Hi folks - I'm new to BP and to REI in general and am looking for some advice as I get started. I purchased my SFR back in 2007 (what terrible timing!) in Los Angeles county and plan to continue living here for the next few years, at a minimum. I'd really like to start investing conservatively in cash-flow-positive rental properties, while keeping my regular job, and with an eye towards retirement in 15-20 years. Unfortunately, I didn't have the reserves to invest during the last down cycle. Now that I do the SoCal market has of course rebounded. So, what's the best play for me right now?
@Justin M. finding properties here that cash flow and still have a decent cash on cash return can definitely be difficult. I have found myself investing in Palm Springs vacation rentals because of this.
... and to completely answer the other side of the question, I would avoid investing out of state. I also did that in Phoenix, which isn't actually that far from LA, but I found out the hard way that a 6 hour drive away makes a BIG difference. Everyone always advises that you need good "boots on the ground" to invest out of state, and this is VERY good advise, but most newbies underestimate just how difficult it can be to find and build such a team remotely. For example, I was already fairly experienced when I invested in Phoenix from LA, and I still had to go through 7 property managers before finding a competent one that wouldn't try to rob me blind, and each one of the 6 before the current one cost me thousands discovering that they weren't up for the job. My only saving grace is that I bough in 2009 and prices have since tripled, so I'm selling all my stuff in Phoenix today.
So, to summarize, I'd advise either keeping short investment timelines (flipping) locally if/when you can find deals with sufficient value add opportunity/margins OR save up, educate up, and wait until the local market shifts so you can find buy-and-hold where the cash flow works out again (eg: in the AV), but again always with a value add component too, because that and long-term appreciation is where you're going to make your money in SoCal.
david I am interested on seeing what you are selling I am buying cash flow properties.
Has anyone looked at Tucson, AZ? It's within driving distance to SoCal and the home values are dirt cheap. I imagine there are plenty of cash flow opportunities to be had. My partner and I hope to move to SD in May and will look at Tucson for investments.
Thoughts?
@Jessica W. @Matt R. @Gene Hacker
I have to agree with Gene on this. Being from Bakersfield, I know the major effect the oil industry has had on it. It sounds like the market may suffer very soon, as Chevron just announced that they are going to be cutting upward of 10,000 jobs. IMO this is going to really hit the rental market. A lot of young people flocked to Bakersfield for these solid paying jobs and the low cost of living.
@Dillon Bell Oil has absolutely had an effect. The thing to remember is oil is often traded on futures, so the real hurt in revenues will take place months after the price decline. Additionally, if the dollar keeps strengthening, prices might even go lower.
I have spoken to a few office brokers in Bakersfield and they've said they've seen office space being sub let by oil companies and they do not expect a bottom out until mid 2017.
Maybe around that time would be a good time to start to pick up some rentals in Bakersfield.
As far as rentals around CA, Fresno is more diverse than Bakersfield and is within driving distance from about anywhere in CA.
@Josh Justiniano Couldnt agree more... Seems like investing their now would be a gamble. Mid to late 2017 maybe.
Welcome to BP @Justin M.!
This is a great forum filled with expertise from across the board with a wealth of knowledge.
Admittedly I do not know the LA/CA market personally but I have worked with a number of investors from the area who have chosen to invest out of state simply for the immediate return and "bank for their buck". As I understand, the appreciation is fantastic there so that is certainly a positive attribute. But for immediate cash flow with minimal expenses there are plenty of outside markets where your dollar will go much further.
Feel free to reach out, I will be happy to discuss further with you and provide some additional information.
All the best!
I am a fan of So Cal residence investors investing in So Cal:
- I can still find properties that cash flow even using my cap expense that most people would consider conservative (I claim they are accurate). They do not flood cash (certainly they do not cash flow like Cleveland) but they are positive.
- There is an intimacy in the area you live that is comfortable. You should know the rents, vacancy rates, maintenance costs, property values, and any positive/negative events that could affect the market.
- Prop 13 protection is nice. My family had a property in Gulf Shores Alabama that the prop tax increase was incredible but the rental price had barely moved. A good investment became so-so and after 2 hurricanes was a poor investment. We no longer own that property.
- So Cal continues to have increased property values. It will always be a nice place to live with a finite amount of homes. In San Diego there is very little room for further construction. The property values could fall but due to supply and demand I expect them to always rebound.
I wanted to chime in here. I'm new to BP and to real estate investing and have been asking some similar questions. I live in Bakersfield and I recently went to a local Meetup, the leader of the meetup had similar comments to some above. The local market was softening due to oil prices and he expected to see a decline start to take place by the end of this year. He recommended buy and hold over wholesaling and flipping due to tightening margins.
It's hard to know what to do because I hate to buy high and then have the market drop but stocks are headed down as well so is it best to hold everything in cash and wait for a time to buy? I feel like speculating like that could put me off investing for 1-2years and I'd hate to prevent myself from jumping in and learning during that time.
It's possible to go out of state but being a total newbie I feel like there are a lot of potential pitfalls to that since my inexperience could get me into a situation I don't want to be in. My other thought was to try and house hack on a triplex or fourplex and even if the market does go down I'll still have a free place to live and that adds about $750 a month to my bottom line by eliminating my current rent. Minus whatever expenses I incur from the property. Also I get a crash course in land lording which I think would be valuable.
Best I can find in Bakersfield right now are rent to price ratios of around 1% and a cap rate of 6-7%. Maybe it's acceptable to take a slightly lower return on the first one as a learning experience? Although if I get my numbers wrong that means that I have less vision against mistakes as well.
Thanks for all the help and this is a great thread so far. Very helpful
Matt
@Justin M. From someone who lived in SoCal for years, invested in SoCal before the boom (circa 2012)... and then directed my investments back to the East Coast because prices got too high in SoCal (and then eventually moved back to the East Coast)... I can say this:
"I wish I invested more in SoCal because it has appreciated far much more than my properties on the East Coast".
Now, I have never sold a property and I am extremely happy with my good fortune, but I would be looking a whole lot better if I just stuck with it and found better opportunities while I was living out there. I just hope that I haven't missed my window... and there will be another SoCal recession. *fingers crossed*
If anyone in this thread is interested in visiting the Antelope Valley PM me and we can set up a tour:-)
in my earlier years, maybe house hacking would have been great for me earlier but never now (kids, wife etc). I looked a lot of places locally & aprreciation, though very entising, is a gamble. I grew up in fremont in the 90's & saw houses & land double every 5 yrs. so cali is mostly an aprreciation market. If you know the markets & trends & direction of expansion, go for it. I bought out of state because i liked consistent income. My $.02. There may be great deals in your backyard, but how long & how deep will you have to dig? Risk vs reward. Time vs money vs knowledge.
Great thread!
@Jon Huber Hope all is well. This is a common theme so I guess we all can join that hind site club.
I think I know where you are holding and that has just started to produce in many ways. No doubt your SOCAL holdings are well positioned for more positive future returns in the most serious way. If you ever come by something like that again don't hesitate to PM!
thanks,
Matt
@Matt R. great to hear from everyone, and I couldn't resist jumping in. All is well in sunny FL, although I do miss SoCal every day. I started a meetup here as well. And yes, Mar Vista has proven to be pretty fruitful, but I can not take the credit. Who knew Playa Vista would've exploded the way it has causing an affect on the whole area. I guess I got lucky... :)
That being said... I'm positioning myself for the next recession. In may be in 15-20 years, but I'll be ready. :) and then I'll be going, going... back, back.. to Cali, Cali!
@Jon Huber Right on. I think you are going to see one of the better returns long term on the planet. Lucky IDK....if luck means investing thousands of dollars in the right location then yes...you were and are lucky.
AV...meaning Antelope Valley? (too many pages of the chain to scroll through to catch-up) Yep, I lived in Lancaster for a bit. I don't recommend it as a place to invest in rentals because....as a complete side note to the other issues of lack of cash flow in most CA cities and tenant-friendly laws....my perception of Palmdale/Lancaster from when I lived there is this-- There are two...categories, if you will...of people living up there. I completely acknowledge the risk for over-generalization here, but it is what it is. There are locals, and there are aerospace people (due to the massive presence of the aerospace industry there). The aerospace people have to be there because of their jobs, regardless of desirability of the area, and they buy houses because of the affordability them (versus renting). That leaves, for renters, the locals. Because of that same affordability, the locals who are left renting are only doing so because they can't afford to buy a house...which isn't anything excessive compared to other SoCal cities. So, they can't afford it. Which puts them into the lower income bracket of renter pools. When you have a pool mostly of lower income, to that level, the risk factor increases greatly for tenant issues. (how's this all for PC phrasing?! lol) Therefore, I won't invest up there because the margin of cash flow isn't high enough to make up for the tenant risk, in my opinion. Tenant problems are bad enough in any state, but in CA they are even worse because of the laws.
As far as the future state of the AV...I don't see it really being ever any different. In fact, I'd say it's a risky place in itself because the main industry up there is aerospace, and if those companies ever started pulling out of there...that could crash the towns.
I sure hope you really did mean Antelope Valley....otherwise I just ranted on excessively for fun :)
Great question. Here's the thing. And this is getting into personal preference.
When I look at investments, I weigh out the reward vs. risk balance. I'm willing to accept minimum reward (say, minimum cash flow) if there is minimal risk associated. If something brings on a higher risk factor, I better be getting higher reward potential.
I say that, to say this--
If you find cash flow in CA, in whatever city, great. But remember, there are hidden risks associated with that....namely, in CA, tenant laws. If you get a bad tenant in one of your properties, you could quickly be out tens of thousands of dollars thanks to those laws (including fees to get them out, time of non-payment by them while you wait and they are squatting in the house, etc.). To me, that's a huge risk. So if I were to find a property in any of those cities, I guarantee the cash flow won't be so high that it makes up for the risk I take on. Again, complete personal preference. Low reward, high risk....not a combo I'm willing to go for.
Now, with that said, CA cities do have an inherent potential upside most markets don't offer...which is appreciation potential. A lot of cities have it, but CA cities notoriously take the cake on it. However, then if you start going city to city on that....Fresno and Sacramento and those won't see the same level of appreciation that SF or LA will.
So, it's all about looking at risk vs reward. Any investment opportunity should be broken down into the various aspects of their pros and cons in those departments, and weighed from there. The way Fresno and those guys breakdown, I'm not interested in them. Does that mean they won't be profitable? Nope. I have no idea, I just don't want to deal with them. Other people might want to, and that's totally cool.
All in preferences and comfort levels.
...... the locals who are left renting are only doing so because they can't afford to buy a house...which isn't anything excessive compared to other SoCal cities. So, they can't afford it. Which puts them into the lower income bracket of renter pools. When you have a pool mostly of lower income, to that level, the risk factor increases greatly for tenant issues. (how's this all for PC phrasing?! lol) Therefore, I won't invest up there because the margin of cash flow isn't high enough to make up for the tenant risk, in my opinion. Tenant problems are bad enough in any state, but in CA they are even worse because of the laws.
You're more PC than me. I make no apologies for my opinion of my experience with the tenant pools in CA areas where military/aerospace are pretty much the only employment. The areas around Vandenburg and Edwards are yucky. The military jobs don't make up for the rest of what's wrong. It's a class issue, plain and simple.
@Matt R.Tenant problems are bad enough in any state, but in CA they are even worse because of the laws.
I say that, to say this--
namely, in CA, tenant laws. ..... thanks to those laws
Ali I didn't think you were a landlord in CA. What are these "laws" that make you think investing in CA is so risky. The only people I see that get into trouble are people that benefit by buying under CA landlord laws but then think the tenant laws don't apply to them. CA is very landlord friendly. What other states provide a Cap on real estate taxes that would rival CA?
@Justin M. From someone who lived in SoCal for years, invested in SoCal before the boom (circa 2012)... and then directed my investments back to the East Coast because prices got too high in SoCal (and then eventually moved back to the East Coast)... I can say this:
"I wish I invested more in SoCal because it has appreciated far much more than my properties on the East Coast".
Now, I have never sold a property and I am extremely happy with my good fortune, but I would be looking a whole lot better if I just stuck with it and found better opportunities while I was living out there. I just hope that I haven't missed my window... and there will be another SoCal recession. *fingers crossed*
I went to Florida in 2010 to look for deals. We looked on the gulf side all the way down to Fort Meyers and found about 12 properties that we thought would be really good deals. We talked ourselves out of buying any of them but kept on eye on a few and realized that almost all of them more than doubled in price in just a few years. These were all on the barrier islands so that may have made a difference too, but I doubt it. Hindsight is 20/20.... Anyone that works those area's full time, I bet would agree with me.
@Ali Boone I think 30% of AV is LA commuters. They might be more stable. I know there is a bit of section 8 that some landlords tap into out there too. Perhaps if you hit the 1% to start like mentioned it pencils out.
Lol...I'm not even going to respond to your assumption I was renting when I was there.
As I always say, to each their own in any investment anyone wants to do. Palmdale/Lancaster doesn't do it for me for the reasons I stated, and as far as picking through looking for a renter's pool....I figure why strain so hard to find good renters when other places have more obvious, bigger pools of them? If the returns were awesomely high in the AV, that'd be another story. But you won't hit the 1% rule there, the cap rates will be low compared to other cities in the US, tenant rules suck, there's literally ONE industry supporting that city....and a fairly volatile one at that, and appreciation potential up there is low compared to the bigger CA cities.
So, why bother? I don't care if you want to, I just don't want to for myself. No interest in trying to shove a square peg in a round hole.
If you have the capacity to manage your own property, I would look to properties within a 2 hour drive radius. Properties don't cash flow as much in California as other states because people are investing based on appreciation.
I don't like investing out of state because it means added costs in terms of hiring a property manager and flying back and forth looking at deals. I would never buy a property without being very familiar with the neighborhoods so flying to the state where you plan on buying is a necessary expense. In the end you have higher expenses for investing.
What I have done is buy in parts of California like Stockton and Sacramento where the properties have higher cash flow than Silicon Valley. When I started my properties were not cash flowing much but with added appreciation (in rent and property value) over the past three years it's looking much better.
@Ali Boone I assumed you were renting because you usually say you would never buy anything in Cali. No biggie and there is nothing wrong with renting if you were or not. Not really the issue other than sharing that personal experience in AV. I can understand what you are saying about markets. It would be nice to hear your other market suggestions that are superior to AV.