Everyone wants to invest in their own back yard. This is the current cliché real estate investment advice. I believe this advice is malarkey. I actually think that it could limit you. Here are three reasons why I believe investing in your own backyard and being so focused on only investing there will limit your investment success.
There are a lot more places that you don’t live than where you do
People who invest where they live want to invest in places where THEY would live. They are going to be visiting the property and if they are house hacking even living in the property. This could cause you to take a lower ROI because lower risk equals lower return. It could also prevent you from buying good deals that might not look as pretty because you are too focused on YOU and not on the tenant or opportunity.
This is silly. All dollars are green and hood people need homes too. I don’t invest where I want to live, I invest where someone would be willing to live. It doesn’t have to be me, just has to be someone. Another thing is that you only live in one market. This means that you are missing out on the 49 other markets out there that could be making you money. This limits the hell out of you.
I want to encourage you to buy deals not buy what you like. To buy where the money works not where you work. The ROI is likely going to be better and the competition is going to be less stiff. This is a hack that most aren’t aware of.
Now that people are flooding into Detroit I am not worried. I am not worried because people don’t want those hood problems. The same is true in South LA. These days the deals aren’t in Rancho or in Beverly Hills, they are in Gardena and Compton, places people wont go. My experience has taught me that even if I am local I still won’t be the person driving by, my experience has taught me to get things done through people. Now, I can get that Gardena home and not be worried about having to dodge bullets only collecting checks.
Causes you to force things instead of finding things
Investing in your back yard causes people to make mistakes like buying and hoping and not winning on the buy. We invest where the opportunities are, not where we are. By taking this approach we aren’t married to any market.
Too many people are married to their market. They gotta invest in this market and they gotta invest now. This causes people to overpay, to over leverage and to get left holding a bag when rents turn, and rents will turn, rents are already turning. Those that don’t make bad investments end up not investing at all and that is even worse. So many people only want to invest if its in Vegas or in San Diego or Arizona. They want to invest where they are comfortable. The want to invest where there is no value. All investing is value investing though. If there is no value in your marketed, you need not be there.
We, instead, found the market that worked instead of trying to make our back yard work. Because of this we are safe af. While others are losing value we are gaining value. While others are upside down we can’t lose. Investing in your own back yard is silly, its cliché and its going to hurt a lot of people.
Creates a job not an investment
A lot of people say they are investors and all they did was create a higher paying job. When you invest in your own backyard you spend your weekends walking deals or mowing lawns or dropping by to check on things. This sounds like a job not an investment. As an out of state investor we can’t do anything without help. Can’t even get the water turned on without help. But this is what bosses do. Your boss hires people to handle tasks and that’s what allows him to scale and grow. You mow your lawns and that is why you only have one lawn. As an investor its your responsibility to focus on investing not on plumbing. By investing out of your back yard you have this luxury, by forcing it where you are you become tempted to save a few bucks and do it all yourself. You might save a little money but you miss out on the big money that comes with scale.
So this blog is because I realized a few things. I was on IG and a friend posted a multi family in Gardena and where at first before I started investing I would have been scared now I’m like “what are the numbers”? I got people for Gardena. I don’t ever plan on visiting the property, Ill let others handle that. And that’s because I am an investor. An entrepreneur. The glue that holds this thing together. I don’t have to be present I just have to be the brains.
In closing, stop following trends and start being Ralph Lauren. Strike out on your own and stop following conventional wisdom and dogma. That is not how you make money investing. You don’t make money doing what everyone else is doing. This is true in Bitcoin, in flipping in investing in apartments. Anything that everyone is doing is bound to fail in due time. Investing long distance might be one of those in the near future because folks are starting to get nuts with these prices. That said, as Paki said in Episode 112 “can we get money now?” I think that now is the time to zig when they are zagging and while everyone is grabbing multi, grab those out of state single families. That’s what I did.
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