Starting Out With Long-Term Rentals

[Brian Sin]

Hey everyone,

I’m just starting to seriously look into long-term rentals and would appreciate some guidance from those who have experience.

I have a good amount of money in savings and I’m trying to decide if putting some of it toward a long-term rental makes sense. I’m not in a rush, but I want to be intentional about how I get started.

I’m currently based in Southern California, which brings up one of my main questions:

Does it generally make sense for a beginner to pursue long-term rentals in California? Or is it better to look out-of-state due to pricing and cash flow?

I’m mainly looking for advice on:

• Whether long-term rentals are still worth getting into right now
• In-state vs out-of-state investing for a first deal
• How beginners typically structure their first long-term rental
• Mistakes to avoid when starting out

My goal is long-term wealth building and learning how to do this the right way from the beginning. Any insights, personal experiences, or advice would be greatly appreciated.

Thanks in advance.

[Nicholas L.]

@Brian Sin

hello and welcome.  those are very broad questions.  i do think long term rentals are still worth getting into - i am still investing in them, as are lots of folks on BP - but the market is very, very tough right now.  prices are high, interest rates are high, and there is tremendous demand for inventory.  this has made it more difficult in every market.

i am sympathetic to the appeal of supposedly lower cost markets for folks like you based in CA.  unfortunately, what we frequently see - and i think this answers your mistakes question - are things like the following:

-purchases made in markets that the buyer has no knowledge of, and has only been to once, or has never been to.

-too much reliance on service providers like agents and property managers - thinking that they'll guarantee 'success', rather than just provide a service in exchange for a fee.  (spoiler: they provide a service in exchange for a fee. success is up to you.)

-underestimating costs and expenses at every single step - purchasing and closing, stabilizing and renting out, tenant turnover, etc.  this can defer true cash flow for 5 or 10 years or longer.

-underestimating, in particular, the capex and deferred maintenance that is associated with older housing stock

-choosing cheaper properties in more difficult areas in search of "cash flow" and then losing money due to all of the above

so instead, i always recommend picking a market that is close by, or that you know well, or that you went to college in, or that you hope to move to someday, or that you can go to every month for the next 6-12 months, or some combination of those, rather than just market X because the median price is Y.  so for you, where is that?

chasing cash flow or purchasing solely based on price usually leads to this:

https://www.biggerpockets.com/forums/48/topics/1242392-rough...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/432/topics/1231840-sell...

https://www.biggerpockets.com/forums/311/topics/840134-memph...

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

Failed BRR in Memphis TN

A Cautionary Tale About a Property Manager in Cinncinatti

i hope this helps. i'm not trying to be discouraging, just realistic. as I said, I'm still buying long term rentals.  i just finished a modest BRRRR that I'm very happy with. it doesn't 'cash flow a dime - yet - but i forced a bunch of equity.