The number one rule of Real Estate Investing is “Location! Location! Location!”
Whether or not your property will make money has almost everything to do with where it is located.
Unfortunately, many investors and would-be investors have these myths in their heads around markets that keep them from being successful in real estate. In this post, I’m going to share those myths with you, plus lay on some truth so you can get on the right track.
Myth #1- You have to invest where you live
Truth: You can invest wherever the numbers makes sense, and they may not make sense where you live.
I definitely used to think I had to invest where I live. My husband and I live in Los Angeles, one of the most expensive markets in the U.S., and we were looking to buy a multi-unit property that we could buy and hold. We started flipping homes in 2010 when housing values were way down, but soon they started becoming too expensive for us to make the numbers pencil out.
We decided we would buy and hold, and started searching for a 4-plex that would give us some regular, passive cash flow. We searched and searched in and around Los Angeles but couldn’t find anything that (a) we could afford to buy or (b) if we could afford it would make us any money.
I got very frustrated until I met my now mentor Robert Helms, host of the Real Estate Guys Radio, and he told me: “Live where you want to live. Invest where the numbers make sense.”
I had never before thought of investing outside of where I lived and could easily drive.
Hearing him say that to me was a big paradigm shift. It literally opened up the world. If we found the right market with the right numbers, we could literally invest anywhere.
Dear goddess, I want you to remember this maxim too: Live where you want to live, invest where the numbers make sense.
Myth #2- You have to buy a place that you’d want to live in.
Truth – the best investment opportunities are often in areas where you wouldn’t want to live.
Again, it comes down to “live where you want to live, invest where the numbers make sense.” I want to live in a large 6-bedroom house overlooking the ocean in Santa Monica, but I would not buy such a place as an investment property.
Buying such a property, would not make sense for my investment goals of 10% yearly cash on cash return. If I were to buy such a place and try to rent it, chances are I would not be able to rent it out for enough money to profit.
There are 6 factors that make for a great investment property market. Santa Monica doesn’t meet most of those factors. For me, I’d rather purchase in markets that have all the factors of a great market, and in a lower- to middle-income neighborhood.
Learn all the 6 Factors in our free lunchtime Webinar on “How to Find The Right Market for Money-Making Investment Property” happening Wednesday, March 1 from 12 – 1 p.m. PST/3-4 p.m. EST. Register here.
Because of my investment preferences, the properties I tend to buy are not in the best parts of town, and are buildings that do not have all the amenities I would want for myself. So I probably wouldn’t choose to live there. However, they’re great for investment because they are in areas with lots of renters and where my investment dollar will likely go the farthest.
Myth #3- Being in a good market city is enough.
Truth- you need to be in the right submarket. Sometimes success can be the difference of a block
If you have checked all the 6 factors for finding a great market and decided that a particular city is the right market for you, this doesn’t mean that all the neighborhoods in that city are appropriate for you to buy in.
Not all neighborhoods are created equal. You have to find the right neighborhood/submarket to meet your investment goals. Sometimes being on the “wrong side of the street” can be the difference between success and failure.
When people are looking for where to rent they consider things like:
- school district,
- crime in the area,
- proximity to major employers,
- proximity to public transportation,
- proximity to shops, restaurants, parks, and other area of interest, etc.
These are things you should consider too. Look very carefully at the different neighborhoods and even different areas within neighborhoods. Sometimes being on or off a particular street can make all the difference.
You’ll want to learn the market, plus the submarkets well in order to make the best investment decision possible.
Want to find out what specifics you should look for when assessing a market? If so, join us for our free Lunchtime Webinar “How to Find The Right Market for Money-Making Investment Property” happening Wednesday, March 1 from 12 – 1 p.m. PST/3-4 p.m. EST. Register here.
Myth #4- You can learn everything you need to know by researching online.
Truth- usually it will take you getting your boots on the ground or the boots of someone you really, really, really trust before you can make an educated decision.
There is a lot of information that you can get online about a market – population rates, new employers coming to town, population demographics, views on Google Earth, etc., but there are certain things that you will only know by visiting.
When you visit a location you will get a feel for the market and the people. You will also be able to meet with and talk to your team – drive the neighborhoods and streets. You can see where hot spots are, where things are up-and-coming, or where there are homeless encampments, graffiti and blight.
If you are not able to visit your market, you need to have people you really trust to make an educated assessment visit for you. Sometimes your property management company, a trusted broker can visit a property for you, an investment partner, or deal syndicator can make those assessments.
I would generally recommend that you visit the market yourself at some point though before purchasing. These properties will likely be the biggest financial investment you make in your life, so it behooves you to see them yourself if at all possible.
Those are the four main myths around property markets I’ve heard and/or have held myself. Let me know what you think in the comments below. Have you held any of these beliefs? Are there other myths I’m missing? Let me know.
And don’t forget to “Live where you want to live. Invest where the numbers make sense.”
And if you want to know how to find the right market where the numbers make sense, join us for a free lunchtime webinar on March 1, 2017 at 12:00 p.m. PST/3 p.m. EST entitled “From Owning 2 Homes to Owning 1,000 Homes in a Year: How Finding The Right Market Can Accelerate Your Real Estate Success“
In this webinar we will cover:
-How changing markets allowed me to expand my portfolio from 2 to 1000+ units
-The 6 Factors to Consider When Choosing a Market
-How to Find Information You Can Trust to Assess the Market
-The 3 Steps You Must Take to Confirm You’ve Made the Right Choice
Hope to see you on Wednesday!
Monick Halm is the co-founder of Real Estate Investor Goddesses. She is a real estate investor with over 11 years of investing experience in single family, multi-family, mobile home parks, flipping, and syndication. She is also a certified interior designer, Feng Shui expert, author, speaker, certified NLP and money coach, and attorney. Monick is passionate about real estate, design, and helping women to thrive.