Buy and hold: Back yard, or cross country?

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Buy and hold: Back yard, or cross country?

Michael Robertson
Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes

Hello everyone!

Super newbie here. I'm very very interested in buy and hold investing. As I start to put my long term plan together one issue is becoming more and more unavoidable: I live in the San Diego area and its hard(er) acquire property and to get cash flow going here!

So it seems I have a choice: I can start investing in a harder area (San Diego) where properties cost more and cash flow less, but where I know the area and am within driving distance of my rental properties. Or I can research and find a more favorable market far away to invest in where I know no one, but conditions will be more favorable.

What do you all think about buy and hold in your back yard vs buy and hold at a distance?

Which would be easier?

Which would be more profitable long term?

How does property management factor into all this?

Should I do a combination of both?

Are my underlying assumptions silly anyways?

I know you can be successful either way. I'm just trying to decide what would be best for me. I appreciate any thoughts you guys have.

Thanks!

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David Hutson
Rental Property Investor · Bartlett, TN · Member since 2013 · 404 posts · 421 votes
10y

My two cents is that it's very difficult to find good local deals (in CA) so I have moved to out of state.  I have 14 rentals.  The first 6 were here in CA and my last 8 (in two years with one closing today) have been out of state.  The profits are higher away from CA.  I would prefer to buy local so I can manage and drive by my properties but it's not worth it financially.

It's not going to be the same for everyone, depending on comfort level, experience, finances/ability for down payment, etc.

Which is easier depends on how involved you want to be.  I find my out of state properties to be easier since I don't manage them and even with them being out of state the returns are higher.

Property management should be at the top of your list when considering a home to buy.  You buy the house once but deal with the property management co until the home is sold.  It will make or break you.  Wherever you buy, investigate property managers prior to buying.  Find a good property manager prior to closing.  You can find recommendations for wherever you buy on BP.

If you have the cash to buy down there and are willing to "hope" for appreciation then it can be great.  I recommend you figure out what the end state is before you start looking.  What are the reasons you want to own property?  Where do you want to be in 5 years, 20 years, etc.  Start with the end in mind.

Good luck.

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  • Account Closed
    Teacher · Sacramento, CA · Member since 2015 · 82 posts · 21 votes
    10y

    Take this for what it's worth, because I'm a newbie too, but...

    1) I think it's easier to buy in your backyard because you know your market you can get a feel for your trends and you can actually see your properties on a regular basis.  You know what's affecting your communities and you can see the potential issues and changes that are coming.  I feel to do out of state buy and hold ownership means you need to have a lot of competent boots on the ground.  It's not impossible, people do it all the time, but you need to a) have people who know the market really well and can steer you in the right direction, b) people who can manage properties well (and without supervision or direction) and will keep on top of contractors for any rehab work that needs to be done).  It's hard to keep an eye on this when you're a 2 hour flight away.

    2) Home-court advantage on easiness, IMO.

    3) Either can be profitable.  I don't think California markets are particularly conducive to buy and hold right now (but again, total newbie, and I'm focusing on equity investing with family members).  I just haven't seen anything in which the numbers work really well (I could be completely wrong though, and I'm not great at the numbers at this point)!  Right now, I think there's more cash flow potential in other markets, but the problem is that cheaper RE doesn't mean better RE. 

    4) You need to factor Property management into you calculations unless you want to be a property manager.  AKA build yourself another job!  Finding good property managers can be hard, doubly so out of state.  How can you be sure of what they're doing when you can't even see your properties on a regular basis?

    5) I would get one property under your belt before you think about scaling your business up.  IMO you're putting the cart in front of the horse.  Starting out I think you should keep it local.

    1Reply
  • Account Closed
    Investor · Chicago, IL · Member since 2015 · 189 posts · 47 votes
    10y

    hey guys! You are in a tough market out there!I I did a wholesale deal buy and hold with a California investor a couple years ago and he loved the cash flow.in my opinion for out of state deals it's best to do a JV, thsfs your boots on Tbe ground..most importantly.you also need a fantastic funding source which I can share with you. if you are interested let's connect and discuss.

    0Reply
  • Michael Robertson
    OP
    Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes
    10y

    Thanks Clayton, that is pretty much what I was thinking. There's so many advantages to investing close, but my market is just not the easiest one. 

    0Reply
  • Account Closed
    Teacher · Sacramento, CA · Member since 2015 · 82 posts · 21 votes
    10y
    Originally posted by @Michael Robertson:

    Thanks Clayton, that is pretty much what I was thinking. There's so many advantages to investing close, but my market is just not the easiest one. 

     I'm planning on getting my feet wet out in the Sacramento Region and then working my way to buy/hold.  I'm going to take my vacations to go visit and connect with other BPers.

    0Reply
  • David Hutson
    Rental Property Investor · Bartlett, TN · Member since 2013 · 404 posts · 421 votes
    10y

    My two cents is that it's very difficult to find good local deals (in CA) so I have moved to out of state.  I have 14 rentals.  The first 6 were here in CA and my last 8 (in two years with one closing today) have been out of state.  The profits are higher away from CA.  I would prefer to buy local so I can manage and drive by my properties but it's not worth it financially.

    It's not going to be the same for everyone, depending on comfort level, experience, finances/ability for down payment, etc.

    Which is easier depends on how involved you want to be.  I find my out of state properties to be easier since I don't manage them and even with them being out of state the returns are higher.

    Property management should be at the top of your list when considering a home to buy.  You buy the house once but deal with the property management co until the home is sold.  It will make or break you.  Wherever you buy, investigate property managers prior to buying.  Find a good property manager prior to closing.  You can find recommendations for wherever you buy on BP.

    If you have the cash to buy down there and are willing to "hope" for appreciation then it can be great.  I recommend you figure out what the end state is before you start looking.  What are the reasons you want to own property?  Where do you want to be in 5 years, 20 years, etc.  Start with the end in mind.

    Good luck.

    2Reply
  • Gordon CuffePro Member
    Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
    10y

    I like David Hutson's thoughts. He has experience with out of state investing. He is correct in that the property manager is the most important person once you have closed. You just have to decide on what you want to accomplish with your rentals. In markets like St Louis and Kansas city ,you can buy a house where the rents can pay off the mortgage in 10 years with just 20% down on prices at 85k or less. You cant do that in CA anymore.

    Anybody who says that they want to drive by their rental probably hasn't owned a rental or owned one very long. It isn't fun driving by your rental. It is boring after awhile.

    If you decide to buy out of state just network with good investor friendly real estate agents or wholesalers, Find a home inspector, insurance agent and property manager.

    2Reply
  • Michael Robertson
    OP
    Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes
    10y

    Thanks so much for the input guys. I will weigh my options carefully for my first property, which is slated for spring next year.

    0Reply
  • Michael Robertson
    OP
    Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes
    10y

    FYI appreciation would be a great bonus, but I'm 100 percent in it for the cash flow (and equity i suppose). I'd like to live off it in the future.

    0Reply
  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    10y
    @Michael Robertson Welcome to  BP.

    I too prefer local investing. I am in Metro DC, so the market is just as crazy, but does cool off a bit further away. So instead of a 30-40 min drive its 2-3 hr drive, but still close enough that I can swing by the property often. And don't have to hop on a plane to do it.

    Have you looked at locations East of San Diego or North of LA? Before heading out of state, consider areas that are further away but drive-able (weekend trip).

    My two cents.

    Upen Patel, Mortgage Banker

    Federal NMLS# 1374243

    [email protected]571-200-6180
    0Reply
  • Chris Lengquist
    Broker and Property Manager · Olathe, KS · Member since 2008 · 16 posts · 3 votes
    10y

    I tend to go more along with what David and Gordon have written. Going for cash pretty much crosses anywhere in CA off the list, right? I don't know from personal experience.  Just by what dozens of CA investors have told me.

    Property management will be your key.  I'd spend at least as much time picking out the property manager as I would picking out the property(s).  Yes, the PM will cut in to your cash flow.  But they could also increase it by being aggressive, and at the very least, keep the actual cash flow in line with the expected cash flow...so long as the expected cash flow wasn't too dreamy. (Another pet peeve of mine.)

    0Reply
  • Derek Daun
    Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes
    10y

    The advantages of starting locally are the fewer knobs to turn in the machine. There are less things that can go wrong. The disadvantage is the higher risk of the more pricey markets. 

    You could consider starting your investment path locally, with the plan to diversify out of state once you have more experience. That is the path I have chosen in my home market of Sacramento. I currently have three properties, and hope to buy a couple more SFH in the area in 2016. After that I will likely start going out of state, and probably start selling off my local properties to turn that equity into better uses.

    I'll admit that strategy is probably harder in San Diego though.

    0Reply
  • Michael Robertson
    OP
    Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes
    10y

    I'm ok with property management cutting into my cash flow, especially at first. The way I see it if a company can do all the heavy lifting management wise to save me a few hours a month, I can use that time to more than recoup the cost of management by working my job more. I intend to have my main source of income be something other than real estate.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y

    Oh boy, opening Pandora's box, you are! Quite the famous debate.

    Personally, I've always bought out-of-state (I live up in LA). I like cash flow, lower entry-prices, I actually like not being able to drive by my properties (out of sight out of mind...just collect the money), and I think it's fun to bounce around with different markets. Owning in CA of course has some perks, but unless you are in it to solely play the appreciation game, you won't be seeing a lot of monthly cash flow (none) and you will be spending a good penny to keep the property....while waiting on the appreciation. If you are a cash buyer, that can be a different story, but if you have a mortgage on a property you are waiting to appreciate....ouch. 

    The answer to the question is: whatever you are most comfortable with, is the way to go! Regardless of numbers. But education on how the numbers differ is crucial for a better understanding of the options as well.

    0Reply
  • Gonz Trevino
    San Antonio, TX · Member since 2015 · 125 posts · 102 votes
    10y

    Here's an opinion (only an opinion)... 

    You might consider looking for properties that need work, and do the majority of the work yourself. If you can do that you can find a property significantly under market value and do the work yourself to get them up to speed. Maybe start by house hacking? You should do some research on this forum about that as well.

    Good luck!

    0Reply
  • Michael Robertson
    OP
    Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes
    10y

    Sounds like the BRRRR strategy. Very attractive to me but I don't have much in the way of rehab skill/experience. Still that is a great suggestion and one I will definitely consider for a strong appreciation market like SD.

    0Reply
  • Richard Goore
    Realtor · Sacramento, CA · Member since 2015 · 70 posts · 34 votes
    10y

    All great opinions here.  I don't think there is a right/wrong answer.  Michael - what about partnering with someone else who has larger funds to work with?   That's not me but that is what I am hoping to do as I get started.  I'm in Sacramento and even this market for good neighborhoods appears to be very tough.  I'm thinking about starting local (will figure it out somehow) then exploring outside CA after that.  

    Good luck!  Keep sharing experiences.  Would love to connect and hear what's happening with you (or anyone) to learn from others.  

    0Reply
  • Michael Robertson
    OP
    Sales · San Marcos, CA · Member since 2015 · 11 posts · 3 votes
    10y

    I love the idea of partnering, but get the sense that it is more effective for flipping or shorter term deals. If I had some one to partner with that shared my goals I would. But that still leaves the question: if I could get capital from a partner would it be best used in cali?

    0Reply
  • Account Closed
    Teacher · Sacramento, CA · Member since 2015 · 82 posts · 21 votes
    10y
    Originally posted by @Richard Goore:

    All great opinions here.  I don't think there is a right/wrong answer.  Michael - what about partnering with someone else who has larger funds to work with?   That's not me but that is what I am hoping to do as I get started.  I'm in Sacramento and even this market for good neighborhoods appears to be very tough.  I'm thinking about starting local (will figure it out somehow) then exploring outside CA after that.  

    Good luck!  Keep sharing experiences.  Would love to connect and hear what's happening with you (or anyone) to learn from others.  

     This is precisely what I'm doing in Sacramento.  My partner just so happens to be my mother.  Favorable loan rates at least!

    0Reply
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