Deciding between Out of State Investing or a House Hack?

San Luis Obispo, California
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Deciding between Out of State Investing or a House Hack?

Jordan Foster
San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes

Hello Everybody,

I am an investor in search of my first deal.  I am a recent college grad with w-2 experience, a good savings, and a substantial income.  I am in the middle of the educational and personal finance section of getting started.  I read a lot, listen to podcasts often, research my area as well as others, and have a strict budget and savings goals.

I live on the Central Coast of California, where the average home price is close to a million dollars.  Ideally I would like to house hack to eliminate my rent expense and gain hands on experience managing my first property.  However, with home prices this high, it will be very difficult to find an affordable deal.  Even if I do, I am not sure how this will affect my future ability to get loans based on my debt/income ratio.

I have started to consider investing out of state.  I have done some research in several markets across the country that look appealing.  Even with continuing my rent expense, I would still be able to purchase about 1 property/year to get the ball rolling.

Does anyone have advice as far as what would be a wiser approach?  Thank you!

If you are an investor on the Central Coast or specialize in investing out of state, I would love to get in contact and learn more!

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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
4y

I would say house hack. Main reason is the appreciation bonus with that area. Long term wise it'd be a great investment that you can use to hold for 5-10 years or 1031 after a couple. In time if you held it you could tap into equity and use that for more deals. After you get a house hack you could look into buying an OOS property and start building a portfolio. 

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    4y

    Be sure to consider your life situation as well. Do you think it's likely you'll want to relocate to another area/state within the near future? Out of state investing is better to set you up for that.

    0Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    4y

    I would say house hack. Main reason is the appreciation bonus with that area. Long term wise it'd be a great investment that you can use to hold for 5-10 years or 1031 after a couple. In time if you held it you could tap into equity and use that for more deals. After you get a house hack you could look into buying an OOS property and start building a portfolio. 

    4Reply
  • Ruchit Patel
    Bay area, CA · Member since 2021 · 383 posts · 306 votes
    4y

    Only two things need to be checked mostly:

    If you can afford the house in your area and if after a year, rent can cover the mortgage, house hack will make you more net worth over time.

    Someone like me, living in the bay area of California, neither can afford a house near my job, nor rent can cover a mortgage. So, by paying rent, but at the same time, investing savings out of state in a good neighborhood, will give me a higher net worth over time.

    ( small secret benefit of out-of-state investment no one talks about is; that you leave all headaches on your property manager, your realtor, your advisor, etc. I like passive income, so works for me )

    Got it? Let me know if you want to talk to the team that helped me.

    --Ruchit

    1Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    4y

    @Jordan Foster

    I started with turnkey remote rentals in 2009-2015 while working my engineering W2 job when I was non accredited. Then went into syndications once my net worth went over 500k.

    The problem with the CA properties is that they will not cashflow and will be entirely an appreciation play.

    0Reply
  • Jeff Gattens
    Member since 2022 · 9 posts · 1 vote
    4y
    Quote from @Ruchit Patel:

    Only two things need to be checked mostly:

    If you can afford the house in your area and if after a year, rent can cover the mortgage, house hack will make you more net worth over time.

    Someone like me, living in the bay area of California, neither can afford a house near my job, nor rent can cover a mortgage. So, by paying rent, but at the same time, investing savings out of state in a good neighborhood, will give me a higher net worth over time.

    ( small secret benefit of out-of-state investment no one talks about is; that you leave all headaches on your property manager, your realtor, your advisor, etc. I like passive income, so works for me )

    Got it? Let me know if you want to talk to the team that helped me.

    --Ruchit


    Ruchit would be interested in talking to the team that helped you if you would be willing to pass that info along. Thanks! 

    0Reply
  • Janelle K. Eagle
    Real Estate Agent · Central Coast, CA · Member since 2022 · 110 posts · 58 votes
    4y

    Hey Jordy! Love to see your activity on the forums. 

    Based on our conversation, my advice is to continue to save and then invest locally. Unless you plan to move in the near future, the biggest gift you can give yourself as a Cali resident is to OWN rather than RENT - especially if you can get the mortgage paid by other folks. The appreciation value is palpable, and the saved out of pocket expenses are a radical opportunity to put your savings into future properties. 

    I personally suggest you prioritize house hacking and once you have it rented out and can get a sense of your monthly cash flow and potential savings, I would pool those funds into a down payment on a new property... and then another... and another. You could even consider HELOC'ing your California property once you have it to help you afford more out of state.

    Always happy to hop on the phone if you want to talk through any of these strategies and LOVE the support the BP community is giving you as you consider your options!!

    1Reply
  • Jason R. BesanceneyPro Member
    Member since 2022 · 18 posts · 18 votes
    4y

    Hi Jordan, the price point here on the central coast is a significant obstacle for many buyers but nothing that hasn't been overcome by someone else before. Consider bringing on a partner for your first deal. They could get a different skill set or knowledge base for your operation and business. Also, the house hack will be one of your best bets in a market like this, 25% down can be 250k which is crazy but means there is a strong desire to own here in this market. I just like you am looking to get my first deal so these are recommendations I have heard from listening to others and trying to grow my network. Reach out to me and maybe we can grab a meal and grow each other's knowledge, best of luck to you brother!

    2Reply
  • Ruchit Patel
    Bay area, CA · Member since 2021 · 383 posts · 306 votes
    4y
    Quote from @Jeff Gattens:
    Quote from @Ruchit Patel:

    Only two things need to be checked mostly:

    If you can afford the house in your area and if after a year, rent can cover the mortgage, house hack will make you more net worth over time.

    Someone like me, living in the bay area of California, neither can afford a house near my job, nor rent can cover a mortgage. So, by paying rent, but at the same time, investing savings out of state in a good neighborhood, will give me a higher net worth over time.

    ( small secret benefit of out-of-state investment no one talks about is; that you leave all headaches on your property manager, your realtor, your advisor, etc. I like passive income, so works for me )

    Got it? Let me know if you want to talk to the team that helped me.

    --Ruchit


    Ruchit would be interested in talking to the team that helped you if you would be willing to pass that info along. Thanks! 


    Feel free to message me and we can talk more.

    0Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Taylor L.:

    Be sure to consider your life situation as well. Do you think it's likely you'll want to relocate to another area/state within the near future? Out of state investing is better to set you up for that.


     Thanks for the perspective Taylor.  I do plan to relocate eventually to a place that is more affordable.  However, I will be staying here for at least a few years, as I recently began a new position that is a great start for my career.  So considering to 2-3 year minimum that i will be here, it seems like a huge opportunity to grow some equity in the market, even though this area is more difficult to cash flow.  But out of state investing seems like a great skill to develop regardless because of how much opportunity it opens up, as well as freedom for the investor.  I am going to pick up the Bigger Pockets Long-Distance Real estate investing book to learn more about it as well.

    1Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Caleb Brown:

    I would say house hack. Main reason is the appreciation bonus with that area. Long term wise it'd be a great investment that you can use to hold for 5-10 years or 1031 after a couple. In time if you held it you could tap into equity and use that for more deals. After you get a house hack you could look into buying an OOS property and start building a portfolio. 


     I like that mindset Caleb.  I think eliminating my rent expense is top of the list (~12k/yr) because it will open up everything else, from more savings from my w-2, to lots of equity in the house hack.  My concern about that is my debt/income ratio.  If I get a 700k loan for my first property, how will this look to lenders when I go in to talk about an out of state deal?  Thanks for any insight you can provide!

    1Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Ruchit Patel:

    Only two things need to be checked mostly:

    If you can afford the house in your area and if after a year, rent can cover the mortgage, house hack will make you more net worth over time.

    Someone like me, living in the bay area of California, neither can afford a house near my job, nor rent can cover a mortgage. So, by paying rent, but at the same time, investing savings out of state in a good neighborhood, will give me a higher net worth over time.

    ( small secret benefit of out-of-state investment no one talks about is; that you leave all headaches on your property manager, your realtor, your advisor, etc. I like passive income, so works for me )

    Got it? Let me know if you want to talk to the team that helped me.

    --Ruchit

    Hi Ruchit I would love to talk more to you or the team that helped you.  From what I've seen, my market is pretty similar to the bay area, but maybe not quite as steep.  I have a couple questions for you if you don't mind.  First, do you have any favorite resources that you used for learning about investing in out of state markets?  Secondly, how will my ability to get a future loan be affected if the first loan I take out is for ~700k?  Will I still be able to get more loans down the road or will my d/i ratio be too high?

    Thank you and hope to talk soon!
    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    I am prejudiced on this because I have already made the move, but I'd go OOS with the intent to move eventually. We saw what states like Cali will do when faced with situations like Covid, and they are very tenant friendly in general. I wouldn't start a business in a place that was hostile towards me (being a landlord that is)

    Just my .02...

    0Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Lane Kawaoka:

    @Jordan Foster

    I started with turnkey remote rentals in 2009-2015 while working my engineering W2 job when I was non accredited. Then went into syndications once my net worth went over 500k.

    The problem with the CA properties is that they will not cashflow and will be entirely an appreciation play.

    Hi Lane,
    It sounds like we have fairly similar paths.  I currently have a technical w-2 as well working as a pacemaker rep.  I agree that it is tough to cashflow California markets.  Although cashflow is my end goal, I am not sure if equity or cashflow should me my focus right now.  I am leaning toward equity just to get momentum and skin in the game.  

    What was your mindset when you decided to go turnkey?  I imagine the focus was mostly on equity and convenience since you still worked as an engineer.  Did you find it to be effective for your situation?

    Thank you for your insight!
    0Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Janelle K. Eagle:

    Hey Jordy! Love to see your activity on the forums. 

    Based on our conversation, my advice is to continue to save and then invest locally. Unless you plan to move in the near future, the biggest gift you can give yourself as a Cali resident is to OWN rather than RENT - especially if you can get the mortgage paid by other folks. The appreciation value is palpable, and the saved out of pocket expenses are a radical opportunity to put your savings into future properties. 

    I personally suggest you prioritize house hacking and once you have it rented out and can get a sense of your monthly cash flow and potential savings, I would pool those funds into a down payment on a new property... and then another... and another. You could even consider HELOC'ing your California property once you have it to help you afford more out of state.

    Always happy to hop on the phone if you want to talk through any of these strategies and LOVE the support the BP community is giving you as you consider your options!!


     Hi Janelle,

    Thank you for the insight!  I totally hear what you are saying as far as getting that rent expense eliminated!  

    I would love to hop on the phone again soon and expand on some of these ideas, especially what my investing future would looklike if I am able to secure my first house hack.  

    I am still hoping to come see your new triplex soon!

    0Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Jason R. Besanceney:

    Hi Jordan, the price point here on the central coast is a significant obstacle for many buyers but nothing that hasn't been overcome by someone else before. Consider bringing on a partner for your first deal. They could get a different skill set or knowledge base for your operation and business. Also, the house hack will be one of your best bets in a market like this, 25% down can be 250k which is crazy but means there is a strong desire to own here in this market. I just like you am looking to get my first deal so these are recommendations I have heard from listening to others and trying to grow my network. Reach out to me and maybe we can grab a meal and grow each other's knowledge, best of luck to you brother!


     Hi Jason,

    I think partners are a great idea, both to help with affordability as well as growing the knowledge base.  For people like us, it seems like investing locally is most likely going to be a house hack.

    It would be great to meet up and share some ideas on how to get into this competitive market.

    0Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y
    Quote from @Bruce Woodruff:

    I am prejudiced on this because I have already made the move, but I'd go OOS with the intent to move eventually. We saw what states like Cali will do when faced with situations like Covid, and they are very tenant friendly in general. I wouldn't start a business in a place that was hostile towards me (being a landlord that is)

    Just my .02...


     Hi Bruce,

    That is a great point.  It could be a disaster to get 700k deep on a house just to not be able to rent it out and be stuck.  If you don't mind me asking, where were you living when you decided to invest out of state?  Do you have any resources you'd recommend in order to educate myself on investing out of state?  Thanks for any insight you can provide!

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    @Jordan Foster I lived in the San Diego area for a long time. I believe the best asset for you to research this is right where you are now, on this forum. You have access to years of experience from people with varying backgrounds. You started off right by asking this question here, let's see what responses you get.

    I just do not like or believe in any Government telling you what you can or can't do with your property (beyond that which is reasonable of course). A tenant refuses to pay and you can't throw them out? They trash your place and you have to pay them?

    No thank you.....

    0Reply
  • Juan V Lopez
    Investor · Las Vegas, NV · Member since 2020 · 153 posts · 136 votes
    4y

    Hey Jordy, good on you for getting started man. My recommendations:

    • If you're going to stay in CA: Househack. Absolutely househack to get started. Gain equity and save yourself some rent for a while.

    • If you're going to invest out of state and build a team remotely: Look into the midwest. These are easier areas to enter and you can leverage your cash better. It will make you a stronger business operator since you won't be able to check on your projects routinely yourself, but it allows you to scale more quickly.

    I was living in Denver when I started investing in Chicago and I hold 90% of my portfolio there til this day. DM if you need any specific pointers brother, wish you the best.

    0Reply
  • Ruchit Patel
    Bay area, CA · Member since 2021 · 383 posts · 306 votes
    4y
    Quote from @Jordan Foster:
    Quote from @Ruchit Patel:

    Only two things need to be checked mostly:

    If you can afford the house in your area and if after a year, rent can cover the mortgage, house hack will make you more net worth over time.

    Someone like me, living in the bay area of California, neither can afford a house near my job, nor rent can cover a mortgage. So, by paying rent, but at the same time, investing savings out of state in a good neighborhood, will give me a higher net worth over time.

    ( small secret benefit of out-of-state investment no one talks about is; that you leave all headaches on your property manager, your realtor, your advisor, etc. I like passive income, so works for me )

    Got it? Let me know if you want to talk to the team that helped me.

    --Ruchit

    Hi Ruchit I would love to talk more to you or the team that helped you.  From what I've seen, my market is pretty similar to the bay area, but maybe not quite as steep.  I have a couple questions for you if you don't mind.  First, do you have any favorite resources that you used for learning about investing in out of state markets?  Secondly, how will my ability to get a future loan be affected if the first loan I take out is for ~700k?  Will I still be able to get more loans down the road or will my d/i ratio be too high?

    Thank you and hope to talk soon!

    I like to keep my replies, general for most of the audiences in posts. For your specific case, feel free to message me and we can talk there. From there, email or call, whatever works. I just like to help. 

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    4y

    @Jordan Foster No question the better decision for most is to start off with house hacking, especially if you live in a higher cost of living market and this is certainly the same thing I tell anyone from all markets but especially higher priced areas like Orange County, Los Angeles, San Diego, Bay Area, etc.

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    0Reply
  • Nicholas Coulter
    Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes
    4y

    @Jordan Foster Househacking 100%! you may need to find a more affordable suburb around you to do it! Typically you can get more rooms for cheaper and rent them all out! Should be better for cash flow long term and its low money down. Also in CA appreciation is amazing! 

    0Reply
  • Aj Parikh
    Rental Property Investor · Centreville, VA · Member since 2019 · 1k+ posts · 799 votes
    4y

    Hi @Jordan Foster I am an out of state investor and I buy turnkey properties in the mid west markets. Similar to you, I have a W2 job and so I decided to remain passive in my investing hence I chose to work with turnkey providers. Let me know if you want to connect and chat about this strategy. 

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    4y
    Quote from @Jordan Foster:

    Hello Everybody,

    I am an investor in search of my first deal.  I am a recent college grad with w-2 experience, a good savings, and a substantial income.  I am in the middle of the educational and personal finance section of getting started.  I read a lot, listen to podcasts often, research my area as well as others, and have a strict budget and savings goals.

    I live on the Central Coast of California, where the average home price is close to a million dollars.  Ideally I would like to house hack to eliminate my rent expense and gain hands on experience managing my first property.  However, with home prices this high, it will be very difficult to find an affordable deal.  Even if I do, I am not sure how this will affect my future ability to get loans based on my debt/income ratio.

    I have started to consider investing out of state.  I have done some research in several markets across the country that look appealing.  Even with continuing my rent expense, I would still be able to purchase about 1 property/year to get the ball rolling.

    Does anyone have advice as far as what would be a wiser approach?  Thank you!

    If you are an investor on the Central Coast or specialize in investing out of state, I would love to get in contact and learn more!


     Take care of home base first man. You're always paying a mortgage for the roof over your head. You want that to be your mortgage or your landlord's mortgage?

    0Reply
  • Daniel ToshevPro Member
    Rental Property Investor · Denver, CO · Member since 2020 · 29 posts · 16 votes
    4y

    If you can rent and still buy one property out of state per year, I would suggest house hacking and use the saved rent to buy 3 or 4 out of state rentals. That's what I'm doing and it works. 

      Good luck

    0Reply
  • Jordan Foster
    OP
    San Luis Obispo, CA · Member since 2019 · 11 posts · 7 votes
    4y

    @James Wise That does seem like the most simplified and straight forward way to look at it.  Especially as a first time investor.  Getting hands on and real life experience would be very valuable.

    1Reply
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