Safe and stable investment: Do I buy rental properties or keep money in a HYSA?

[Rafael Ro]

Hello all,

I would really appreciate your insights here.

I live in CA and have a family with 2 kids - we're not moving anywhere. Have about 50k I would invest (access to more), with excellent credit and good income too, from my full time job. I'm the sole breadwinner. 

I tend to overanalyze things, often leading to inaction, mainly because I have a somewhat pessimistic outlook on the economy and I'm trying to avoid getting overexposed. 

Realistically, BRRR or wholesaling or other ideas that require a bigger time investment are not good for me - I run my business so I don't have much time left.

With that in mind, my first idea was to buy a condo or a house in my local area (Palm Springs, CA) and use it as a long term rental. 

The issue there is the current prices and CA laws - for the past year I've been struggling to find a property that's somewhat turnkey and that would at least break even... And CA is extremely tenant friendly so it's not a great place for a rental. 

That's why I started looking out of state. I found a good turnkey property company out in Memphis. Everything about them seems to check out, and their properties (which they sell already tenanted, and they manage) seem to break even with 25% down. They claim a small cash flow, and while that looks too optimistic, I believe that they can at least break even, so the tenants would be paying it off which is great. 

Another cool thing about that is that most their properties are in the low 100s, which means that I can buy 2 of them, and then buy another every time I can gather 25k more. It's scalable. And they sell lots of them.

My issue with them is that from a quick look it looks like they're selling everything at a 20-30% premium (which I understand and respect). At the same time, I can't help but think that if I could get connected with a great agent and property manager, then I could do the same and save a great deal of money. 

Then again this would also mean that I'd need to build a small team, and I'd need everyone to perform whereas they're bringing it all in one.

Another big thing here is the risk - as I said above I have a fairly pessimistic view about the economy in the next couple of years.. If I own a property with a 1k mortgage per month and it stays empty (or I'm trying to evict) for a couple of months then I'll be ok. But if the mortgage is 2k or 3k then I'll be in a tough spot. 

I would love to make a move before the end of the year and so I keep trying to decide which of the following is best for me:

1) Buy 1 more expensive CA property near here, and thus a better tenant (less likely to cause issues), but lose a little bit of money every month due to the current numbers, while hoping for future appreciation? 

2) Buy a few out of state properties over the next few years, through a well vetted turnkey provider like the one I mentioned above, which should more or less break even or give me a little bit of cash flow, and since I'd end up with a few doors my risk would be a little more spread out? 

3) Buy a few out of state properties directly through an agent and work with a property manager to manage them? 

4) Keep my money in a guaranteed savings account making 4.5%, until rates drop more or something changes, and the numbers are better to make a move?

Thank you in advance to everyone who read this, and moreso to those who respond with their thoughts. 

[Nathan Gesner]

I recommend you read "Long-Distance Real Estate Investing" by David Greene. He spells out how to invest in other markets from a distance.

I do think you are over-complicating it. Part of the problem is that we have so much information available that we don't know what is right and what is wrong, which path to choose, etc.

Slow down. Look at how people invested 20, 40, or 60 years ago. They saved up money. They found a community they believed in and a lovely house that could pay for itself with the rent income. They bought it and held it, come hell or high water. If you want more, you buy more at a pace that is comfortable for you. Once you have the number of homes you want, you pour your cash flow and extra income into the smallest mortgage until it is paid off, then you move to the next and create a snowball effect. You end up with X homes fully paid for and some crazy cash flow to live out the remainder of your days, donate to charity, or whatever your heart desires.