California Or Out of State????

Investor · SAN FRANCISCO, CA · Member since 2012 · 42 posts · 10 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!

I

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Perry L.

Investor · SAN FRANCISCO, CA · Member since 2012 · 42 posts · 10 votes

4y

@Jason Holtzinger I have done the research nationwide for 1031 replacement. Surprisingly, San Francisco offers the best value and it is now my focus...

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Osazee Edebiri

Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes

4y

Quote from @Tony Kim:

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.

Agree @Tony Kim. MY thought process is aim to invest in California. If investing OOS helps get over the barrier to entry in Cali which is the high initial cost to purchase, then do so, but then reposition back to Cali as soon as possible or, move up to Cali properties when the portfolio position allows them to afford it.

2 Reply

Mackaylee BeachPro Member

Real Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes

4y

I do think you'll have to go out of state to see any positive cash flow! I have a 10 unit in Grandview, Missouri (Kansas City) coming up in about 2-3 months!

[email protected]

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

4y

@Jason Holtzinger

We think the Midwest is a GREAT place for OOS investors to consider!

YES, we may be a little biased, but check out our blog here on BP comparing Detroit to other cities and Deep Dives on Metro Detroit cities & neighborhoods: https://www.biggerpockets.com/...

Your biggest question shouldn't be WHERE to invest, but HOW you will invest!

Many OOS investors set themselves up for failure because they don't truly take the time to understand:

1) The Class of the NEIGHBORHOOD they are buying in - which is relative to the overall area.

2) The Class of the PROPERTY they are buying - which is relative to the overall area.

3) The Class of the TENANT POOL the Neighborhood & Property will attract - which is relative to the overall area.

4) The Class of the CONTRACTORS that will work on their Property, given the Neighborhood location - which is relative to the overall area.

5) The Class of the PROPERTY MANAGEMENT COMPANIES (PMC) that will manage their Property, given the Neighborhood location and the Tenants it will attract - which is relative to the overall area.

6) That a Class X NEIGHBORHOOD will have mostly Class X PROPERTIES, which will only attract Class X TENANTS, CONTRACTORS AND PMCs and deliver Class X RESULTS.

7) That OOS property Class rankings are often different than the Class ranking of the local market they live.

8) Class A is relatively easy to manage, can even be DIY remote managed from another state. Can usually allot 5-10% vacancy factor and same for maintenance.

9) Class B usually also okay, but needs more attention from owner and/or PMC. Vacancy and maintenance factors should be higher than for Class A as homes will be older, have more deferred maintenance and tenants will be harder on them.

10) Class C can be relatively successful with a great PMC (do NOT hire the cheapest!), but very difficult to DIY remote manage. Vacancy and maintenance factors should be higher than for Class A or B. Homes will have even more deferred maintenance and tenants will be even harder on them.

11) Class D pretty much requires an OWNER to be on location and at the property 3-4 times/week. Most quality PMCs will not manage these properties as they understand most owners won’t pay them enough for the time required and even then it’s too difficult successfully manage them.
***Only exception is if an owner has plan & funds to reposition Class D to Class C or higher.

https://www.biggerpockets.com/forums/776/topics/960183-what-they-dont-tell-you-about-cheap-rental-properties?highlight_post=5562799&page=3#p5562799

Also, SERIOUSLY consider - do you really have the time to be a DIY landlord or should you hire a PMC?

Good luck with whatever you decide😊

[email protected]248-209-6824

Logical Property Management4.9460 Reviews

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Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

4y

@Jason Holtzinger

If you're still intent on buying out-of-state, be sure to heed these additional warnings. Do not buy sight unseen. Online information on a property can be out-of-date or incomplete. A local real estate agent or property owner might lie to close a sale.

If you unwittingly become the owner of a nuisance property that violates health and safety laws, you can be on the hook for code violations that are time-consuming and expensive to fix. If a property has been vacant for long enough, it can develop maintenance issues that can be solved only with a bulldozer, and you might be on the hook for the demolition bill.

Buy in an area with some similarities to the area where you live, such as climate, demographics, or property age so that you have some idea of what you're dealing with. If you have lived in a 1960s suburb of California your entire life, don't buy a Victorian in Boston.

Don't buy a high-risk property. Buy in a primarily owner-occupied neighborhood to attract tenants who are a lower economic risk. A high-quality property will typically have less maintenance and upkeep, he notes. "These properties also rent more quickly, as they usually have modern layouts and an adequate count of bedrooms and bathrooms."

Finally, as mentioned earlier, it's crucial to build a great network of professionals to help you and to occasionally visit your property yourself.

All the best!

[email protected]832-776-9582 Podcast Guest on Show #469

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Dave Skow

Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes

4y

@Jason Holtzinger- sounds like out of state will make more sense ....consider something closer for your 1st deal and then branch out farther 2) if you think you will need to rely on financing - make sure you are fully pre approved ...are you self employed? asking because SE borrowers can be more challenging to get approeved as most lenders will use previous 2 yrs of tax returns to determine the qualifying income

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Joe HammelBusiness Member

Real Estate Agent · Metro Detroit, MI · Member since 2018 · 614 posts · 666 votes

4y

I'm a bit biased but I think anyone not buying in metro Detroit is missing out. I can say this, because i have my portfolio here and I'm an open book sharing the deals and numbers. Just can't beat them. A bit piece of what makes them hard to beat, is the fact that they are plentiful.

Metro Detroit

Purchase: $80k-$130k

Rent: $1200-$1500

ROI: 10-14%

Cash flow: $250-$350/door

Appreciation: Double digit (for past 10 years, will gladly send data)

Location: C, B- (suburbs and certain markets)

We have over a dozen Fortune 500 companies just in Metro Detroit with huge Healthcare, Auto, mortgage, Amazon fulfillment, and more jobs.

The bad reputation comes from OOS investors wanting $20k D market properties. We don’t buy those lol.

[email protected]248-422-1685

FIRE Realty Team - Keller Williams5379 Reviews

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1 Reply

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ 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!

Simple, connect with someone that provides 10% net caps or better to cash buyers refi and do again,

Its ALL about knowledge and your team

0 Reply

Mike D'ArrigoPro Member

Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes

4y

@Jason Holtzinger if your goal is cash flow and you're not concerned with appreication, than you've answered your own question. Why would you choose CA over any of the other strong cash flow markets? Also, if cash flow is your objective then I think you're setting your sights too low at $200 on a MF unit. You can get that kind of cash flow on a SFR in some markets. The best cash flow markets tend to be in the midwest. Personally, I like Indianapolis and Kansas City for a combination of both cash flow and appreciation and the Quad Cities and parts of Cleveland for high affordability and cash flow. I'd be happy to share my insights and experiences in these markets if you want to connect.

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California Or Out of State????

California Or Out of State????

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