California Or Out of State????

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California Or Out of State????

Jason Holtzinger
Santa Rosa, CA · Member since 2017 · 18 posts · 9 votes

Hi BP community, Please keep reading through this intro to get to the guts of my question.

I have decide that I am going to purchase my first multi family property. I purchased my first home in 2012 and held for 8 years in the north bay and came out very well ahead after purchasing my next home in the country. Now I am after cash flow specifically and am looking for a minimum of $200 per month after expenses for my first rental property. I am not as concerned with appreciation as my goal is to buy and rent and hold and repeat. I currently run a construction company and through our business we are comfortable and are able to do pretty much everything we want....at the cost of 80 hour plus weeks for me. My goal is to eventually have enough rental income to not be so reliant on my construction business for all our income.

Now we are on the hunt! The problem is finding a deal in the North Bay of CA that cashflows is insanely difficult. Finding a deal that cash flows without buying for cash seems near impossible do to the large loans needed to purchase the crazy priced properties. after some research of other markets,we could buy a property for cash in Detroit metro or Columbus outright and cash flow on month one.

I really want to invest locally since I know the state very well but just cant seem to make the numbers work.

Should I stay in the hunt or move on to a different state that is landlord friendly and has properties that can actually be purchased with a reasonable loan or for cash?

Thanks!

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
Quote from @Jason Holtzinger:

You're already working 80 hours a week. Do you really want to take on management of a property in the most heavily regulated place on earth?

Buy in another state and hire someone to manage the property. Better yet, invest in a syndication to get a similar or better return with no need to worry about tenants and toilets.

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y
    Quote from @Paul E Romero:.  And another tip I have for you, NEVER sell your home in the Bay Area!  Equity builds up fast here and you can use that to buy homes out of state!!!  <----

    >>
    Exactly, this the key here. Like I keep saying this, If you want to build wealth buy in CA for appreciation. If you want to pay some bills, buy cash-flows market.

    You could make a such strategy that you could virtually live for free where all your CA mortgage will be paid by OOS investments (or any indirect CF flow, such as debt funds or even REIT)
    It's extremely even more important if you have family and serious about generational wealth transfer. Only in CA a company could give 200k job for non-manager position so they could get a good job easily here. And helping the family not to struggle that much in the future is by securing them portfolio of houses.
    0Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    Location crime rate, average salary, unemployment rate, and are you willing to fly there twice a year? I discourage buying lower priced real estate and managing from far away with PM. I would never enter a syndication or those fintech shared real estate dreams.

    I started with contractor license and kept my day job as lender (60 hour week) and found opportunities along the way. A house in Hayward that's a wreck with acre lot and rehab and add a unit, hold long term? Morgan Hill might be too far for you but is driving distance to Santa Clara/San Jose. Look for something under $650000 in a neighborhood where the elementary school is blue ribbon. Where are the big paying jobs near Santa Rosa-~~ San Francisco and San Jose. I love Kenwood maybe you can find a duplex where you set up wifi for remote workers?

    I was born in Cincinnati and have a daughter Dr at Cleveland Med Center I would not invest in Ohio as your starting point. The Rust Belt will suffer with inflation, jobs are not increasing. 

    Keep saving money. If you are married get the partner working on the plan. 

    3Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    4y

    Cleveland has been the #1 rental market for about 10 years. 100s of investors from Ca invest there. 10% + NET ( based on cash purchases )  cap rates are to be had, 100% hands off. Its all about your team and knowledge .

    BTW you cannot do flips. You do not have crews, or the knowledge. Lets face it you are not going to swing a hammer. Many think they can just go out of state and higher some GC to run there 200-. 300 500k flip, bad idea. 

    All the best 

    0Reply
  • Austin Steed
    Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes
    4y

    @Jason Holtzinger

    I know an investor from Denver and he invests out of state and even manages from out of state too. He does smart locks, FaceTime showings and always requires identification before anything else. Kind of rare to see this but he’s been able to maximize rents and not pay a PM company that doesn’t care. From Denver all the way to Columbus OH.

    Sounds like you have a lot going on but just saying it can be done!

    0Reply
  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    4y
    Quote from @Randy Gutierrez:

    If you own a construction company why are you not flipping homes? 


    I agree with this, or even a BRRRR. Santa Rosa has its fair share dumpy homes and transitioning neighborhoods, plus rents are high. Lots of quality employment between the bay area and all the wineries.

    If you go out of state, Columbus over Detroit all day long. I wouldn't do Detroit unless you were planning to live nearby. 

    1Reply
  • Rob Nappi
    Investor · Santa Rosa, CA · Member since 2018 · 59 posts · 18 votes
    4y

    Out of state.

    I personally have been involved with Indianapolis,IN

    I’m all about cash flow and appreciation is a bonus. 
    I have a team out there. Currently building our website to show other investors the potential for our system we use. 
    Basically goes like this:

    Buy a property Multi family only. 
    we have many government contacts. Currently have 17k people in the wait list. All these people need placement and will be government supported. 
    2 year lease agreements 

    Studio $860, One bedroom $935, two bedroom $1088 are the prices 

    VA programs, section 8 all of them.
    we are first on the list so just seeking lots of investors. 

    Because placing these programs into these multi family units.
    We contract the property management behind the whole process. 12% is the minimum. Believe me this is a steel due to the kind of problems that can occur with programs like this. 
    If you run the numbers it comes out to better returns then anyone on BP is getting unless they are doing short term to mid term rentals. 

    Anyhow, good luck with your investments and reach out if interested in more information or which ever. 

    Take care,

    Rob Nappi 

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Jason Holtzinger:

    Brandon Turner started out buying dumps, fixing them up, and flipping them or holding onto them. Then he bought bigger properties. Then one day he crunched the numbers and realized he was working really hard and his return was no better than the people investing in syndications. So he started investing in syndications. Then he didn't like how those syndications were run and thought he could do a better job and get a better return.

    He's smarter and more experienced than me, so I just listen to his advice, exam it to confirm it's true, and then move that direction.
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    0Reply
  • Osazee Edebiri
    Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    4y
    Quote from @Jason Holtzinger:

    Hi BP community, Please keep reading through this intro to get to the guts of my question.

    I have decide that I am going to purchase my first multi family property. I purchased my first home in 2012 and held for 8 years in the north bay and came out very well ahead after purchasing my next home in the country. Now I am after cash flow specifically and am looking for a minimum of $200 per month after expenses for my first rental property. I am not as concerned with appreciation as my goal is to buy and rent and hold and repeat. I currently run a construction company and through our business we are comfortable and are able to do pretty much everything we want....at the cost of 80 hour plus weeks for me. My goal is to eventually have enough rental income to not be so reliant on my construction business for all our income.

    Now we are on the hunt! The problem is finding a deal in the North Bay of CA that cashflows is insanely difficult. Finding a deal that cash flows without buying for cash seems near impossible do to the large loans needed to purchase the crazy priced properties. after some research of other markets,we could buy a property for cash in Detroit metro or Columbus outright and cash flow on month one.

    I really want to invest locally since I know the state very well but just cant seem to make the numbers work.

    Should I stay in the hunt or move on to a different state that is landlord friendly and has properties that can actually be purchased with a reasonable loan or for cash?

    Thanks!

    Looking through some of the answers this reminds me of the old which came first the chicken or the egg. 

    At the end of the day I don’t think it matters, what we know is if California was more affordable everyone would buy here, which should in simple theory mean California is more valuable than everywhere else (of course there are exceptions to this when it comes to property purchase. 

    @Jason Holtzinger

    You’re goal is cashflow so I would like at how long does it take you to acquire out of state properties at a cashflow of $200 a month that significantly offset your income enough that you scale back your construction business vs purchasing here in Cali and not getting the same or any cashflow in the beginning but the equity and rent appreciation overtime. Which one gets you to your goal quicker.

    Since you’re in construction that should give you an advantage on forced appreciation with buy and holds as you can rehab properties over time at a discount. 

    I think California is the way to go for people  unless they can’t afford it, purchasing property out of state with close to California characteristics, or they are purchasing good size multifamily out of state.


    2Reply
  • Brad S.
    Investor · Pasadena, CA · Member since 2017 · 613 posts · 523 votes
    4y

    I assume the construction company you run, is residential, or at least that you are able to do residential. Therefore, I would look for local buildable lots or sfr's on lots where you can add ADU's, etc. You can use SB9 to build 3 units on an sfr lot. And with your background and residential resources you should be able to do that with reasonable building costs and be able to develop good cashflow, due to the relatively high rents in CA.

    2Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    Anywhere but Cali. Stop killing yourself and get your money into a landlord friendly state. This being said by an old Cali Contr. (444345) who left and put everything into AZ.

    Your only regret will be that you didn't do it years sooner......

    1Reply
  • Sean Walsh
    Rental Property Investor · Denver, CO · Member since 2021 · 17 posts · 15 votes
    4y

    I don’t have first-hand property investing experience outside CO, so I’ll let those who have chime in. My only strong suggestion is do you research - especially on local and state government plans to squeeze landlords with taxes, fees, and mandates. If you are thinking of investing in an “initiative and referendum” state (where citizens can initiate ballot questions via petition) be doubly careful. Especially in bluer cities and states, landlords are the new golden goose to eviscerate. P.S Take Denver off your list!

    1Reply
  • Stephen Brown
    Real Estate Broker · Huntsville, AL · Member since 2019 · 1k+ posts · 872 votes
    4y

    I say you can do much better in another state if you can find the right team on the ground and have an agent really help you get to know the area. A lot of folks come here from California and love it. However if you feel more comfortable where you're at then I'd put in the work and try to find something off market.

    0Reply
  • Chris Yager
    Member since 2020 · 20 posts · 6 votes
    4y

    @Tracy Keffer I’d like to pick your brain ….. sent you a message regarding this topic. Thanks from Corpus Christi Texas.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    4y

    @Jason Holtzinger

    A couple thoughts from a "neighbor" to your immediate south who has invested both locally and out of area:

    1. "Landlord friendly state" is a misnomer.  State laws set unlawful detainer laws but policy is dictated at the very local level.  In handling an eviction, I would trust a judge in Sonoma County way more than some Democratic machine appointed hack in, say, Cleveland to get a fair result.  

    2. $200/month seems like a very low bar.  Your capital expenditures over 5-10 years will almost certainly wipe out all of your income, especially in environments that experience harsh winters.  You will spend more on gasoline in a month at current prices.  I wonder whether you have thought through your goals.  Sonoma and northern Marin are expensive but the long-term benefits that flow could fund - a typical Terra Linda fixer should yield $60,000-$70,000 in gross rents - a retirement if you play your cards right and show some patience.

    2Reply
  • Osazee Edebiri
    Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes
    4y
    Quote from @Darius Ogloza:

    @Jason Holtzinger

    A couple thoughts from a "neighbor" to your immediate south who has invested both locally and out of area:

    1. "Landlord friendly state" is a misnomer.  State laws set unlawful detainer laws but policy is dictated at the very local level.  In handling an eviction, I would trust a judge in Sonoma County way more than some Democratic machine appointed hack in, say, Cleveland to get a fair result.  

    2. $200/month seems like a very low bar.  Your capital expenditures over 5-10 years will almost certainly wipe out all of your income, especially in environments that experience harsh winters.  You will spend more on gasoline in a month at current prices.  I wonder whether you have thought through your goals.  Sonoma and northern Marin are expensive but the long-term benefits that flow could fund - a typical Terra Linda fixer should yield $60,000-$70,000 in gross rents - a retirement if you play your cards right and show some patience.

    @Darius Ogloza

     Completely agree, how many $200 a month cashflow properties does it take to equal one California property in the long run.

    I would say Oakland and San Francisco are probably two of the most difficult cities in the Bay to do real estate and probably most of the reason why people say California is not a landlord friendly state. At the end of day we are still dealing with Humans which means you can try to pursuade them to do things to your favor, you will win some loose some. Real estate is an over time play and it is likely properties in these two cities over time will perform better than most other cities on average. Also, it is likely at some point in time city management will get their act together. You learn a lot from these cities.

    However there are 101 cities in the Bay Area about 8 million population, 9 counties. Pick one of the cities that’s easier to work in. 

    1Reply
  • Stephanie Corean
    Member since 2022 · 8 posts · 2 votes
    4y

    Hey Jason, 

    I'm surprised no one has mentioned Texas yet. Cheap real estate. Low taxes. Tons of great property management companies that serve in the DFW area. Plenty to choose from at all price points. 

    0Reply
  • Jason Holtzinger
    OP
    Santa Rosa, CA · Member since 2017 · 18 posts · 9 votes
    4y
    Quote from @Randy Gutierrez:

    If you own a construction company why are you not flipping homes? Being you don't have much time I would look into buying turnkey properties.


     My company is a general engineering business. We perform infrastructure work. Demolition, grading, underground utilities and asphalt paving. Public, commercial, industrial and residential. Not a ton of economies of scope to the house flipping world. Also, my time is already strectched thin with the abundance of work in our area just in our niche and focusing on expanding our reach from about 100miles to a few hundred miles of radius from our headquarters. I will look into turn key properties a bit more. Thank you.

    0Reply
  • Jason Holtzinger
    OP
    Santa Rosa, CA · Member since 2017 · 18 posts · 9 votes
    4y
    Quote from @Carlos Ptriawan:
    Quote from @Paul E Romero:.  And another tip I have for you, NEVER sell your home in the Bay Area!  Equity builds up fast here and you can use that to buy homes out of state!!!  <----

    >>
    Exactly, this the key here. Like I keep saying this, If you want to build wealth buy in CA for appreciation. If you want to pay some bills, buy cash-flows market.

    You could make a such strategy that you could virtually live for free where all your CA mortgage will be paid by OOS investments (or any indirect CF flow, such as debt funds or even REIT)
    It's extremely even more important if you have family and serious about generational wealth transfer. Only in CA a company could give 200k job for non-manager position so they could get a good job easily here. And helping the family not to struggle that much in the future is by securing them portfolio of houses.

     Im not exactly sure what your trying to tell me here. please explain a bit more

    0Reply
  • Jason Holtzinger
    OP
    Santa Rosa, CA · Member since 2017 · 18 posts · 9 votes
    4y
    Quote from @Caroline Gerardo:

    Location crime rate, average salary, unemployment rate, and are you willing to fly there twice a year? I discourage buying lower priced real estate and managing from far away with PM. I would never enter a syndication or those fintech shared real estate dreams.

    I started with contractor license and kept my day job as lender (60 hour week) and found opportunities along the way. A house in Hayward that's a wreck with acre lot and rehab and add a unit, hold long term? Morgan Hill might be too far for you but is driving distance to Santa Clara/San Jose. Look for something under $650000 in a neighborhood where the elementary school is blue ribbon. Where are the big paying jobs near Santa Rosa-~~ San Francisco and San Jose. I love Kenwood maybe you can find a duplex where you set up wifi for remote workers?

    I was born in Cincinnati and have a daughter Dr at Cleveland Med Center I would not invest in Ohio as your starting point. The Rust Belt will suffer with inflation, jobs are not increasing. 

    Keep saving money. If you are married get the partner working on the plan. 


     wow, lots to digest here. Thank you for the advice! Love how all the advice on here is so back and forth that its making me really think about whats being said to me. Thanks again.

    0Reply
  • Jason Holtzinger
    OP
    Santa Rosa, CA · Member since 2017 · 18 posts · 9 votes
    4y
    Quote from @Bob S.:

    Cleveland has been the #1 rental market for about 10 years. 100s of investors from Ca invest there. 10% + NET ( based on cash purchases )  cap rates are to be had, 100% hands off. Its all about your team and knowledge .

    BTW you cannot do flips. You do not have crews, or the knowledge. Lets face it you are not going to swing a hammer. Many think they can just go out of state and higher some GC to run there 200-. 300 500k flip, bad idea. 

    All the best 


     Although I do agree with you that I am not going to do flips out of state, pretty much for the reason that you said, that I am not going to manage a high dollar flip out of state. However, I fully have the knowledge, I have about 300 employees worth of crew and I swung a hammer for quite a while. Im sure thats not how you meant it but I had to chime in LOL.

    0Reply
  • Jason Holtzinger
    OP
    Santa Rosa, CA · Member since 2017 · 18 posts · 9 votes
    4y
    Quote from @Darius Ogloza:

    @Jason Holtzinger

    A couple thoughts from a "neighbor" to your immediate south who has invested both locally and out of area:

    1. "Landlord friendly state" is a misnomer.  State laws set unlawful detainer laws but policy is dictated at the very local level.  In handling an eviction, I would trust a judge in Sonoma County way more than some Democratic machine appointed hack in, say, Cleveland to get a fair result.  

    2. $200/month seems like a very low bar.  Your capital expenditures over 5-10 years will almost certainly wipe out all of your income, especially in environments that experience harsh winters.  You will spend more on gasoline in a month at current prices.  I wonder whether you have thought through your goals.  Sonoma and northern Marin are expensive but the long-term benefits that flow could fund - a typical Terra Linda fixer should yield $60,000-$70,000 in gross rents - a retirement if you play your cards right and show some patience.


     Some serious food for thought. Thank you

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    4y

     Im not exactly sure what your trying to tell me here. please explain a bit more


    Basically the decision should follow primarily your job and family needs.
    0Reply
  • Eddie Torres
    Rental Property Investor · Member since 2021 · 76 posts · 36 votes
    4y

    @Jason Holtzinger I bought out of state last year and so far it's one of the best decisions I've ever made. I also live in the Bay Area.

    1Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    4y
    Quote from @Jason Holtzinger:
    Quote from @Bob S.:

    Cleveland has been the #1 rental market for about 10 years. 100s of investors from Ca invest there. 10% + NET ( based on cash purchases )  cap rates are to be had, 100% hands off. Its all about your team and knowledge .

    BTW you cannot do flips. You do not have crews, or the knowledge. Lets face it you are not going to swing a hammer. Many think they can just go out of state and higher some GC to run there 200-. 300 500k flip, bad idea. 

    All the best 


     Although I do agree with you that I am not going to do flips out of state, pretty much for the reason that you said, that I am not going to manage a high dollar flip out of state. However, I fully have the knowledge, I have about 300 employees worth of crew and I swung a hammer for quite a while. Im sure thats not how you meant it but I had to chime in LOL.


     cool, come out to Cleveland with your crew, I have 25 guys I need 45 :) 

    1Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    4y
    Quote from @Darius Ogloza:

    @Jason Holtzinger

    A couple thoughts from a "neighbor" to your immediate south who has invested both locally and out of area:

    1. "Landlord friendly state" is a misnomer.  State laws set unlawful detainer laws but policy is dictated at the very local level.  In handling an eviction, I would trust a judge in Sonoma County way more than some Democratic machine appointed hack in, say, Cleveland to get a fair result.  

    2. $200/month seems like a very low bar.  Your capital expenditures over 5-10 years will almost certainly wipe out all of your income, especially in environments that experience harsh winters.  You will spend more on gasoline in a month at current prices.  I wonder whether you have thought through your goals.  Sonoma and northern Marin are expensive but the long-term benefits that flow could fund - a typical Terra Linda fixer should yield $60,000-$70,000 in gross rents - a retirement if you play your cards right and show some patience.

    I know CA is considered a very landlord 'unfriendly' state to invest, however, that's very low on my list of considerations. This is not only for the reasons outlined by @Darius Ogloza above which I agree with 100%, but also because I've dealt with OOS tenants on units paying 1,000 for a small house. With the issues I had to deal with, being landlord state wasn't enough for me. Perhaps this can be blamed on my PM, but the difference in quality of tenants I get OOS vs what I get locally is quite staggering. After dealing with it for years, I decided enough was enough. I rarely hear a peep from my LA tenants and managing them is very easy. Also, a good portion of them are on Section 8, which does a nice job of motivating them to stay in line.

    I think the MUCH bigger issue with investing in semi-decent CA areas is the cost of entry and difficulty to avoid negative monthly cash-flow. Unless you're well capitalized enough to overcome this, I think OOS is still the way to do, despite my experiences with OOS.

    3Reply
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