How Local Does Local Need To Be?

Question

I'm a new investor looking to develop my "farm area". However, my immediate area "suffers" from low cap rates and therefore the properties typically do not meet my search criteria (or are out of my price range). Therefore, I have been contemplating expanding my search for a farm area to neighboring cities/towns.

Specifically, I live in Montgomery County Maryland, but I work near Baltimore. My target properties are 10-50 unit apartment buildings. There is a dearth of those on the market in Montgomery County, but there are many affordable buildings in Baltimore, but I am not nearly as familiar with Baltimore as I am with Montgomery County.

I have read here on BP that new investors should stay local until they have gained some seasoning. However, what is the definition of local? Is it within 15 minutes from your home, or can it be a 50 mile drive?

Todd Magin · Answer

Thanks @Mike Evans! Sperling's best places website is a keeper! I also like the idea of asking property managers for their thoughts on the direction of the market, vacancy rates, incentives, units in demand, etc.

Valentina Naumenko · Answer

HI @Todd Maginyou are making a very valid point. First property may create some stress because investor faces many decisions. If I were you, I would not be so concerned on geographical location; instead, I would dig for the highest ROI. Actually, none of property owners in my networks is "local" or based in Central Florida (our business is in Kissimmee). Besides foreigners, majority of American investors come from NY and NJ. For example, today we leased two units, which owner is from NY, and he owes 15 properties in Central Florida. His goal is 20% ROE and he goes anywhere it takes. The main difficulty is to find the right deal. Account Closed can truly assist. He emails investors the rich list with off market properties and provides variety of estimates and figures related to deal. His great tools help investors to decide. When you find the deal, I recommend to verify with the property management company potential income that property may generate. It is good to see what the realtor says, but property manager will be the one working on tenant placement. You will be surprised how sometimes opinions of these professionals may differ. Finally, I dont think licensed property manager needs too much supervision. There are so many controllers that make investors's life easier. Among them DBPR, association, HOAs, tenants, and etc. If something may go wrong, you will receive a signal. I wish everyone happy New Year, and I am open to brainstorm and share my experience with you.

Account Closed · Answer

Do you plan to manage the property yourself, or hire a management company?

Thomas S. · Answer

If you intended to self manage my comfortable range is a 1 hr drive, distance is irrelevant it is the time to travel that is most important and that is dependant on the area traffic conditions.Since you do not intend to self manage distance is irrelevant. Staying local is really only relevant for self managing investors. For those using PMs they are as close as a phone call away. With todays communications systems the world is a very small place and investors with a team in place in the area they invest do not need to be physically present to operate. You can video communicate with your PM and fly out once or twice a year and still be on top of the game.However you need to know what you are doing. The suggestion to start local is intended to allow beginners to self manage and learn the business. Regrettably most beginners do not even realise they are operating a business let alone know how to operate one. I would never advise any beginner to start with a PM. It is essential that a investor learn the business to be able to manage a PM but many do survive with no knowledge of the business, of course many also crash and burn for that very reason.It makes no difference how close you are if you do not know what you are doing.

Todd Magin · Answer

Account Closed I plan to hire a management company, but I will still need to "manage" them, so I intend to keep a relatively close eye on the property, but definitely not on a daily basis, probably visit 2-4 times per month. However, I would want the management firm to be "local" so they have a good grasp on the local rental market for the area surrounding the property. My biggest concern (at this point) is not knowing the market as well, so therefore I feel I could make a mistake when evaluating the properties and buy into the wrong area (downward trend). I have already run across a property which looked appealing until I learned it was section 8. I may consider this type of property in a few years, but for my first property, I intend to pass on them.Perhaps if I find a good local management company, they could also help me avoid buying a property in a downward-trending area?

Account Closed · Answer

@Todd Magin then if you are hiring a local management company then it really does not matter where you invest. I am in central FL (Orlando) and there are many great deals all over Florida. Also I can recommend another BP Member that her specialty is property management and she is also a realtor. Her name is @Valentina Naumenko. Call her and she can give you some advice is you want o look into investing in the Orlando area. I can't give you her contact info in this message thread but look her up and you can get her contact info. I have many off-market properties from all over Florida.

Crystal Smith · Answer

My response may sound a little cynical but if there's nothing in your immediate area that meets your criteria then local could mean anywhere you can get to & from in one day. Depending on your budget that one day may mean a flight out in the morning & back in the evening. This is what we did.

Nathan Click · Answer

@Todd Magin - I have clients who invest in properties nation wide. They typically look for high cap rates, with two to three years stability, and management in place. That can expand their search window by quite a bit and really maximize ROI. Feel free to reach out to me if you like. I may be able to connect you to some folks that can help you locate good investments outside your local area.

Jack B. · Answer

Sounds good on the surface, but then what? I take someone who is likely a felon (most on construction are...) and give them access to a box that has a key to the house. Then what? How do I know they put the key back? How do I know they won't come back and use the key whenever they want unless I go down there and re-key? What happens if they harm one of my tenants kids sexually or something? I GET SUED.

Adrian Stamer · Answer

Get a contractors box and put a key in it