Many real estate investors (especially newbies that are just starting out) are tempted to buy investment properties close to home.
Expensive mistake.
Don’t do it.
For 3 reasons...
Reason One
Most likely, your home town is not the best real estate market.
If there are better real estate markets and you are buying property as an investment, why wouldn’t you choose to buy in the best real estate markets?
In order to be a successful real estate investor, it is important to think like an investor. If you were buying stock in a company, would you care if the corporate headquarters were in your hometown....or would you buy stock in the company you felt would perform the best?
Even if your hometown is the best real estate market today, as the property cycle moves the best markets change, so it won’t be the best market for long and you need to be prepared to adapt.
Reason Two
There is absolutely no need.
Another rationale I hear from some real estate investors is that they are more comfortable buying rental properties close to home so they can drive by periodically and be sure they are still standing....so they can touch them and walk through them because that provides a level of comfort.
This type of thinking is expensive and you should focus on getting out of this mindset.
What is interesting is that when those same people buy stock in a company, they don’t feel the same need to see and touch the stock certificate. That is because they are in an investor mindset when buying stocks but not when buying real estate.
Reason Three
It can suck you into being a landlord.
It is imperative for you to make an up-front distinction between a landlord and a real estate investor and decide which one you want to be. Here is a brief overview:
- Landlords deal with tenants, toilets and trash.
- Real Estate Investors make decisions and cash checks.
Being alandlordis a low-paid, undesirablejob. If you want to be areal estateinvestor, hire professional property management and factor that into your cash flow analysis so that your positive cash flow isreally“passive residual income” and not “active income” for which you have towork.
One of the main reasons people give for wanting to buy rental properties in their hometown is so they can be close by “in case there is a problem”. If you are areal estate investor, then “when there is a problem” is precisely when you do NOT want to be there. Dealing with problems (whether it be a maintenance issue, non-payment of rent, eviction of tenants, or whatever else) is precisely what you want to outsource to a professional property management company so you are not the one doing it. It is precisely “when there is a problem” that being a landlord is most time consuming and least desirable.
Now, even if you agree with everything I have written so far, and you are totally committed to being areal estate investorand not alandlord…be advised that buying property in your home town can inadvertently suck you into being a landlord.
It is so easy to do…
You might just do one thing, one minor landlord duty, because you don’t see it as a big deal….and then another….and then it is a slippery slope and before you know it…
You’re a landlord!
By owning all your investment properties outside of driving distance, it is a built-in mechanism to prohibit yourself from falling into the landlord trap.
Conclusion
If you want to do well in the real estate game, you need to get into a real estate investor mindset. You also need to be conscious of landlord tendencies and check yourself when they start to arise. Buying rental properties outside your hometown is a built-in check on this tendency that can help save you both time and money as you build your real estate portfolio.
DISCLAIMER:
We are not legal, tax, or financial professionals. The content on this page is for informational purposes only and should not be construed as individualized advice. It is your duty to consult with your own tax, legal and financial professionals about your individual situation, applicable laws, and the suitability of any investment property for you personally. All real estate investing involves risks, which buyer assumes, and no specific returns can ever be guaranteed by anyone.
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