Investing Locally vs. Nationally

You're driving down the street in your hometown when suddenly you see a goldmine sitting in front of you; it is a vacant house, with overgrown weeds and in need of some TLC. It's screaming "buy me cheap," and the wheels start spinning in your head about the 10 to 50 thousand dollars you can make by rapidly acquiring this home, renovating, and then selling as a pretty house. You scramble to the courthouse, look up property owner, and SCORE!!! it's an out of town owner! Clearly they are desparate to sell. You track down the seller's phone number and with much anticipation, you make that all important call.. dollar signs dancing in your head. But wait, you are getting the dreaded message from the phone company, "We're sorry, but the number you have reached has been disconnected..." Bummer. Well, all we have to do is send this person a letter and it is pay day baby! So, out goes the letter knowing the phone will ring as soon as it is received.

After day 5 of waiting, you decide they must just be out of town and any day, you will get that call. After week 2, you are starting to wonder what is going on but still are hopeful. Finally, after week 4, you are starting to believe this is a lost cause. Oh well, another golden opportunity that just didn't quite materialize; there has got to be an easier way.

The above scenario, while hypothetical, is a typical scenario faced by many investors that work on a local basis. Regardless if you are interested in wholesaling, flipping, renovating, lease optioning, or the variety of other options available to you, there are two things that you must accomplish to be a successful local investor: steady supply of quality opportunities and a steady supply of buyers for your properties. As an investor that has participated in the purchase of millions of dollars of properties, locally as well as on a nationally, let me be the first to tell you that BOTH local and national investing work great, IF DONE PROPERLY; however, the impact that each has on your time involvement is wildly different.

In this article, I will try to explain the pro's and con's of investing locally vs nationally. Even though I lead a group of national investors numbering of 20,000, I still invest in my backyard and find it profitable. In my opinion, an investor should not decide BETWEEN investing locally/nationally but rather understand the merits of both and use which ever suits them best at a particular time.

Local Investing: The mantra in real estate investing has always been "invest in what you know your own backyard". For the knowledgeable investor, this is good advice because then you KNOW when a good deal is actually in front of you. However, when we discuss the national investing approach, you will see that it is not the only way to know the market.

For example, suppose you get offered to purchase a home at a fire sale price of $130/Sq. Ft. According to the broker, this is a slam dunk. If you happen to KNOW that properties are going for $170/Sq. Ft in the area and the fix up costs are reasonable, then in a matter of minutes, you can make a decision to purchase the property. That local knowledge is critical to understanding when you have a good, low risk opportunity.

In addition to just local knowledge, there are a number of other issues that we must consider. Specifically, some of the pro's & con's of local investing that we see are:

Pros:

1. Knowledge of market If the investor does their homework.

2. Easy access to property Simply drive to the property to inspect.

3. Can control any fixups, rentals, etc. Much easier to deal with locally.

4. Can structure deals with little money or credit Yes, the no/low money down deals do work but just take a lot of work to create.

Cons

1. Heavy competition Almost all other investors are looking locally so you get the needle in a haystack problem;

2. Time Because you have to find the deals, it is hard to invest with limited time. Successful local investors set up advertising systems to bring properties to them.

3. No Clout Let's face it, as an individual investor, it is difficult to get great deals, discounts, etc. unless you have a LONG track record of performing in that market.

4. No Outside Analysis Other than possibly a local agent helping you, there is little market/growth analysis that is available to you unless you perform it yourself.

Again, this can be quite time consuming. Most local investors take one of two paths after gaining some experience: either they abandon it because it takes too much time, or they find it lucrative enough to turn it into a full time business. For the individual that has money and credit to invest but not much time, then most find the local approach to be frustrating.

National Investing: The best way to understand national investing is to look at Walmart's business model. What they do is find suppliers that can produce quality product at the most competitive price. Because they have such a large consumer base, it is lucrative for the supplier to provide quality product at much reduced margins relative to low volume stores. Also, by not being restricted geographically, they can find those suppliers where the economics makes sense for everybody. In the national real estate arena, it really works the same way. Consider our group that has over 20,000+ investors registered to our database. If you are a real estate developer interested in rapidly selling a portion of your project, then you would be very interested in talking with us because of our volume of buyers. Of course, you know that you are not going to get top dollar for your sales because our investors are not going to buy unless it is a good deal; this is how it becomes a win-win for both the developer (supplier) and the investor (consumer). One other factor comes into play: In many locations, including my local area, many types of real estate investments do not make sense because fundamentals like price, rents, and consumer demand are out of whack. For a national investor, it is absolutely irrelevant because there are always markets doing well. When a specific market, like maybe Florida or California gets out of line, it is simple to just look for investments elsewhere.

Of course, we must analyzy both sides of the national investing equation, as well.

Pros:

1. Buying Power By being an individual investor within a large group, then you have the buying power of Walmart behind you even though you may only plan on buying 1 property.

2. Time The national groups do all the work for you at no cost. They are paid fees by the developers and because of volume, it allows them to perform considerable efforts to find quality properties. You simply evaluate all the information that they have gathered.

3. Considerable Analysis Quality national groups will go to great lengths to understand and convey the local market information to you. They understand that you may not visit the area so they want you to be as informed as possible.

4. Little Competition Even though there is a HUGE number of investors in these groups, most everybody finds that there is plenty of opportunity to go around. Reason being is that most people want to only buy 1 property and quite frankly, most people do not act quickly enough. 5. Diversification You can buy properties in different areas of the country so if there is a down turn in one area, it may not impact your other properties.

Cons

1. Personal Knowledge Of Market You will not originally understand the market; however, the analysis delivered to your email will bring you up to speed quickly.

2. Access To Property Because time scales are typically short, if you want to visit a property, you need flexibility to juggle schedules (airline tickets are cheap).

3. Rental Issues You typically don't want to manage a property from long distance, because of this, national groups will identify appropriate property managers in the area.

4. Typically Requires Good Credit The national groups can obtain good financing options for you, but most are going to want Beacon scores of 650 or higher.

5. Trust Requires a lot of confidence in the national group. Do your due diligence on the group.

In my experience there is no right or wrong answer to the question: is local investing better than national or vice versa? In fact, I still invest both ways to this day. Hopefully the discussion above has given you some insight into what might become effective for you as you continue to build your real estate portfolio.

Copyright (c) 2006 GetPreConstructionDeals.com

Dr. Chris Anderson is the founder of http://www.GetPreconstructionDeals.com and is referenced in many venues including the New York Times and USA Today. Get his weekly, thought provoking articles by signing up today!Ailyn Blog79915
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