Where Should I buy Investment Property?
New investors often ask me “Where is the best place to buy investment property?”. Or the question may be “I have heard that investing in property in [insert any state here] is great. What do you think about it?”.
The answers to these questions are three-fold:
1. Buy and own property near where you live, work, go to church, or anywhere else that you travel 1-3 times per week. If you are managing your properties yourself, you will need to occasionally show the apartment to lease it out, stop over and make sure the grass is mowed (or do it yourself!), replace a light bulb, check on a repair request, etc. Are you really anxious to drive 30-45 minutes out of your way to go to the property? It would be much easier if you can stop when you pass by after work, after church, after the gym, after seeing you mom, etc.
2. Cluster your purchases of properties. Buy several properties in the same general area, such as Minneapolis. The advantages are:
- If you need to go to the area for one property, it is simple to stop by several.
- When renting, you may be able to show multiple properties, thereby saving on advertising fees and more importantly, your time.
- You will become familiar with the rental market in that area. You should know what the market rate is for a 1 bedroom apartment for example.
- It may be easier to find contractors that work in the neighborhood and use the same ones when needing repairs.
- Being dedicated to a neighborhood may also open doors to hearing about other properties for sale or deals that may be available.
3. Buying property in another state is a much riskier strategy. Mostly likely, you will need to employ a property management company. This will consume some of your cash flow (up to 10% per month plus 1 month worth of rent for finding a new tenant). I would recommend that you (or someone you trust), still drives by the property on a bi-monthly basis and physically tours the property at least yearly. This will insure that your management company is actually maintaining your property. Unless you can commit to monitoring the situation, I would recommend against out of state purchases. Plus, there are many of good investments here in Minnesota!
As with any large decision/transaction, I recommend that you build a network of trusted advisers such as a Realtor, mortgage broker, attorney, financial planner, and accountant.
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