BiggerPockets

Hi Everyone,

I live in Orange County, CA, and after biding my time and saving up for the last few years, it seems the time has come to take the plunge and buy some property. I'm mainly interested in cashflow, since that seems to be so much more reliable than hoping for appreciation, and the best cashflow seems to be in the low end areas. For quite some time now I've concentrated on looking at two of those, the far reaches of the Inland Empire (Hemet, Victorville, Desert Hot Springs, etc.), and the least desirable parts of LA (South Central, Compton, etc.) I don't really have the desire or ability to directly manage properties myself, especially in areas like that, so I'd probably be hiring a management company. So a big question that I'd like to ask everyone is what they think about the merits of those two relative to each other. The IE areas seem to be less scary, even in the worst parts, and have significantly more landlord friendly local governments compared to LA (no rent control or intrusive local housing bureaucracy), however vacancy tends to be higher there, and the economy in general is much weaker, plus the area could see an exodus if we enter a prolonged period of much higher gas prices. LA on the other hand, seems like it'd be easier to keep rented, but with much scarier neighborhoods, and oftentimes rent control. What does everyone think about this, and have I missed anything in my analysis?

PS I'm mainly looking at 2-4 unit properties
PPS: Please also say if I'm barking up the wrong tree entirely, and if you feel that the extra income by buying in these areas is not worth the hassle/risk

Hi Chris,

I live in Orange County as well, but my two rentals are in San Diego and Murrieta. Between the IE and South Central LA, I would take the IE any day, but I would look at the nicer cities like Temecula and Murrieta, and avoid redneck havens such as Lake Elsinore and Hemet. Victorville and Apple Valley have good cash flow potential and they have seen a lot of new development over the last 30 years, but I haven't been up there in a long time and don't know what they're like now. I know an investor that rents to a lot of Section 8 tenants in Victorville if that's any help.

Desert Hot Springs is a pit, but nearby Palm Springs and other Cochella Valley towns have some primo properties (not sure about their investment value, however). Remember, the Palm Springs area is a seasonal resort town with crowds in the Winter and ghosts towns in the Summer.

There are some nice areas in the central part of the IE, like Moreno Valley and Colton, but you have to be selective as the neighborhood can degrade quickly in just a few blocks. You're going to find a mix of brand new development and old rural tracks with acreage and everything from dilapidated ranch homes to brand new custom mansions. But still, the IE is my hunting ground where I'm searching for rental #3. Yes, I still keep an eye open here in South OC, but it's more for entertainment value as the prices here are still very high compared to their rental income potential.

Hi Chris,

Our company is located in South Coast Metro, across from South Coast Plaza... If your looking for investment properties, our company offers REO bulk property as a turn key investment.

Understanding your targeting one area, however you may want to consider other opportunities in the hot hot market.

Hit me up, if you want more info.

Best!

If all you care about is cash-flow, then yes, you're probably going to be looking at other areas and other types of properties. I like making money as much as the next guy, but I have other criteria for evaluating property. One is, "Do I like the neighborhood and the tenants I will attract?" You won't find a place to put that on any spreadsheet! :wink:

I'm also biased towards the Apple Valley/Victorville area because 1) I know more people that live there and, 2) my mother used to work for a developer that built many homes in that area. I only know one family that moved to Hemet. Nice people but not the classiest in the world.

Also, how has the investor you know who rents a lot of Section 8 in Victorville done? Is that a strategy he would recommend to others?

Yes, he is very happy renting to Section 8 tenants and spent an hour telling me about the merits. His strongest points were most of the rent is paid by the government (hence reliable) and the tenants are under such strict rules of conduct, they don't want to risk losing their Section 8 eligibility, i.e., they behave. I'm still not convinced it's something I want to do myself, but never say never.

Hi Chris,

I don't see much downside in using Section 8. Most of our investors prefer Setion 8 tenants because it eliminates a lot of their risk (i.e. no rent). In a high priced area such as CA, it makes more sense to have guaranteed rent.

I think most people believe that Section 8 = lower quality tenant. This is not necessarily the case. You still have to properly screen your prospects and you can still enforce your lease/policies just as with any other tenant. Section 8 also does very thorough inspections and require upkeep of the unit. Most tenants will abide by all rules and maintain the property because they can lose their voucher if they don't comply. Hope this helps :lol: