Investing in real estate close to home vs long distance is a common concern for many real estate investors. Should you invest in the areas that have the best performance statistics or simply focus on investing in your own backyard? Oftentimes, news articles rate the top cities or states for appreciation, foreclosure activity, days on market, rental rates compared to average sales price or any other number of market details. It can be tempting to view your own local market as being inferior to all the opportunities that abound in other areas. How should you determine where to invest? The answers to these questions are explored in great detail in the following video:
It's the question of, do you invest close to home, nearby, where you live, or do you invest far off, somewhere else?It's definitely misunderstood. I want to talk about why it's misunderstood, and where do the confusion and the confrontation comes from. Also, what I believe to be in most cases the best approach as well as some of the exceptions to the rule.
Where Does This Question Come From and Why is it Not so Straightforward?
In general most people believe the grass is greener somewhere else down the road.
They believe that their current situation or what they currently have isn't as good as other there. That's just a basic human psychological tendency, which I don't know why it's built into us, but so often people think the grass is greener. In most cases it's not, okay?
Now there's more to it as well. I think in general, most people who are familiar with their local area tend to look more to the negative or the not positive side of things, so where they live, they think, "Well, there's no opportunity around here." It's probably because they've never looked in the right way. A good example would be kaleidoscope thinking. It's the idea that if you turn the kaleidoscope, you see things totally different. It's local familiarity that can actually be a hindrance because someone is looking through a different lens, and they don't see their area in quite the same light.
Hard to Gain Knowledge
Another thing that comes into play is, if you ever networked with other investors or real estate agents or what I would consider competitors, anybody else who is investing in real estate locally, often times they're not going to be extremely outgoing about sharing all the wonderful opportunities that are available. Usually it's more like, "Well, they kind of changed things around here. Really hard to sell a property." That's what you're more likely to hear. A lot of it is because they would rather you not be in the market, maybe, because if you are, you're a competitor.
Certainly, if you reach out for local knowledge, depending on their angle ... Maybe it's a real estate agent that just wants to get a commission and maybe they tell you it's the greatest place to buy real estate in America. It just depends on their angle and what their agenda is, but in most cases people, when you network with other competitors, other investors, they're probably not going to act as positive because it's not in their best interest to act positive. When you combine all this, you got the local familiarity, you've got this grass is always greener, you've got your local competitors usually painting a negative light on the situation; you also have news. News tends to be macroeconomics.
Macroeconomics
What do I mean my macro? Macro meaning overall, big, versus micro. Real estate is very localized, and so even within a city, there can be so many different landscapes. You can have the ghetto, you can have the wealthiest part of town, you can have middle class, all these different areas of a city, and so whether the overall general market is going up or going down, one particular neighborhood may be booming. Another one may be actually going down in value. It's very localized, so what happens though is the news will say, "Well, these are the four states that have the highest levels of appreciation."
Then somebody will read that article and go, "Wow. I need to be investing in that state." It's not quite that simple because buying a house in a neighborhood is not necessarily going to be indicative of the way the whole state is going. It's very localized. In fact, I would argue and I'm sure I'd be stepping on some people's toes when I say this, but if you're trying to chase different markets, which one is going to be doing better the next year the next year, I equate it to changing lanes in traffic. If you ever done that, you're like, "That one is doing a little better" so you change lanes and then that lane stops, and the one you were just in starts going. I think trying to chase different markets in most cases is pretty much futile and I know I'm stepping on some.
Diamonds are in Your Own backyard
That's because the grass isn't always greener. Diamonds are in your own backyard. Real estate is so localized that it can be very difficult for the normal average investor. This is different if you're a hedge fund manager and you're looking at buying 3,000 homes next week. That's a little bit different, okay? You're going to be buying so many houses at once that you will actually get some sort of semblance of the overall market because you bought so many at the same time.
For the average real estate investor watching this video, you're probably not going to buy 3,000 homes next week, so you're going to be focused more on the localized side of this business, the micro side of the business. The new reports that say that that city is doing well or that state is doing well, in most cases I really consider a lot of that noise. It's noise because it doesn't apply specifically to the property you're working on. I also see where people get concerned about, "If I buy a house in this state and I just read an article, said the values have been stationary or even dropped, how am I going to sell it?" See, my attitude is in real estate. You only need one buyer. You don't need 4,000. You need one. It's very micro or localized. It's not macroeconomics that you're dealing with.
Reasons Why Being Local is so Helpful
Familiarity
What that means is that you understand your area. I want to tell you a good story about this. These two hotel operators from New York, they always bought their hotel properties in New York. They got tipped off to a property that was for sale in Denver. It was a wonderful hotel, had great cash flow and the price was the incredible. The price was just beyond incredible. Up to that point, these gentlemen had never even considered buying outside of New York because they wanted to stay local so they could manage their properties, and here they were, presented with the deal of the century. How could they be so lucky, right?
They flew up to Denver and for one week they did intense due diligence on this property. They watched the staff, they watched the customers and they just concluded this was the deal. The night before they were going to fly back out, they're at the bar. A gentleman comes up to the bar and starts talking with them. Turns out this guy is a pilot. These guys had been interviewing these patrons throughout the week just to get a feel for if they liked the hotel. This gentleman said, "I love this hotel. Every time I fly in here and have a lay over, I stay here." These two gentlemen were just like, "Yes. We've got the right deal." They told him. They said, "Yeah, we're looking at buying this property and this week we've been doing our due diligence. You've just confirmed what we thought to be case and that is there's great management, there's a great team in place. It's a wonderful property, a wonderful location."
After they said location, the pilot said, "You know, funny you should mention that. I don't know anything about hotels. I'm a pilot, but what are you guys going to do when they move the airport next month, because I'm sure you know, this has been a huge ordeal, building the new airport on the other side of Denver, and obviously once the airport and all the flights go there, I won't be staying here anymore because it'll be too far away." These two gentlemen looked at each other and they realized just why there was such a good deal on the hotel.
What the point of this story?
The point of this story is that with your local familiarity you really know what's going on around your area. You know when a new highway is being put in. You know when a new plant is being built. You know when something is being torn down. You know what's going on, and so you have a huge leg up on anybody outside of your area. You know what's happening. You know the culture of your area, so you know the types of people that live there. There are so many things that you know that you probably don't even realize you're aware because it's just part of you living there.
Every time you go out to dinner, every time you take your kids your school, there are so many different things that are already inside of your brain, what I call familiarity, that a long distance investor would never be able to know. That's a big a deal, so familiarity. Another thing that's important to point out is, and I started to touch on, it was management. Management is difficult in real estate long distance. I'm sure there's going to be those that are watching video that are going to say, "Phil, I can just hire a property manager. I don't need to be there." You could read my book on my thoughts on property management, but it's very difficult to manage long distance.
Turnkey Properties
I'll tell you where people run into trouble here. It has to do with turnkey properties. You may have heard of these before, where what will happen is, in a local area, an investor or a company will buy the real estate, fix it up, move a tenant in there and then sell the property to somebody halfway across the US. They will call it turnkey because they not only bought it, fixed it up and sold it to you, but they're also the property management company. These turnkey properties really cropped up quite heavily the last couple of years. I can't tell you the number of situations that I have to help our students that join our program that have had a turnkey property or two, and it's an absolute mess.
The property is in Memphis, Indianapolis, Detroit, Texas, Jacksonville. It's somewhere out there. The problem is, they're not there, and so they have to rely on the property manager to continue to fill the property and it's very difficult to manage because real estate is hands-on. Being able to be there, you can see what the problems are. You can experience issues. You know what? In a lot of cases, we always recommend our students doing rent to own offer to get a tenant buyer as opposed to just leasing out to a standard tenant. That way you get some money upfront, which could offset if the tenant moves out and trashes your place. A property management company is not going to offer that service in most cases, so property management is very difficult long distance.
Let me tell you, I moved from Nashville several years ago to Florida and I had a lot of rentals in Nashville. The question becomes, how many rentals do I have in Nashville now? Zero. Why? I have zero because it's very difficult to manage long distance. If I can't do it, and I'm a professional, I've been doing this for very long time, I'm sure it's going to be very difficult for you to do it. Owning property long distance from a management standpoint is in many cases, I'll tell you, for a lot of people, it's an absolute nightmare. If you do own a turnkey property right now, I pray for you. I hope you can work it out. Maybe the property management, maybe it all stays filled and everything works out great, and maybe over the course of five or 10 years, it goes up in value.
Being on the Ground
I hope so, but a lot of people have really struggled with it. Familiarity is helpful. Management is helpful. It's helpful to be local of the management. Another thing is just being local, you can be, I'm going to say this, on the ground. On the ground and a lot of reasons on the ground. On the ground because you can go look at the property. It's a big deal. It's one thing to see something on the computer. I do a lot of my investing from a chair, from a computer screen, but at the end of the day, I still go out and look at property. Looking at it on the ground is important.
That's just the beginning. Being able to meet the inspector, meet the appraiser at the properties to control bills if you're trying to flip them; being able to see what the problems in case you have to hire a contractor so you know if they're lying to you or not. Contractors don't have a great reputation in this world for being incredibly ethical. So being on the ground is huge. You can see what the problems are. What if you want to meet a tenant before you put them in there? That way you know if they're going to be absolutely terrible to deal with or not.
It's nice to meet your tenants in person as opposed to having to go through a property manager because ultimately, and I don't want to beat up property managers here because there are some great value to some of them, management is usually 10% of the lease amount. 10% of the gross lease is usually like 50% or more of the net profit, so they're usually making most of the money and they do not have any skin in the game. You have all the skin in the game. You're the owner. The tenant ruins the place, you got to pay for it, not the property manager. Being on the ground, you can meet the tenants. You can see what's going on with the property and you also can see what's going on around the property. You're on the ground.
When You're Local, You Can See Opportunities that Other People Don't See
That's a big one. In fact, there's a great book called The Millionaire Mind by Thomas J. Stanley, which clearly outlines the importance of being able to see opportunities that other people simply do not see. Being local, you can see things that the long distance people cannot see because you're there on the ground. That means you have to do that kaleidoscope thinking like I was talking about. You have to change your view and look at things just a little bit differently, but you may find that there are absolute diamonds in your own backyard.
For example, I don't invest long distance. Now I do teach, train and coach and mentor students and then we share in profits, but they're on the ground, okay? If it was such a good idea to invest long distance, I wouldn't teach anybody anything. I wouldn't be on this video and I'd be just doing deals all across the country with a bunch of employees, but I discovered it doesn't work that way. You got to be local. I invest locally. I invest where I can drive my vehicle within about a 30 minute drive. I try to stay close because it also helps, because all the little things that go on, it's so nice when I can just stop by the property and check on things or deal with something real quick. Being long distance, everything is a much bigger hassle, including getting access to the MLS, building the right team of contractors, having the right title companies and all these other important aspects.
Where Does Long Distance Makes Sense?
Well, there are a couple of exceptions to the rule. The first, we talked about it. If you're a hedge fund, if you're a money manager, you want to buy a bunch of real estate, if you need to buy a whole bunch and you want to make a wise decision, it does make sense to look at some of these macroeconomics statistics and find the right markets to work in. Another thing is, we used to do a lot of short sales. We don't do as many anymore, but when we were really heavy into short sales, we would do some of those long distance because with short sales, the way we were doing them, we'd negotiate the short sale and then we put it on the market, and whatever somebody paid, they would be the one to hire the home inspector. We really were just pushing a lot of paperwork and making a lot of money.
The problem is, a lot of that has changed recently, and so really, you still have to be pretty much local these days with short sales. There was a time when short sales could really be done long distance and that worked out okay. That's really the biggest exceptions. I think you invest close to home, whatever the problems you think you have locally, there's an equal benefit to being there as well. In other words, you have drawbacks and you have upsides to being where you're at right now, so the grass really is not greener. It doesn't get greener somewhere else. It's right there in your own backyard. That's where the best opportunity is, so that's where I'm going to recommend that you stay.
Tax Liens
I still believe that you should know the property that you're getting a tax lien on, but there are certain areas of the country where you can get a higher rate of return on your tax lien. Maybe you fly in for the tax lien option or maybe it's online and you don't have to. You can look online to see where the property is. If you know it's a single family home with a big, fat first mortgage, you know it's probably going to get paid back or redeemed prior to a tax deed sale, so you know you could probably get your money back.
Conclusion
There are some examples where that may make sense a little bit too, but by and large, if you focus, especially if you're doing creative real estate investing, which is primarily what I teach, then close to home is going to be your best bet. Whatever you think your problems are, your diamonds are in your own backyard.
I’m looking for a mentor to get started wholesaling. I’m very interested.
It sounds like you are interested in mentoring with my team!
Thank you for taking time out and sharing information about real estate! This is what I need. T this is what I was been looking for; information on how to become how to become an investor in real estate. Please give me a little bit more information where to start.
Have your thought about making application to my Apprentice program?
Hi Phil ,
I am buying out of state and you are right it is a hassle to go see the property but I am buying a house all cash and having a management company manage it at 10%. I live in California; finding a fixer upper is way more money than buying a house for $20000 out of state. Thanks Phil for all your videos.
I want to dive in… I am taking a course on abundance and want to also learn your strategies and techniques, once I break through my blocks I want to learn and progress with full speed ahead!! I’m excited to learn about this business
Happy Holidays
What if there are NO deals in your area? I live in Maricopa, AZ it’s a small town with limited options. There is NEVER a situation where a home is priced below market value. Maybe a foreclosure once in a while. What would you suggest?
You might need to expand your marketing area to reach a large enough population. Once you do that there will be enough deals; your job is to find them.
What do you think about real estate investing now and in 2018, and even 2019, in terms of deals being harder to find and that 90% of all real estate investors are going to fail?
We find deals in all market conditions.
Investing out of your area forces you to learn to make the numbers work because you have to take every aspect into account. I DO agree there are deals EVERYWHERE though Phil! Thanks
Thanks phil. Nice video. If you are a savvy investor with decent capital staying local is great. But, for instance in California a local condo is over 400k, but if you drive a little over an hour you might get a single family for 150k. You mentioned half hour is ok. Is one hour or 11/2 ok? So long as you can get to it a little over an hour might be worted. Any thoughts on that? I definitely agree that out of state could be nightmare. Thanks phil. Tony
Sure; an hour or two away is certainly do-able. It’s the California investors that buy in places like Ohio that usually end up regretting their decision
Phil do you personally manage the homes ? There is right way. But based on your responses it seem your way is the only way you see it. If you manage your own rentals it is not as easy as you make it..
I self manage some and hire a property manager that I trained from the ground up for others.
Hi Phil, I just watched your video on local vs long distance investment. Totally makes sense and I actually live in Orlando Florida currently looking for a mentor. How do we meet? I’m in Orlando. All the very best and thank you for sharing your knowledge.
I attend Orlando World Outreach Center church on Sunday mornings at 9AM. You may catch me there.
Phil i have watched several of your videos and i want to thank you. Because of my interest in Real Estate Investment through your videos i have been emailed videos on Tax Liens. Explain for me which is more profitable and would you recommend tackling both if you’re able to?
Just this presentation by itself is worth quite a bit.
I want to start off real small and work my way up right now I’m trying to qualify to get a loan because my credit score is kind of low so basically by and how long do you keep the house maybe two years because I’m 51 years old I don’t want to keep it for 5 years just wanted 2 years and then turn around and sell it after you do a little fixer-upper
I was wondering about long distance investing. Thanks for taking that idea away from
Somethimes we can have some ideas about this subject, but its always good to hear the ideas of someone who is more experienced, Thank you clarifying this point Phil!!
I am putting plans and effort together to get back into the game. And you are absolutely 100% right looking for the diamonds in your own backyard.
Well Phil you are right. I agree with you and investor should be where the property is located. I’m going to be moving to Conyers Georgia soon.I have family there which is a big reason I must leave Chicago. But I guess it won’t hurt to try and find a few deal before leaving.
Great videos
What about multi unit long distance buy and hold ? Does that make sense in terms of long distance investing ??
If the development is large enough with great management and you don’t mind traveling to the property ever-so-often, that certainly can work!
We’ve had a couple of rentals about 6 hours away for the past two years, and we’ve held them successfully. We had intended to move there, so that’s where we wanted to invest. One’s a single-family home; the other’s a condo. They were our first two rentals. Except for the Redfin pix, we bought the condo sight unseen. We’ve been pleased with both of them. We’re in AZ; they’re in two counties of SoCal.
The difference is that SoCal has been like a second home to us for decades. We’re very familiar with these counties, and we visited the area of the home several times before we decided to purchase. (It was where we probably would move.) We also found a fantastic, astute RE agent (who, unfortunately for us, now is a life coach in Hong Kong) and spent hours talking to her on the phone and then meeting with her. We carefully screened PMs, although after a year, I ended up firing one of the PMs and hiring another one who also was an investor and did flips.
On the other hand, we were left with rental mobile homes in NorCal when my bro died. It’s 12 hours away. It’s working out, but I feel more uncomfortable because it is so far, and we don’t have a professional PM. They’re overseen by one of the tenants.
We’ve looked at buying across the country, and I can’t shake how uncomfortable I feel about it. However, I wouldn’t think twice about investing in SoCal, again, because we have a team of people who have worked well for us: the seller’s agent on the house, 2 PMs, and a banker.
Phil, can you please send me a copy of your book. Thanks
Hi phil,
I agree 200%. I live in atlanta ga one of the top cities for real estate investing.
You are a great teacher. Thank you for everything.
Brenda
Thank you Phil you actually cleared this up for me.. I was considering investing long distance but all your points make good sense. I thank you very much! God bless!
the video was great
wow.
I learned a lot in this video.
I learned a lot about the people that I had been “listening to” and paid a good piece of money to…
and they said all the things you did not.
Like they said, ” Buy where you don’t live, in markets that have a higher yield”, and ” hire property managers so you don’t have to be there..and they will take care of everything.”
Wow.
Wow.
Hello Phil,
I want to thank you for the video. The video will allow me to make a decision that has been on my mind for quite sometime. I currently own rental properties that are five hundred miles away from me. I was thinking of continue the long distant ownership, but your video and the phrase” There are diamonds in your own backyard have convince me to sell. Thank you.
Hello Phil,
I enjoyed your video. I have seen most of the ones you’ve put online at this time. My question is. I live in the north part of the San Francisco bay area in California, I am concerned that the housing prices are to high to get a good investor to be interested in most of the properties. (500k plus) Should I be looking into the poorer area’s for cheaper deals, which most likely take me out of that 30 minute driving window, and possibly locate the diamond in the rough there? (still 250k plus) Or just focus on doing both. Thank you for your time.
There are diamonds in your own backyard. You don’t have to sell your deals to other investors. You can sell them to retail buyers.
Very interesting Phil :
I am thinking of buying a property in partnership with my cousin in Florida (Daytona Beach area),and he is the one who already owns homes (foreclosures),and then flips them. So this video was right on.
Are there specific problems that might come up in the Florida market, that might not come up in other areas. I am thinking for example, in some places, homes are subject to termite infestations. Or county laws.
Every area has their little quirks. Know them well.
My wife and i argued about this very subject less than a week ago her father is a realtor in Detroit and was telling her about people swarming back to the city, i told her that’s great but i have to be able to feel and see anywhere my money is going, i guess i was right this time lol, that doesn’t happen often with her, she is really bright lol
Hi Phil, I liked the video but my question for long distance is….What about Price reductions? I live in NYC and buffalo NY is much cheaper tax wise and property wise. I was looking into investing in buffalo because the I cam almost buy a home cash. How can a situation like that be at a disadvantage.
That’s EXACTLY the trap you don’t want to fall into. Just because the price point is lower than your backyard doesn’t make it a good idea.
Hi Phil, Enjoyed th video, just wondering about an investment property in the smoky mountains. Have been vacationing up there for 20 years and always rent a chalet in Gatlinburg. In all the years traveling up there and paying for a chalet, we could have bought one and put it on a rental program. We do live in South Florida but love the smoky mountains as we travel there at least twice a year. Thanks, Debbie
Buying a Chalet in Gatlinburg makes sense if you buy right, hire a great property management firm that always keeps the place rented and maintains the property well. Then, you’re two week trip there every year is free lodging. But it needs to cashflow AND it needs to cashflow well. Otherwise the yearly cost for lodging at that Chalet is a bargain over having to deal with a rental 1,000 miles away.
Phil, thanks for all of the videos and mentoring. I get stuff from so many gurus that its overwhelming….I’ve decided to stick with one or two guys and you’re one of them.
Would you generally recommend trying to acquire properties from owners who may not be able to pay the overdue real estate taxes by the end of 2014? The city (not Pittsburgh) places liens on the properties beginning in early 2015 as the first step to sheriff’s sale/auction which could take up to a year to happen. My partner and I are looking at at least fifty properties in another city that we are considering making offers on and for which we would need to find funding. We don’t intend to hold the properties because of the distance between our location and the properties, so the plan is to flip for even a small profit. Thoughts?
I personally target owners of property who are so far behind on their property taxes that the property is about to go to tax deed foreclosure auction. Although often the title is messed up, ever-so-often you find a real winner in that group.
Phil,
Thanks for your insights regarding local vs. long distance. Would there be any circumstances to purchase property beyond the 30 minute guideline; say 45min to an 1 hour?
Looking forward to your response.
Thanks
Michael Tucker
Gastonia, NC
Definitely. 30 minutes is my rule. You may be happy driving 2 hours each way every time you have to go see the property.
I enjoyed your videos. I will be the best APPRENTICE EVER! I look forward to making alot of money together.
Hi Phil,
Just like everyone, I too have been enjoying your videos. As someone who lives in the Frozen North I have a property in the US picked up in 2012 bought from pics on the internet; i have had nothing but no regrets. The idea to purchase in the US is because property prices here as are as high as it is in California. So buying long distance is not so bad after all.
Keep up the good work! I’m learning and reinforcing my knowledge with you teachers. You are really a great teacher.
I hope that 5 years from now, you feel the same way. Buying a property based on a price comparison to what you can buy in your own backyard is almost always a bad idea. If you get lucky, fantastic. But it isn’t something you can hang your hat on. The thousands of people who have NOT had your experience doing the same thing you have done would sharply disagree with you.
I live in north California(tri-valley area), the house price has been up a lot recently. Average 2000 sqft house cost around 800K; for a 40+ years old condo with 760 sqft will cost 300K, so my question is how to invest in local for property cost so high? any suggestions? Thanks!
Creatively.
Hi Phil,
Thanks, but this is not helping me at all as I am new investor. Could you be more specific please? Thanks!
How? Perhaps you would benefit from the hours of free trainings I provide on this site. Perhaps inside one of those other videos, it will have the specificity you are looking for.
I guess I haven’t finished studied all of your great trainings, I will finish them all first. Thanks!
I will LOVE to be part of a team that help others and i,m going to be a part of TURNING POINT EX once I LEARN the training and build a better FOUNDATION !!!!
Hosea
Thanks for being my Mentor, watching your videos makes me a student, THANKS !
Hosea
Aloha Phil, a 3/2 over here is upward of 500k and I see houses in MI,NV,IN,and IA all can be had for less than 50k. I feel exactly like “the grass is greener over there”. Time is running out! I’ve worked hard and I’m getting older I’m a carpenter by trade and can do all sorts of rehab. The diamonds are here and believe me Ive worked on some incredible properties of wealthy people. Stuck in limbo. Dale
There is great opportunity in Hawaii. What are you scared of?
My only question would “What do you consider local?” I am buying a house from an older investor who is going to be getting rid of all his properties – as he’s 79 years old. I stumbled into it because I owned the lot next door through inheritance. He’s giving me a great deal – I don’t know if he realizes that the market has recovered. But it is one hour away from my house. Is an hour a way too far? I don’t think it is.
My threshold is 1 hour drive from my house. BUT, I like my rentals to be even closer than that. It all depends on your own personal threshold.
I agree. Every time I got out or on the double decker bus, I’m spotting empty property. I’ll come home, go online find out property owner. I’ll approach them and I have found so far people appreciating my humble approach.
great advice. on local vs long distance. live in New York state.. SNOW and COLD … looking to relocate to Fla. . snow bird…
Hi Phil-
Just digging my teeth into your book and your videos, and really enjoying it all.
I’ve decided I do want to start investing in real estate- I’ve always wanted to do it but thought you had to have money to get started. The problem is that I live overseas, and the market and laws are completely different here.
Just to give you an example, in Israel (where I live) the law is that you can’t kick someone out of their primary home. So if the bank wants to foreclose on someone whose only residence is the property they’re living in, they can’t. They have to work something out with the owner.
So in my case, would you still recommend investing locally, or would you say that it might still be worth it (in my case) to invest in U.S. properties? I am from the U.S originally, and would be willing to travel there once or twice a year to check on things, maybe more if necessary – though not more than once every 3 months.
Thanks again for all the advice! It’s been incredibly helpful.
That’s a tough question. I wouldn’t invest in the US long distance. But I also don’t know if there is any opportunity to invest in Isreal either. Sorry I couldn’t be of more help.
Darn, that’s disappointing. Thanks for your advice though.
Hi Phil. It is an interesting video. My family and I usually stay in a city for one to three years because of the assignment of my company I work with and after that move to other city. We are now considering to move to other city. Could you advise us which approach will be best to us.
Invest in your own backyard and don’t hold your deals long term. Do short term deals, such as flips or even selling properties on 1 year Rent to Owns
Phil, i just listen to your video. awesome it made me realize more that investing locally is where its at.
Its the highest degree of common sense, no one can argue with, except in very rear circumstances.
You have the winning argument. You have the root knowledge the fundamental insight of how investment works local vs long distance. Even in real estate distance matters when it comes to buying and re-selling your property. Your a great mentor. Keep up the good work giving us the right way real estate guidance for investing in a life time.
Thanks a lot……..
so much blessed with this worthwhile information…………….
way to go…..
God bless you….
Hi! We are based in Los Angeles and cap rate around here is about 5% but when we look around in VA, PA area, Cap rate is about 9-10%. As an investor to invest money on property that can generate more money on same investment. We are looking on invest on apt complex as rental income to set up residual source of income.
What is your thoughts on this situation.
I don’t deal with commercial real estate at all. I wouldn’t be able to help you from a CAP rate comparison perspective. BUT, I will argue that owning real estate long distance is tough. You are going to have to visit your property periodically and if it is long distance, consider the costs and hassles of traveling to see it.
Thank you for sharing your wealth of knowledge and experiences with us. Knowledge is power but rightly applied knowledge is wisdom.
I had grown up in Key West for 35 years, but now live in Central Florida. My mom & brother still live there.
Would you suggest that I don’t invest because I am not getting weekly feedback on that area? Or invest but stay current?
I was planning to call a few friends more often to get a varied view of the island. What are your thoughts? Thanks for your reply.
Invest in your own backyard. If you live in Key West, invest in Key West. If you live in Orlando, invest in Orlando.
Thanks for the info and the differentiation between a single family dwelling and a multi-unit.
The work you do in all aspect of real estate are rewarding to the new investors,And all that is said should be taken with respect.
Hello Phil
I’m so pride of you with the knowledge and skills you are giving to individual in America and around the world
May God reward you and give you long life to continue the good work.
Sincerely
Abrahim kamara
Thank you for all the information and informative videos. I find them very helpful since I know next to nothing about real estate but I’m certain this is my path to building wealth.
In all your experience doing rentals in many locations, have you ever came across any reputable, recommendable property management companies?
I ask because I reside in NYC where you know how expensive real estate can be and other states seem more attractive (single/multi- family home prices).
I may not be in NYC after July and my next location may only be for 3 years so amassing a sizeable portfolio while relocating often makes it hard to ‘stay local’.
Then you may want to consider not being a long term landlord. Property management firms, even the most reputable, suck out a huge chunk of the net profits of real estate holdings. It is better to own less properties, own them close to home, so you can manage them (or at least keep a close eye on your property management firm) than to own real estate long distance.
Thanks phil. I’m just getting started. And it seems that I want to be both traditional and creative invester. Also a nation wide invester thanks for the blogs
Thank you Phil for all the videos that you share with us, looking forward to joining the mentor program.
Hi! Phil, I agree with your comments concerning investing locally instead of long distance. I once thought of investing in rentals of single family homes in the Dallas-Fort Worth area of Texas about ten years ago, but I prayed about it and sensed that I should not do it. Afterwards, I found out later that professional Real Estate investors in my area that had invested in Texas from California ended up having to sell those properties later anyway in order to invest in California properties when the market here got better. Also, the problem of relying on property management long distance is not good either, since you really do not know what they are actually doing and you cannot drop in on them easily either to check out their work.
Really good insight Phil.
Phil, thank you for sharing your knowledge and honest opinions.Really appreciated.
Hi Phil,
As much as I enjoy your videos, I have do STRONGLY disagree with you on this one.
As a professional real estate investor with over a decade of experience and over 90 units under my belt, I can tell you that all the properties I’ve purchased have been out-of-state.
You’re making the assumption that most investors will be managing their own properties. I believe this to be a huge mistake, unless they have a lot of experience and know the local tenant-landlord laws very well. I always recommend they leave the management to a professional management company. You want to keep your investments of the “passive” side, so you can find more deals, or enjoy life!
Also, as you said yourself, and as I always say, real estate is local – that means that the rent-to-value ratios in someone’s market may be so out of line (i.e. Southern California) that is simply doesn’t make sense to invest in “your backyard”. The fact is, the best deals are usually in other markets because your local market is not static and therefore will not always be the best market to be investing in.
I could go on, but you get my point.
Continued success!
Marco
Your Premier Source for Turnkey Cash-Flow Investment Property
Of course you disagree with me…it looks like you sell Turn Key properties! That’s EXACTLY what I pointed out on the video. Turn Key property sellers try to convince people that long distance is great…but they have an agenda…to sell turn key properties. Not only do turn key property sellers make money upfront by flipping the deal to the new buyer (which is not inherently a problem, but my issue is, why not sell to someone local? why sell to someone half-way across America? Answer: Turn Key Proeprty sellers can sell it for more to the unsuspecting person far away), they sometimes also make money on the management fees too, which can be 50% of net profit or more. From all my experiences, the biggest winner in the turn key property deal is the turn key property seller. And Turn Key folks love to target Californians because the relative cost of a single family home is so much higher than in other areas. I appreciate your candidness but the irony is that you all the further proved my point. I have had the task of dismantling terrible long distance turn key property purchases over the years, and many of which have been my California students.
For the most part I agree with much of what you’re saying as well as your concerns. I have to say that as a long-time investor I’ve seen much of what you’re talking about, however, there was no irony in my post. I will point out that I started back in January 2004 to help prevent these problems.
Here are a few points:
1) I can’t speak for other turnkey providers out there, although I know many of them, but for what my company provides we have clients all around the country, some within the SAME city as the properties they buy. Our clients are not “unsuspecting”. It doesn’t matter to us where they live, and we educate them on *exactly* what they’re buying.
2) We are market agnostic — that is we recommend markets and properties based on the investor’s goals and criteria.
3) We leave the management to professional local property managers. We do NOT make a dime from the management.
I want to make sure that your readers understand that not all turnkey providers are how you describe them. And certainly not the company I’ve spent 10 years building through hard work and years of personal experience.
Thank you,
Marco
Assuming you were the Mother Theresa of turn key property operators, I still have several problems with the overall model of owning single family home rentals long distance:
# 1 – Poor Oversight: When you are not local to check on things with your own eyes, you have to rely on others (who you may have never met before). Specifically, contractors, property managers and eviction attorneys. But that is like asking the barber if you need a haircut. They have a vested interest in telling you what is in their best financial interest. You aren’t there to check on the contractor’s work, the marketing of a vacant rental by a property manager, etc. You aren’t there to verify what you hired these companies to do for you. Plus, unless you live in the same area as the property, it can be really hard to know what type of area your property is really located in. You have to rely on statistics and other people which doesn’t always tell the whole story, especially when the locals have a vested interest in selling you the property.
# 2 – Costs of Long Distance Property Management: Property management companies make the majority of the profits on these deals. 10% of gross is usually 50% of net or more. Oftentimes, they make money from the contractors who they refer business to as well. Every single item that needs work must be paid by the owner. I have seen the numbers over the years and often, the costs are just too high for long distance property ownership and management of single family homes. In some rare cases, the cash flow is so ridiculously strong, that all those expenses can be swallowed and their still be some money left over, but it is very rare because most turn key operators try to squeeze as much juice out of the deal as possible.
# 3 – Hard to Control the Most Important Part of Property Management: When you have the right tenants, property management is a breeze. When you are long distance, you have to rely on property managers to locate tenants. Too often, they are slack on their market efforts. But what do they care? If they bring in bad tenants, the property manager actually can benefit financially. First, they get a huge cut in the first month’s payment. Second, if the tenant doesn’t pay, the carrying costs are bore by the owner. Then, if the tenant trashes the place, the property manager may get a kickback from the contractor and then the whole cycle starts over again. However, if you are local, you can target certain employers and really hustle to find the right tenants as opposed to having to choose between the scraps of what is coming through weak marketing efforts by standard property managers.
# 4 – Rent to Own Tenant Buyers: Arguably the most brilliant way to lease a single family home is by offering it on a Rent to Own so that you get several thousand upfront from the Tenant Buyer as well as writing the lease in such a way where the tenant handles the maintenance. Most property managers are not well versed in how to pull these arrangements off but they are fantastic for single family units.
# 5 – Ruins Neighborhoods: Another drawback to the model is the overall effect it can have on the local market where the turn key property operator (or operators) are doing their deals. The issue is that by bringing in long distance buyers, it artificially changes the local market dynamics. I have seen this happen in many, many markets across America. I have seen wonderful subdivisions turn into ghettos because so many turn key deals were sold to long distance investors that it disrupted the delicate balance of rentals vs homeownership and it wrecked and ruined the area and the values. Ask the homeowners of Lake Forest subdivision in LaVergne, TN how they feel about turn key property companies. Whereas, when investors buy, renovate and resell their deals to local people, it naturally maintains the delicate market balance of homeownership vs rentals. (For years, I have asked turn key property operators why they don’t just sell the deals they renovate to local buyers…only a few have had the courage to tell it like it is and say that they can sell the property for more money to the long distance buyer than the close to home local investor.)
It’s one thing if long distance investors come in and buy up all the local single family homes (as the hedge funds have done recently). That’s natural and the free enterprise system. However, it’s another thing entirely when a large turn key operator artificially creates demand in a local area and the free enterprise system would not have snatched up all those deals had it not been for the marketing campaigns created by that turn key operator.
I could go on, but that’s a good start.
I applaud your commitment to being an ethical turn key property operator but through extensive research and experience, it has become strikingly clear to me just how often long distance ownership of single family home rentals is not the highest and best way to own real estate and in some cases, how destructive turn key property operators can be to local markets.
But, there will always be a demand from people who have money, who have good credit, who want to own real estate but don’t want to educate themselves on how to be successful investors and so they take the shortcut of buying a turn key deal. So you certainly don’t have to worry about running out of customers
But those who read or watch my material will find that with just a little bit of education, they can invest in real estate wisely and avoid many of the pitfalls that I have been fortunate enough to discover over the years.
Very informative video as they all are, Phil.
I’m not experienced in real estate investing but I am experienced in employing people.
There are unscrupulous people in every industry/profession as you know. But, If I’m investing in a property at a long distance, (which I probably wouldn’t) and the manager isn’t doing his/her job, then they’re getting fired and I’m finding another one that will do the job.
My requirements would be: verify and cross reference his credentials, AND clarify the expectations IN WRITING of the manager and hold them accountable for those expectations and outline the repercussions.
Those that are property managers won’t be in business long if they’re not doing what they are paid to do. And if, for example, they aren’t , say, filling open spots, aren’t they shooting their own percentage? What comes around goes around.
I think it all comes down to whether to micromanage or macro manage the people making you money. And if the profit margin is cut in half I would certainly think it would be a bad idea to hire a manager unless you had a lot of properties….Volume…Its all relative…So I can see both sides, but as for me I think I agree with you!
can you be my mentor?
Hi Phil, thanks for sharing that information…
I have never heard that taught before.
Makes sense though.
Peggy
Enjoy the information you provide.
Phil, You are a great speaker, I am going to check out the rest of your videos, I really like your book “How to be a real estate Investor”. I am constantly reaching out to learn everything I can. I currently own five rental properties generating 2,700 /mos cashflow. My goal is to reach 8,000 / mos cashflow in the next three years. Good to know that you are out there.
Ronnie Sparrow
Love your videos all your videos have great value. In everyvideo or blog you say something that either keeps me focused on what I do or areas I could improve.
Another great video Phil, Thank you for sending the link!
I watched with great interest from my home in London UK – thinking about our rental properties in Chicago and Portland OR and very much agree with your points.
How is it working for us:
1. Personally knowing the management companies – (individual operators)
2. Cost of both management companies 7%
3. Very likely to live in either location in the future
4. Developing areas – Intel, Nike etc Portland
5. Great Cross Country Skiing at Mt Hood and Bend OR!
Thanks again – Love what you’re doing . . . .
Nick
Phil you are a great mentor.I love your teachers on real east inversting.
I appreciate that perspective. I am not even a real estate investor yet, but my thought prior to this video was that to get volume (lots of irons in the fire) an investor may need to do some long distance investing deals as well if maybe the demographics are not there. I live in Missoula, MT where there’s 80k pop in Missoula county. I don’t know the market here well enough to say that that would support an investor or not. My gut says probably so. Lots of good wisdom Phil. Thanks.
My personal investing area population is less than 100,000 people. To use some Montana vernacular, Be the big fish in a small creek. You don’t need a large population area to make a ton of money in this business. 80,000 is plenty.
Just got done watching you video on “Investing in Real Estate Close to Home vs Long Distance”. Thanks a lot Phil, for setting the record straight. You have just helped me make up my mind on not to buy some properties in Detroit, Michigan. And you are right again about just looking a little harder for deals right in my own back yard.
May God continue to bless you and your family
Lurone Lee
Hallelulah!
A person rescued from the pits of a turn key deal in Detroit!
All the efforts to create and publish this video have been worth it to hear your story.
Thank you so much for sharing.
Thank you Phil as usual for a very thorough in-debt explanation of the subject matter. You’re a natural born teacher and your opinions make a great deal of sense.
There are more than a few “ah-hah” moments of thought when watching one of your videos – God bless
Phil,
I am in the military station in Hawaii, I have very liitle capital to start with, but I do want to start. I will be in Hawaii for about avyear in a half before I go back home to New orleans. With the vast difference in prices of the markets and very little capital would you still recommend investing locally.
Aloha! Just do some flips in Hawaii and then wait to build up your rental portfolio once you get back to your permanent home of New Orleans.
I have looked at every one of your videos. Thank you so so much for all the help. I am about to close on a building, 5 minutes from my home, $12K. The rehab is about $60K and the average selling price is $250. I am following your lead. Wish me luck. Thanks
Sounds like a serious rehab project. Be leary of contractors. Buy the materials yourself. Watch them like a hawk. Hold them accountable. Only distribute draws when they complete work. And remember that they are pros at extracting money from clients before work is finished. They have more lines and tricks up their sleeve than you could learn in 10 years…so just stick to your guns and don’t release money until benchmarks are met. Be very cautious of contractors.
Phil, won’t buying the materials yourself (literally, not specifically directing what you want purchased, when, disbursing funds, etc.) create potential liability on your part which normally the contractor would hold?
Liability? If you buy the materials, you know what has been purchased. The contractor needs to have the insurance, bonding, licensing, etc.
Hi phil i liked the video im in Milwaukee wisconsin i am very interested in investing in realestate my landlord has over fifteen properties he wants to sell i just dont have any money to get started and i also know many people in the Milwaukee area that are buying and selling can you help or can we work together to make some money here.
Apply for my Apprentice Program and perhaps we could work together
Well thank you for pointing that out Phil. I was contemplating searching out in further surroundings. I am a semi part-time investor, Licensed Realtor, Licensed Building Contractor(and an honest one) also manage my own Multi Family 3 detached units and other rentals out furthest 1 hour away. I’m getting a Phil (lol) knows what he’s talking about from experience.
I’m looking in my backyard tomorrow (Southern Ca)
Thanks again Phil
Phil I want to start doing some real estate investing has a wholesaler could u explain how the strategy in wholesaling is done. Thank you Collin stevens
Hey Phil, Great ideas and you make it sound exciting to invest in today’s market.
The information you share is real and i am wondering With no money how can you invest in something with out the large loans or problems of getting into a mortgage. When sales come up the banks want to know they are getting their money back. I see many properties for sale in my N.Y Upstate area. Some for 90.000 and as little as 24.000. What do you think. Thanks Dan Daglia
Avoid foreclosures, auctions and MLS listed deals to be able to employ creative, no money down techniques.
Phil:
I really like your videos and your idea and your program
Hi Phil,
I really enjoyed your video. I am thinking about entering the Real Estate Investment market, but I found that there is a lot of fluff and over stating of possibilities which caused me doubt. I watched some of your videos and are pleased that there are people out there who will explain the market honestly and as it is. You have definitely renewed my interest.
Thank you,
Mike