Investor vs. Homeowner

One of the first questions you need to ask yourself when you’re buying an income property is: Am I an investor or am I a homeowner?  While those two terms are not mutually exclusive for everyone, they are for most people.

Most folks like you with enough cash to buy an apartment building don’t want to live in an area that is “up-and-coming” or not yet gentrified. But you are willing to invest in them because that’s where the deals are.  Why are there solid investment deals in up-and-coming neighborhoods and not “good” neighborhoods? Because in good neighborhoods you’re competing with homeowners.

It’s pretty simple, I’ll admit.  Today I had a meeting with a homeowner who wants to sell his West Hollywood duplex, and I described why the same principles of GRM don’t apply to his duplex the way they do to my upcoming fourplex listing in Rampart Village.  In West Hollywood, investors are competing with homeowners, who are paying for the privilege of living in the neighborhood.  In Rampart Village, investors are competing with other investors, who are all in it for the same reason: money.  If the numbers don’t make sense, they won’t buy it. In West Hollywood, numbers matter less because it’s harder to put a number on a lifestyle choice.

So while it feels good to have a property in a neighborhood where you would live, instead imagine whether you could live in that property 10-15 years from now. Because the homeowner I met with today will sell his duplex for $1.2M. Back when he was an investor and Melrose was as sketchy as Rampart Village is now, he bought it for under $500k.

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