It’s Not Where—But What—You Buy That Matters
Insight Weekend Investor

It’s Not Where—But What—You Buy That Matters

Existing-home sales

Today’s lesson is a valuable one that I learned early on as a real estate investor in Dallas, Texas. And it is simply to remember that it’s not where you buy that matters, as much as it’s what you buy.

Many investors—whether you’re a part-time investor, a weekend investor, or a full-time investor and business owner—start out buying property close to their personal residence. That’s true regardless of whether they plan to fix-and-flip, lease or wholesale the property.

I’ll be the first to say there are many good reasons why this makes sense. And I’ll also acknowledge that buying close to home is exactly how I started as a real estate investor. There’s nothing wrong with that, but I want to caution you to not overlook the opportunities that may be slightly outside of your immediate geographical area.

Be aware of opportunities outside your comfort zone

And these may not be opportunities that you’ll tap into immediately, but I want to highlight them and put them on your radar. As you read about, meet and talk to successful real estate investors, you are going to find that just about all of them at some point in their investing careers have ventured out well outside their community, city, or even their state. You’ll find that many of the large-scale, highly profitable, highly successful, tenured real estate investors are buying properties not just in their own neighborhoods but also throughout their metropolitan areas, or their state, or even in different areas across the United States.

It all comes back to this point: it’s not necessarily where you buy, but rather, it’s what you buy. Meaning, don’t limit yourself to buying only in a certain area, geography, neighborhood, community. Take the blinders off and look for good investments further afield, even if that is outside your comfort zone.

So let’s talk a little bit about my own experience that has led me to think this is such a relevant aspect to your investing.

I started out as a real estate investor over 10 years ago by buying a duplex that was located very close to my personal residence. And I still own that duplex today. It has been a wonderful investment as a rental property—and it’s within 15 minutes of my own front door.  

Over time, as I transitioned from part-time investor to full-time investor and business owner, I found myself venturing further and further out from my own personal home with respect to the rental homes that I bought and continue to buy today.

Investing close to home is a good way to start

Investing close to home is an excellent way to get started as an investor. In fact, I’d almost even encourage it.

But I can almost guarantee that as you venture out, many excellent opportunities await you. It was true in my own experience. As I expanded my investment “horizon,” I found that expanded my opportunities and ultimately the number of profitable investments that I was making.

By way of illustration, let’s talk in a little more detail about that first duplex I purchased over 10 years ago. Like I said, I bought it close to home. I could get there within 15 minutes. And the reasons I chose it? Well, I was familiar with the area. It was my first investment property and I had lots of fears, worries, concerns or apprehensions like any new or first-time investor would. So I picked a neighborhood or community that was close to the one I knew the best. I knew the area. I knew the community. I knew the market. I knew the demographics of the people who lived there. I knew that I could quickly get there.

I knew I wanted to be close because I was planning to do all the repairs myself—whether it was getting it ready for the first tenant, or maintaining it and tending to repair requests after that first tenant moved in. I wanted to be able to quickly tend to whatever needs that property or that tenant had, but I also wanted to be close so I could easily keep an eye on it. I wanted to be able to drive by it occasionally make sure the property was being taken care of properly by that tenant. So there were a lot of reasons why it made sense to buy that first property close to home.

How I broke out of my ‘comfort zone’

But let me tell you how I ultimately ventured outside of my immediate community—or “comfort zone,” as I like to call it. As I grew my business and marketed more aggressively and more broadly geographically, I began to get calls and leads from motivated sellers who were far from the immediate vicinity where I lived and worked.

One of those calls came to me from a small rural community outside the Dallas area, and it probably was a good hour and 15 minutes away, by car. But as with any lead that comes in—and as I’ve also encouraged other investors to do—I’ll go anywhere and talk to any seller to see what the situation is and what the opportunity may be, both for me as the investor and that person as the seller.

This drive started out on a very discouraging note, as it was taking much more than even an hour and 15 minutes. It was not just far afield—it was in a really remote area.

And after I got there and met with the seller, I have to admit, I made a really low offer on that property that I did not expect she would accept—and that I really did not want her to accept. Because of the remote location of this particular property and the fact that I knew nothing about this community or city, I did not judge this to be an attractive investment opportunity for me.

Well, lo and behold, the seller said she wanted to think about it, and we finished the appointment and I drove back home. It was quite some time before I heard from that seller again—in fact it was several months later—but

she did call me back and said she wanted to accept my offer. So, being an investor of my word, I agreed to move forward with the price that I had offered. And so we bought that property, fixed it up and stuck a sign in the yard. And the minute we did, the phone started ringing off the hook.

With a sign in the yard, an amazing thing happened

And it rang so much, by about the fourth or fifth call within the first 30 minutes of that sign being in that yard, I asked the caller what was going on. I told her I had just placed a “For Rent” sign in that front of that house and my phone had been blowing up. And she explained to me that in that little community, there are not enough rental properties for the residents who live there. She also said that because it was a little community, word travels fast when a rental opportunity does appear.

So fast forward, we were able to find wonderful tenants for that property. It was actually a husband and wife who had met in high school, had grown up together, married and started their own family. And they were thrilled to have that opportunity to have that as a rental house. That couple still lives there today. And that rental property to this day is our single most profitable property.

And I would never have dreamed of purchasing a rental property in that community, specifically because it is so far away from my comfort zone. But I learned that there are great opportunities that lie outside of my immediate investment geography. And that experience taught me to expand my horizons and not focus so much on where I’m buying, but instead to focus on what I’m buying—meaning, profitable property.

Because the property was so far away, even my lender was hesitant at first. But with such attractive numbers that were expected to be generated by that particular rental property, the lender said it was a no-brainer. And I ultimately felt the same.

Remember this important lesson

And so the lesson, once again is this: it’s not where you buy; it’s what you buy.

To this day, that property continues to be a successful investment rental property for us. And I’ve gone on from there to buy many more properties far outside my immediate geography, and that has opened up a some very profitable opportunities for us that I would never have seen if I had stayed close to home.

So like I said, investing close to home can make a lot of sense in the short term. It’s a great way to learn, or to stick your toe in the water, that is comfortable and familiar to you and has limited risks.

You’ve got your market knowledge. You’ve got your familiarity to home. You can keep an eye on it. You can do the repairs if that’s what you choose to do with that property. You also can manage it yourself very easily, if that’s what you plan to do. But keep in mind there is a very limited pool of resources if you’re confining yourself to a geography close to home. And there are many untapped, profitable opportunities out there beyond your own “comfort zone.” Plus, by buying properties in different areas you are able to diversify your portfolio. And diversification is always good.

You never want to put all your eggs into one basket in terms of buying all your properties in one particular area. There are economic factors that could impact that area, and that could impact your business, as well. It could be a painful situation.

So don’t let the distance scare you and don’t let your lack of market knowledge scare you. You can overcome the distance and you can gain that market knowledge that you need. I also advise you to resist the temptation for the familiar. Stretch your comfort zone in favor of broader geography, greater profit, greater diversification. And remember, it’s not where you buy, it’s what you buy.

You can listen to Kevin’s podcast here:

http://www.blogtalkradio.com/kevinguz/2016/06/20/its-not-where-you-buy-its-what-you-buy

About the Author

Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at  http://www.blogtalkradio.com/kevinguz.