raise a good point regarding geography. In densely populated NJ where I live, you can have a town with high priced homes and low rents just a few miles away from a town with a rent to purchase price ratio that is favorable to investors. In areas that are less dense, it might make sense to open up the 30 mile radius a bit for the Active Investors out there.
      Take care,
      Matt

      • Mike McKinzie

        The French Riviera was just an analogy. In Reality, it was a 3 week trip, 2 weeks on a cruise, to the Baltic Sea. In 2014, we bought a Fifth Wheel Montana and LOVE it. 8 trips since July. Heading to Oregon next month.
        You explanation of close to home investing is EXCELLENT. You have done more than just invested in Real Estate, you have made a Business out of, providing jobs, providing housing and stimulating your local economy. That makes YOU a hero!!
        A side benefit to the Fifth Wheel is that since we have property in CA, AZ, TX, OK, CO and TN, when we go to visit those areas, we can write off part of the trip! Our goal this year? To see ALL of our houses! And maybe party in New Orleans, visit the Space Center, see Disney World, and maybe catch a Caribbean Cruise!

        • Matt Faircloth

          Hi Mike,
          Since you are spending so much time on the road seeing our country with your wife, I have to say that YOU are my hero. Sounds incredible.

          My wife and I are planning a trip to take a month and drive cross country ourselves (with our son that will be 3 when we make the trip! Wish us luck, LOL.) We are calling it our Sabbatical.
          Best of luck!
          Matt

    • Matt Faircloth

      Hi Katie,
      Thanks for reading! I’m glad the site has been helpful to you. My wife wrote an article on investing with your spouse and were were both on the Podcast, show #88 if you are looking for more resources on investing with your husband. Best of luck!
      Matt

  7. Bill Neves

    80/20 rule – I used to live in Eagle (Boise), ID a 7 hour drive from where I live now, Vancouver, WA. I did a lease option on my home in that location as well as 4 other lease option deals. 5 total. 4 are going great but the realtor/broker who leased my home and was going to conquer the world, crashed and burned about 6 months after I moved.

    Since it’s 7 hours away it was a pain to show it, lease it again, etc. Had a property mgr friend who ran interference for me and we re-leased it, after 4 months empty.

    Working close definitely has it’s advantages. Plan B is a Power Team in the remote location you work.

    • Matt Faircloth

      Hi Bill,
      Thanks for reading and for sharing your experience. Lease options are an interesting conversation and may take a bit of an exception to my rule if they are done properly. I don’t do lease options at all but have heard that the tenant that truly wants to buy the house will treat it as if it was their own, and perhaps handle maintenance issues. They also don’t want to loose their rights to buy the house so they pay their rent on time. I’m curious if you think that’s a factor.
      Either way I’m glad to hear you are doing well with the investments in ID! Take care,
      Matt

      • Matt
        Yes and yes. I’ve had rentals and done lease option/rent to own deals. On Lease Options, I have done mostly sandwich lease options. I’ve found, and I’m not alone, that people who are leasing, with an option to buy, and put down a deposit, have blood in the deal and ‘tend’ to take better care of the property, than a rental tenant might, on average. Not to demean renters. Lease option folks ‘tend’ to have a mindset of “I’m buying this, and have money in it, so need to take good care of it.”
        Full disclosure – I’ve also had awesome renters and less than awesome lease option folks. As mentioned before, 80/20 rule.

  8. Kevin Polite

    Yes, I’m looking to grow and just picked up 2 more so at a total of 6. I’ve decided to hold back on flips for now.
    I may slightly over improve my properties so that I reduce the risk of the 4am phone calls. These are areas where the demographics are improving which is why I choose them. The neighborhood where I live was like this area 10 years ago and growth keeps moving this way as people are priced out of other in-town Atlanta areas. Purchased from another investor who didn’t keep up the property very well. He marketed to the demos that were leaving this area as it became slightly more expensive instead of the folks wanting to move here but couldn’t find a place that they felt comfortable in. I believe as I can grow to about 10 before I would need to turn them over to a management company so a couple of years away from that unless my position changes.

    • Matt Faircloth

      Hi Kevin,
      Thanks for sharing your experience. Over improving is a good idea as long as you are spending the extra improvement dollars on things that could cause problems. I find the largest culprits to maintenance calls are roofs and plumbing. A close second to those are appliances. How about you?
      Growing to 10 is doable as long as you have a solid tenant base. If you have 8 units with 3 vacant you may have to pull in some help to do showings and turn the units over.
      Matt

  9. Larry S.

    Nice post. I’m in the close to home camp.

    I have many rental homes They are all within a short walk from each other, in a nice safe neighborhood, and only two miles from my home. I did most of the upgrade work myself but admittedly don’t go up on roofs anymore on ladders.

    I have found over the years the big advantage of close to home is that you will not hesitate to drive home and get that drill that you forgot. You will go back home to get the rags , 409 cleaning spray, shop vac, light bulbs or a hundred things that were not on your list. You always forget something, even the key. If you must drive 20 miles you will improvise or just go without. I never liked doing a less than first class job and having properties only a few miles away lets me do things right.

    • Matt Faircloth

      Hi Larry,
      Thanks for reading! Yet another good point about investing locally. Glad you shared that. Also you seem to have a high standard and pride of ownership for your properties. Nice! Owning local makes that easier to uphold I’m sure.
      Take care,
      Matt

  10. Fred Ramos

    Thanks for the blog Matt! From experience, I can tell you, you are doing it the right way. Our story is this. We started out investing in real estate that was (is) about an hour and half drive simply because the purchase prices were lower and we saw a bigger return on investment (cash wise anyway). we started that 8 years ago and learned many lessons including that the properties are not as well taken care of…tenants knew we lived out of town. also, it was very difficult to try to get contractors to come out just to get us estimates (much less do any work!). We have since pressed the proverbial “Reset” button. We have since (2014) sold off 6 units (2 remaining) and have started acquiring units locally. The difference is significant!! First, we are dealing with a little higher tenant class. Secondly, if I forget a tool a home and need to get a specific job done, i can just drive across town and pick up the tool instead of having to re-buy (i have multiples of a few tools!) and it is so much easier to meet with contractors to get some of the work done…to prove a point, i tore out a kitchen 3 months ago at one of the distant properties….it’s still not been replaced!…Money down the drain!…Word to wise, “Do not attempt this at home” 🙂 Good luck to you all!…Stay Local, especially in the beginning.

  11. Matt Faircloth

    Hi Fred,
    Thanks for reading. You made so many good points there. It also sounds like you learned from the School of Hard Knocks like I did, LOL. One point you made that I wanted to highlight is “Stay Local, especially in the beginning”. I like that concept – stay local until you learn the ropes and then expand to more complex and perhaps remote deals one you are established.
    Thanks!
    Matt

  12. Larry S.

    Yes. I take great pride in the properties I own. We seldom advertise a vacancy We keep a list of people that have called and request that we call them should there be a vacancy. In general keeping things first class brings first class people. Letting things run down to save more cash invites run down people.

    Another close to home advantage is that you can always walk to look at some problem. Sure it might be a mile or two but the exercise will not be bad for you.

    • Greetings! I have (2) 4-plexes in either direction that cash flow very well. I actively manage them. In the beginning, I was going by once per month to institute new things such as organizing better trash disposal, debugging minor problem areas etc… With time, sending professional letters to let tenants know what the rules and regulations are as well as keeping them informed has proven to keep things floating stable. As these previous landlords that owed the buildings were stopping by to collect rent, there were situations going on that allowed tenants to pay partial or late rents because they knew the landlord was close by. I accept only full payment by “paynearme” and the one tenant I had that wouldn’t play ball was dealt with hard and fast which included assist from attorney in which ended in them moving out soon after. In tandem, this sent a message to the other tenants that I am human, but firm and won’t hesitate to take action when needed. In addition, because of the distance, I utilize relators to show the apartment as it is evident that it would be taxing to drive their every time I had to show it. Well see… So far, so good:)

      Marcus

  13. 50 years ago my father taught me the same investing technique, no more than an hours drive from my home. Then came the internet, cell phones, texting, emails every phone with a camera, etc.. That progress changed my investing criterea. If it had not changed I would not have purchased 10 homes in Phoenix at “almost” the bottom of the market and doubled my money in three years and having cash flow from day one. On the other hand if invessting near home makes you money, it is a good strategy, just too restrictive for my taste.

  14. Matt Faircloth

    Hi Edward,
    That sounds like a very solid investment you made in Arizona. It would call that a Passive Investment as you probably had a local property manager to collect rent and handle maintenance. I’ve heard from a few people in California from this post so it seems like my tactics would not work as well out there! They work in NJ as it’s much more dense and can get cash flow and appreciation without traveling too far. Also, as I said in the article investing locally allows me to build a business & brand myself, which is another part of my long term wealth plan.
    Congrats again on the deals in AZ!
    Matt

  15. Andrew Nash

    Matt,
    Great write up! I’m relieved to see that your level of success is possible within a 30 minute radius.
    I’m coming to a crossroad in life, about to retire from the USAF. I could take the easy road and get a well-paying job with one of the defense contractors (which I’d probably hate) or I could jump into real estate which I’m passionate about but haven’t had time for. I have a little real estate experience. I have 2 rentals leftover from my many moves over the years and I have a mortgage on my primary residence. Now for my questions. I’m moving to central Florida to be near the rest of my family. What’s the best way to pick a city to set up shop in? Do you choose based on population? Growth? Housing market? Also I stand to make decent profit (90k-ish) when I sell my house to move to Florida. Should I start off with multi or single family? I plan to eventually own both types in my portfolio. Thanks for sharing your advice!
    Drew

  16. Larry S.

    To determine good real estate markets join a local real estate group that is part of REIA. This is the Real Estate Investors Association. They have monthly meetings and are very good in some cities and pretty lame in others. Go to a meeting and size it up. In our last meeting I learn that the top cities are Pittsburgh, Des Moines, Columbus , and some others which I cant remember. I believe Orlando is near the bottom of the advisable markets to buy property for rental and be a landlord. This may no longer be true but discussions with other investors at one of the meetings will give you a wealth of information.

  17. I am not really qualified to weigh in on this but if I was I would agree with your operating practices. I am heading my actions in that direction but to really be significant I have a long ways to go. What I am sure of is there are people way more successful than I ever really need to be that operate in an area smaller than most can imagine.
    The first house I ever bought I bought from the owner who had moved out of state and kept it as a rental. It was in pretty bad shape but I had a lot of years there happy. Then I moved two towns away to a house that I had bought from somebody who needed to sell and kept that first as a rental/ too far away to manage well and not enough cash flow to hire management so I sold it to the renters and got over it.
    Same town ,city water and sewer please.

  18. Larry S.

    Investing locally offers another advantage. You get to know and trust your developed list of contractors. I never ask a price when I call an electrician, plumber, general contractor, appliance repairman, or other tradesman or handy man. Working with certain ones over the years have developed a mutual trust and respect. I know I wont be cheated when I tell someone ” just go and do what needs to be done” If I hade properties scattered over half the state I would constantly be looking for a contractor and getting job quotes. Then I don’t know if they are any good until a few jobs have been completed.

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