The Cost Of A "Great Deal"

real estate as a business real estate market Aug 02, 2021

Often times I see real estate investors buying properties 30-60 minutes from their respective MSA (Metropolitan Statistical Area) solely because properties are generally cheaper the further out of town you go.

It’s true, often times you can save 50K - 100K or more and if you’re a flipper this approach might make sense but if you’re buying to hold long term you need to consider the following:

  1. How much lower are the rents in the immediate area?
  2. How much vacancy is in THAT specific area?
  3. What kind of schools & amenities are right there?
  4. Where are the major employers relative to the property & what kind of commute will people be looking at?
  5. If someone doesn’t have a car what options would they have to get around that area?
  6. What are your options for property management in that area?

Vacancy rates in your local MSA might be 4% but that area 45minutes outside of town could be much higher.

You need to think like your potential customer.

Tenants want simple, hassle free and convenient options and if you're asking them to sacrifice such you’ll need to lure them in with something else. Lower rents, other perks etc.

In my experience the higher vacancy, lower rents and limited property management options will make you wish you didn’t push too far out of your MSA.

Remember to stay close to:

  • Public transit options.
  • Several good schools & existing amenities.
  • Major staple employers in the region.

It's tempting to invest further out of town but sometimes the price of that great deal might be more than you bargained for.

All things being equal I would always take a rough unit in an established livable area over a brand new property on the fringes of town. After all… it’s a lot easier to remodel an old kitchen than it is to convince the city to build a new school.

 

Marcin Drozdz

 

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