Best CA City to buy cash flow properties in

30 Replies

I have 50k to invest, what city should I invest in in California.  I rent in SF, but want to buy a cash flowing property to where I can drive to see it.  I am open to property management, but want to pick an area where I can invest in multiple properties at as a long term plan.  

Any feedback is greatly appreciated!

I am in Bay Area and currently looking in Hayward area. Just purchased a 5 unit in Hayward with reasonable cash flow. But the main goal is still appreciation in Bay Area.

Some areas that I looked at: Stockton, Fresno, Merced. But I finally decided to stay within 1 hr driving distance to avoid hassle.

Hayward is pretty good.  It benefits from the exodus from SF and all the high tech on the Peninsula.  It has rent control, but not too bad ( 5% a year ).  I have owned an 8-unit building in Hayward since 2001.  It's a little money machine.  I forsee that I will be able to raise rents 5% a year for the next decade.

I found the property from loop net. Went all cash. Not sure what do you mean by discount. Since I know this area well, I know this property is probably worth >200k over I paid(455k). Of course, there are some inspection issues, but I deals with those issues all the time.

Oakland is really heating up as people get pushed out of SF because of insane prices and this should help as well:

http://www.forbes.com/sites/scottbeyer/2015/09/26/after-ubers-move-will-oakland-become-a-tech-hub/

Gotta be careful where you buy in Oakland.  There's some very unsafe areas.  Also, Oakland has very strict rent control.  I wouldn't touch a building that's subject to it.  I think you're allowed to raise your rents a fraction of the CPI increase.  1% rent increases, anybody?  There's a magic date - IIRC 1987 or so - if a building was built after that date, it's not subject to rent control.

Cherryland, right?  I've had my eye on the unincorporated area for years.   It's noticeably rougher than Hayward.  Almost like the County doesn't really care what you build there.  Strangely enough, Castro Valley is also an unincorporated area, and it's quite nice.  Go figure....

I bed on a fiveplex over on Meekland a while back.  They were asking $799.  I offered $835, no contingencies except for getting the loan.  Got beat out by an all cash offer.

I am a broker and a general contractor, so I deal with problem properties. I always look for ones with major problems, code violation, foundation issues, etc.

I just saw another in on the peninsula today, asking 450k but probably a total tear down. Called the listing agent but have not heard back yet. Afraid another bidding war.

Originally posted by @David Song :

I found the property from loop net. Went all cash. Not sure what do you mean by discount. Since I know this area well, I know this property is probably worth >200k over I paid(455k). Of course, there are some inspection issues, but I deals with those issues all the time.

 Hey David, can you clarify something for me? You said that you bought this 5-unit property in Hayward with all cash and that it cash flows nicely . Is there an instance where you don't cash flow nicely when you buy a property all cash? With no debt service expense, it should cash flow nicely right? 

Or are you saying that it still cash flows nicely after refinancing it to get your cash back out?

Lastly, in regards to OP, he has $50k to invest, not close to half a million. Are you saying he is still able to enter the Hayward market with $50k? I ask because I'm in a similar situation and finding difficulties entering the Bay Area market. 

50 k budget has to be linked with some kind of financing. Get a loan approval first, find out the maximum purchase price, before looking. Go east to find lower priced properties.

As far as what I do, I purchase and fix and stabilize the rent. Refinance to get all investment back, then still cash flow.

I have multiple properties in/around Stockton and like the market for cash flow. I just rehabbed a 2BR/1BA craftsman and the tenant is signing the lease tomorrow. Also in progress on converting a 1/1 to a 2/2 in a great neighborhood and will then rent that for cash flow. 

I posted recently about the returns I'm seeing in Stockton. Happy to chat if you'd like to private message me. Since I've mostly used my own capital to this point, I now come across more good deals in Stockton than I have cash to pay for them. 

www.biggerpockets.com/forums/99/topics/216502-how-...

With only 50k you definitely need financing. In Stockton you probably need minimum $100k to make any cash offers. A few things to consider which may help increase your available cash to get you over that threshold:

  • Do you have a 401(k) you can take a loan out against?
  • Do you have a brokerage account you can borrow against?
  • Do you have other property you can refinance?
  • Can you find a partner to split a deal 50/50 with you?
  • Do you have strong income and credit? If so can you get a line of credit with a local bank?

Hope this helps. 

Originally posted by @Neil Patrick :

I have 50k to invest, what city should I invest in in California.  I rent in SF, but want to buy a cash flowing property to where I can drive to see it.  I am open to property management, but want to pick an area where I can invest in multiple properties at as a long term plan.  

Any feedback is greatly appreciated!

Welcome to BP! I am a newbie too and suffer the same question that you had few weeks ago. After researching, I decided to invest in Fresno CA (about 3 hours drive from bay area). You can find a class B or C 4-plex around 200k which is a good purchase price as you can do 20% down payment with a convention loan. If you found a good deal and with a conservation estimation on expense, you may be able to look at 8k+ on the cash flow.

I just submitted an offer for a 4-plex in Fresno and hopefully (crossing my fingers) I can close my first rental property. 

Good luck on your search!

Phat

Hi @Neil Patrick, I am newbie as well and looking for my first deal, either SFR or multiplex. Good luck!

@Matt Shamus thanks for the link and info.   My difficulty analyzing deals without any real world experience is estimating maintenance costs.  The back and forth on your link was really helpful.  

Anne

@Matt Shamus What do you think of deals like this one in Stockton?  $138K for 3 doors. $650 to $700 per door.  Would you consider this a good deal?  I am looking into some MFRs in that area.  Thanks.

https://www.redfin.com/CA/Stockton/811-Astor-St-95...

I own a triplexd on the next street over.. these suckers make great money! and then you spend it all on maintenance issues, tenant turn over.  Don't get me wrong, its still worth it in the long run, but expect your first couple years worth of cash flow to go into the rehab process. 

Then you wonder to yourself, is that worth it?  

Why are you pointing these things out?

Because in the long run, rents will go up, the property will be in better shape and the cash flow will pay off.

Just be ready to deal with headaches, if that's not for you, these properties are not for you.

If the units are in good condition, you can get 700, mine are in decent condition and i'm getting 675.  

Because of the area, i wouldn't recommending doing large rehabs on these units.. these types of tenants don't really take care of the units.  The cost/benefit to get to 700 may not make sense.

For example, to rehab a unit and get it looking nice, it may take 4-6k, is it worth the extra 25 bucks a month to be getting the highest rent on the block?

Also, it seems that rents are going up in the area, will be interesting to see where things end up next year.  We may be hitting closer to 750-775 for the nicer units but only time will tell.

@David C. I don't like that kind of property but that doesn't mean you won't. I like to buy fixers in nice neighborhoods and rehab until I have the nicest rental property available in the area. In my experience this method attracts quality tenants who like to stay in their home longer than the average tenant and treat it with more care. It also requires more cash, time and effort. It's not a turnkey strategy. 

A few reasons I don't like the listing you linked to (or similar properties):

  • Neighborhood is rough (I wouldn't want to be there after dark)
  • Leases in that area tend to be month to month (high turnover)
  • Security deposits++ likely eaten up with each tenant turnover 
  • Requires property manager (don't want to deal with that tenant profile, even if I had the time)

IMO this is a D property due to the location and tenant profile it will attract, and I prefer A and B properties. 

If I did have a property like this I would market to Section 8 qualified tenants with 2BR vouchers. 

Bakersfield should be on your short list as well.

There are some really good deals in smaller rural areas which were hit hard by the drought.