Investing in Your Backyard: The Pros and Cons for Passive Real Estate Investors

[Nick Love]

As passive real estate investors, we're often presented with opportunities both near and far. The allure of out-of-state deals can sometimes overshadow opportunities right under our noses. But should we be investing in our backyard cities? Here's a deeper dive.

Pros of Investing in Your Backyard:

1. Familiarity with the Market: Living in the city gives you innate knowledge of its neighborhoods, schools, and economic drivers. This can be invaluable in assessing potential deals.
2. Hands-on Due Diligence: While you might not be active in the management of the property, being nearby allows you to physically inspect potential investments, meet with property managers, or address significant concerns promptly.
3. Local Networking: Your network of local contacts – from agents to contractors – can provide an edge in sourcing and managing investments.
4. Quicker Response Time: In the event of an emergency or significant event at your property, proximity can be beneficial.
5. Emotional Comfort: There's a sense of pride and security in investing in one's community, contributing to its growth and well-being.

Cons of Investing in Your Backyard:

1. Limited Diversification: Investing solely in one geographic area can expose you to localized economic downturns or natural disasters.
2. Potential for Emotional Decisions: Being too close to your investment might make you susceptible to making decisions based on emotions rather than solid financial reasoning.
3. Over Familiarity: Sometimes, being too familiar with an area can lead to presumptions or taking things for granted. This might make you overlook certain risks.
4. Missed Opportunities: By focusing on local investments, you might miss out on lucrative opportunities in emerging markets elsewhere.
5. Possible Over-Involvement: The ease of dropping by might tempt you to become too involved, thereby diminishing the "passive" nature of your investment.

Conclusion:

Investing in your backyard city comes with its unique set of advantages and drawbacks. As passive investors, the key lies in striking a balance between local investments and diversifying across different geographies. It's essential to objectively assess your comfort level, risk tolerance, and investment goals.

If you're considering local investments or have experiences to share, I'd love to discuss potential collaborations or simply exchange insights. Let's build our communities, near or far, one property at a time!