Location quality is a subject near and dear to my heart. How important is it to you?
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about location quality and why it matters most than most people think. We’re going to get the cliché out of the way first. Location, location, location: it matters, and here is why. The life of the property, whether it’s good, bad or ugly is going to differ from location to location based on what it was when you first found it. That means this, you’re going to get a good neighborhood. Good neighborhoods don’t go bad, generally speaking, over the next 20 years. Average neighborhoods, go one way or the other, but they can’t just stay average, maybe go down a bit. Bad neighborhoods 30 years ago are generally speaking, bad neighborhoods today. Now there are rare exceptions but that’s when an entire region spends a ton of money to make it so. It doesn’t happen organically, generally. Now, one of the things that you have to understand is what bar do you want to use for location quality. This whole thing, if it’s an eight, it’s a nine, it’s a ten, it didn’t work for me when I was talking to other people. What they always understood was when I invoked, what I call the BawldGuy mom rule. If I wouldn’t put my soon to be 82 year old mom in those properties, don’t call me. It’s just as simple as that. If I ask you, the properties you own, would you put your mom in, and you hesitate, you lose. That means not high enough quality location. Now, here is what happens when you have a higher quality location. You get a bigger slice of that quality tenant pie. You’re going to have a lot easier time managing. Low quality tenants are generally high intensity management. Whether you’re doing it or a company is doing it, it doesn’t matter. You’re going to pay for it one way or the other. Bad quality tenants or even average quality tenants are going to increase your cost of maintenance and repairs. It’s just the way it works. Over time, that’s going to mean that the big repairs, when they happen, are probably going to happen years sooner instead of years later. Now, this is why people get caught up into the high cap rate syndrome. They think high cap rate, high cash flow, I’m doing really well, the neighborhoods blue collar, I already always love that description. What that really means is, you bought a high cap rate because it was a low price. You know why it got a low price? Because the smart investors wouldn’t pay more for it, they’re in the high quality areas. Twenty years from now when you’re retired, you’re going to be the owner of a bunch of properties in average to below average areas that’s going to cause a lot of management time. You’re going to have a lot more maintenance and repair cost than you would have, which causes two things in retirement you’ve been trying to avoid in your imagination the last two decades: Time spent messing with your properties that you’ll never get back; And lower retirement income which was the whole purpose for investment in the first place, higher income. Now look, one of the things that happens, is that when you get into a bad area, it never, like I said earlier, gets better. So what I want you to do, is remember, do not compromise location. Have that discipline. Do not compromise on location. This is Jeff Brown. Thanks for being here today. I’ll see you next time.