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Gatsby has purchased this house because of its proximity to Daisy. He has loved her, or at least the idea of her, since they met. I think that since he has loved her from afar for so long, he needs to be close to her, but not too close. He is comfortable gazing at her from a distance before they meet again, and even after they meet, there is something romantic, idealistic, and dreamy about his love that makes him want to view her from that distance. Then he can fantasize without being confronted with the reality of her (or her dreadful husband.)
Of course, as a practical matter, he wants to meet her again, and what better way than to buy a fancy house in her "neighborhood", have large parties, and hope she turns up? Once he meets Nick, he finds a better way of accomplishing his mission.
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