Newbie from Torrance, California

Phoenix, AZ · Member since 2016 · 15 posts · 5 votes

Hi BP community!

My name is Kaitlyn and I'm a newbie from the Torrance, South Bay area of Los Angeles. I have been listening to the podcast for a couple months now. Josh and Brandon are awesome so I had to check out the site. I more recently started reading real estate books and BP blogs. I find myself most interested in buy and hold investing for retirement. I am in my final year of a Ph.D. program, so I'm waiting to finish and save up some money before buying property. In the meantime, my goal is to learn as much as possible about REI. If there are any experienced investors in my area, I would love to meet you for lunch or coffee sometime (my treat, of course!). I also want to say a big thank you to all of you who have spoken on the podcast; your knowledge and experience is invaluable.

A question for real estate investors in California: I have realized the many cons of buy and hold investing in this county and state. Are any of you holding property in California? If so, do you recommend it for new investors? I wanted to house hack with a multi-family property but now I'm thinking buying out of state may be a smarter move.

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Matt Mason

Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes

10y

Kaitlyn,

At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.

As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.

You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.

Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.

Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.

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Darin Owens
Sunset Beach, CA · Member since 2016 · 2 posts · 0 votes
10y
Hi, My name is Darin. I live in Suset Beach Ca. I own property in both Ca. and out of state. If I was just starting out in Real Estate investing now I would be looking into out of the country, Argentina is one of my favorites right now. I also like Costa Rica, Panama, Belize. It may seem a little different for you but I assure you in my opinion you can achieve outstanding returns on your investment. If you have time I can meet with you and discuss more about why I recommend concidering foreign real estate.
0 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
Hey Kaitlyn! I'm just up from you in Venice. Ooh, very cool on the Ph.D. What's it going to be in? I'm finishing a second Master's now....not sure I could have survived Ph.D.!
As far as better here or out-of-state, it completely depends on what you are looking for. If you want straight monthly cash flow, you'll have to go out-of-state. If appreciation potential is fine for you, investing here is cool (although be careful of where we are in the market cycle right now). House-hacking is definitely an option but don't expect to see positive cash flow each month...it's more of just appreciation potential bit and saving yourself from having to pay rent to someone else's pockets. And then the last consideration is your budget. SoCal is obviously pretty high-priced.
The reality is that what you pay for one property here, you could buy several cash-flowing properties out-of-state (assuming you go to the right state(s).
But, all depends on what you want and what is the most important to you. Some people just won't be able to sleep well at night if they buy out-of-state, at which point it's not worth doing...even if they are losing money here every month.
Cash flow has always been my jam, so I've always done out-of-state. And I was lower capital when I got started, so it was much easier to buy elsewhere.
2 Reply
David Varvaro
Lender · Hermosa Beach, CA · Member since 2015 · 70 posts · 32 votes
10y
Hi Kaitlyn, I am a real estate agent and investor here in the South Bay. I would recommend house hacking a multi-family here and then investing out of state for cashflow. This way you get the best of both worlds - you have someone help pay your mortgage on your own property while getting a better ROI on your out of state investments.
0 Reply
Vincent Guerrero
Professional · Covina, CA · Member since 2016 · 56 posts · 15 votes
10y
for those looking to house hack, if the rent you are paying is less than you'd charge, stay where your at and just rent it out.
0 Reply
Kevin Wong
Commercial Mortgage Banker · Los Angeles, CA · Member since 2016 · 36 posts · 10 votes
10y
Originally posted by @Darin Owens:

Hi, My name is Darin. I live in Suset Beach Ca. I own property in both Ca. and out of state. If I was just starting out in Real Estate investing now I would be looking into out of the country, Argentina is one of my favorites right now. I also like Costa Rica, Panama, Belize. It may seem a little different for you but I assure you in my opinion you can achieve outstanding returns on your investment. If you have time I can meet with you and discuss more about why I recommend concidering foreign real estate.
Hey Darin, do you own property in Costa Rica? What are the ownership laws there for US citizens? I would love to own property there, it seems like most of it that's rented is to tourists. Is primarily a yield driven investment?
1 Reply
Matt Mason
Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
10y
Kaitlyn,
At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.
As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.
You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.
Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.
Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.
7 Reply
Eric F.
Investor · Long Beach, CA · Member since 2014 · 22 posts · 12 votes
10y
capital gains > cash flow
I think it's something like 80% of all money made in real estate is made from capital gains, not cash flow. Cash flow helps, but isn't as exciting or profitable.
2 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
Originally posted by @Kaitlyn Masai:

Hi BP community!
My name is Kaitlyn and I'm a newbie from the Torrance, South Bay area of Los Angeles. I have been listening to the podcast for a couple months now. Josh and Brandon are awesome so I had to check out the site. I more recently started reading real estate books and BP blogs. I find myself most interested in buy and hold investing for retirement. I am in my final year of a Ph.D. program, so I'm waiting to finish and save up some money before buying property. In the meantime, my goal is to learn as much as possible about REI. If there are any experienced investors in my area, I would love to meet you for lunch or coffee sometime (my treat, of course!). I also want to say a big thank you to all of you who have spoken on the podcast; your knowledge and experience is invaluable.
A question for real estate investors in California: I have realized the many cons of buy and hold investing in this county and state. Are any of you holding property in California? If so, do you recommend it for new investors? I wanted to house hack with a multi-family property but now I'm thinking buying out of state may be a smarter move.
Welcome to BP! Since you understand using research, REI is no different. Matt Mason is right. According to Corelogic the top 3 cities nationally for total returns ( cash flow plus equity) since 2000 are LA, SF and San Diego. Matt Mason has an Ivy League degree if that helps. I have bought both local and out of state. I recommend holding and house hacking if you can in LA. I know dudes who hit jackpots (1000%) with just that one investment move. I wish I had done that when I was your age. Perhaps one might ask how many want to sell their out of state but it is a negative impact or even a challenge. Long term you don't hear that too much in LA or most of Cali usually. Either way it is mostly about exact location, many exceptions can exist.
As Matt points out there are many advantages being local and numerous disadvantages being 2k miles away. If you are buying good area apt buildings 2k away that's another story maybe. I know a guy who lives in Sweden and kills it. He invests in good areas in LA.
Good luck with your search!
1 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Matt Mason:

Kaitlyn,
At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.
As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.
You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.
Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.
Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.
Hi Matt, I wanted to take up the other side of this a little bit. I'm researching Turnkey companies, so my angle is from there. I think the counter question for "Why aren't local people buying in those out of state markets?" is Why aren't Turnkey companies buying in California ??? They can go anywhere, and purposefully avoid CA. Heck, the one I really like are HEADQUARTERED in California, and don't sell in that market !!!! That tells me a lot.
You waited 5 years for your CA investment to match out of state deals ? I personally would have taken 5 years of better cash flow. 60 months worth of net rent ?
I am in the middle of a LONG Probate case in California. Do you know the major hang up ? Neither side can get a handle on proper retail value of the house. The retail price recently went down $31,000 dollars in 30 days ! There are WILD swings in home values in CA. Most investors want some kind of stability in order to not go bingo bongo trying to do a deal. It may be cyclical in CA, where no one can forecast the cycle either BTW, but you guess wrong and buy in during the wrong cycle and its bye bye birdie for an investor. I'm sure there are savvy investors making money out there. Just like there are maverick stock buyers and hedge funds, short sellers, etc. Not everyone's cup of tea.
0 Reply
Darin Owens
Sunset Beach, CA · Member since 2016 · 2 posts · 0 votes
10y
Hi Kevin,
Yes I do own property and rent property in Costa Rica. I have a condo on the Coast and one inland. You own the property outright, there laws are similar to here, with some differences as far as has property escrow goes and rental laws. It has been a great investment for me. One important aspect that I have found in Costa Rica, like anything else is who is it helps to be tied in with the right people. I do a lot of work for the the Costa Rican government on there education and curiculum development, I have good contacts with great people there including one of there respected economist. If you have more questions then please don't hesitate to ask.
0 Reply
Matt Mason
Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
10y
Originally posted by @Charles Lemelle:

Originally posted by @Matt Mason:
Kaitlyn,
At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.
As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.
You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.
Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.
Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.
Hi Matt, I wanted to take up the other side of this a little bit. I'm researching Turnkey companies, so my angle is from there. I think the counter question for "Why aren't local people buying in those out of state markets?" is Why aren't Turnkey companies buying in California ??? They can go anywhere, and purposefully avoid CA. Heck, the one I really like are HEADQUARTERED in California, and don't sell in that market !!!! That tells me a lot.
You waited 5 years for your CA investment to match out of state deals ? I personally would have taken 5 years of better cash flow. 60 months worth of net rent ?
I am in the middle of a LONG Probate case in California. Do you know the major hang up ? Neither side can get a handle on proper retail value of the house. The retail price recently went down $31,000 dollars in 30 days ! There are WILD swings in home values in CA. Most investors want some kind of stability in order to not go bingo bongo trying to do a deal. It may be cyclical in CA, where no one can forecast the cycle either BTW, but you guess wrong and buy in during the wrong cycle and its bye bye birdie for an investor. I'm sure there are savvy investors making money out there. Just like there are maverick stock buyers and hedge funds, short sellers, etc. Not everyone's cup of tea.
Turnkey companies are not in many cities in the US. Except for some in Texas, they seem to concentrate in low growth areas. You won't find them in Denver, Seattle, Portland, DC, Boston, etc... either. I wouldn't necessarily say those are all bad markets.
The turnkey cos tend to go after newbies in expensive markets trying to get in on their first property and while the initial cash on cash returns look good, I have my doubts on many achieve these returns over the long term. In fact, there was a forum a while back asking people who had turkeys over a long period about their experience and almost no one spoke up, which I thought was telling.
On the other hand I've seen quite a few people who bought turnkey, complain about tenant quality, evictions, vacancy, excess maintenance costs, etc... At least in the Bay Area and LA and the tighter markets I mentioned above, your units won't ever sit vacant from lack of demand and you get professional tenants that would their own houses in lower cost markets. Unless you price incorrectly, you are talking days or a week or two of vacancy at most. Even during the Great Recession, rents barely dipped here.
You are right if all you care about is cash flow for the next few years, then the OP should maybe think about turnkey. However, if she takes a longer term view and wants to learn more about real estate, she should house hack locally IMHO.
2 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Matt Mason:
Originally posted by @Charles Lemelle:

Originally posted by @Matt Mason:
Kaitlyn,
At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.
As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.
You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.
Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.
Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.
Hi Matt, I wanted to take up the other side of this a little bit. I'm researching Turnkey companies, so my angle is from there. I think the counter question for "Why aren't local people buying in those out of state markets?" is Why aren't Turnkey companies buying in California ??? They can go anywhere, and purposefully avoid CA. Heck, the one I really like are HEADQUARTERED in California, and don't sell in that market !!!! That tells me a lot.
You waited 5 years for your CA investment to match out of state deals ? I personally would have taken 5 years of better cash flow. 60 months worth of net rent ?
I am in the middle of a LONG Probate case in California. Do you know the major hang up ? Neither side can get a handle on proper retail value of the house. The retail price recently went down $31,000 dollars in 30 days ! There are WILD swings in home values in CA. Most investors want some kind of stability in order to not go bingo bongo trying to do a deal. It may be cyclical in CA, where no one can forecast the cycle either BTW, but you guess wrong and buy in during the wrong cycle and its bye bye birdie for an investor. I'm sure there are savvy investors making money out there. Just like there are maverick stock buyers and hedge funds, short sellers, etc. Not everyone's cup of tea.
Turnkey companies are not in many cities in the US. Except for some in Texas, they seem to concentrate in low growth areas. You won't find them in Denver, Seattle, Portland, DC, Boston, etc... either. I wouldn't necessarily say those are all bad markets.
The turnkey cos tend to go after newbies in expensive markets trying to get in on their first property and while the initial cash on cash returns look good, I have my doubts on many achieve these returns over the long term. In fact, there was a forum a while back asking people who had turkeys over a long period about their experience and almost no one spoke up, which I thought was telling.
On the other hand I've seen quite a few people who bought turnkey, complain about tenant quality, evictions, vacancy, excess maintenance costs, etc... At least in the Bay Area and LA and the tighter markets I mentioned above, your units won't ever sit vacant from lack of demand and you get professional tenants that would their own houses in lower markets. Unless you price incorrectly, you are talking days or a week or two of vacancy at most. Even during the Great Recession, rents barely dipped here.
You are right if all you care about is cash flow for the next few years, then the OP should maybe think about turnkey. However, if she takes a longer term view and wants to learn more about real estate, she should house hack locally IMHO.
"The turnkey cos tend to go after newbies in expensive markets trying to get in on their first property..." I have seen just the opposite. They are selling houses at low price points, so you don't need as big of a down payment. I've seen a lot of properties between 40k and 350k at Turnkey companies. The majority seem to be 80k-140k. These same properties in CA would be sky high. They look for for price points that also have high Rent numbers in the area. 1% rule is very very common, usually a tad higher. 100k home for 1100 month rent, etc.
We do agree that House Hacking is a great investment vehicle no matter what. Thanks for exploring these topics with me. Cali is too expensive and too volatile for myself, but to each is own.
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
Originally posted by @Charles Lemelle:

Originally posted by @Matt Mason:
Kaitlyn,
At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.
As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.
You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.
Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.
Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.
Hi Matt, I wanted to take up the other side of this a little bit. I'm researching Turnkey companies, so my angle is from there. I think the counter question for "Why aren't local people buying in those out of state markets?" is Why aren't Turnkey companies buying in California ??? They can go anywhere, and purposefully avoid CA. Heck, the one I really like are HEADQUARTERED in California, and don't sell in that market !!!! That tells me a lot.
You waited 5 years for your CA investment to match out of state deals ? I personally would have taken 5 years of better cash flow. 60 months worth of net rent ?
I am in the middle of a LONG Probate case in California. Do you know the major hang up ? Neither side can get a handle on proper retail value of the house. The retail price recently went down $31,000 dollars in 30 days ! There are WILD swings in home values in CA. Most investors want some kind of stability in order to not go bingo bongo trying to do a deal. It may be cyclical in CA, where no one can forecast the cycle either BTW, but you guess wrong and buy in during the wrong cycle and its bye bye birdie for an investor. I'm sure there are savvy investors making money out there. Just like there are maverick stock buyers and hedge funds, short sellers, etc. Not everyone's cup of tea.
Some turnkey companies are HQ in California because that's where the money is. There is no other correlation to the local value in Cali. What one is typically presented with are proforma numbers on turnkeys. There is no history to those numbers on paper. Some might call that pure speculation. When we take your recent 60 month example head to head I think you will find out Cali blows the out of state numbers away. Let's just say it is not even close that way. There are supply and demand fundamentals at play that likely don't exist in most turnkey markets is why. If we are comparing one month to one month that is too short of an investment time frame in a buy and hold cycle. Buy and hold investors hold for years not months. It is a bigger picture deal to creating bigger pockets despite what some marketers try to push. Matt's point on why locals don't buy these if they were so great is absolutely accurate. Only someone non local would pay those prices. A local would know better and the obvious advantage to being local or knowing a value when it comes along is usually a local game.
I am not saying don't buy turnkey but if one wants to compare to the averages on returns to LA, SF or San Diego historically there is a very clear mathematical answer. The swings go up and up and not down long term. My background is in market research and I have nothing to sell you other than facts:)
1 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
"Matt's point on why locals don't buy these if they were so great is absolutely accurate.".............................But you never answered why Cali the Great Investor Frontier doesn't offer Turnkey properties............hmmmmmmm..................
Great Cali value of 800k homes that have 2500 dollar rents ???? So never mind 2% rules, or 1% rules. We want to do 0.25% rules ? No thanks.
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
Originally posted by @Charles Lemelle:

"Matt's point on why locals don't buy these if they were so great is absolutely accurate.".............................But you never answered why Cali the Great Investor Frontier doesn't offer Turnkey properties............hmmmmmmm..................
Great Cali value of 800k homes that have 2500 dollar rents ???? So never mind 2% rules, or 1% rules. We want to do 0.25% rules ? No thanks.
There are actually turnkey companies that invest in LA. They don'the need to advertise or call themselves turnkeys, they call them investments. They typically can hit the 1% still. I am not trying to convince you...just sharing what I know.
1 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Matt R.:

Originally posted by @Charles Lemelle:
"Matt's point on why locals don't buy these if they were so great is absolutely accurate.".............................But you never answered why Cali the Great Investor Frontier doesn't offer Turnkey properties............hmmmmmmm..................
Great Cali value of 800k homes that have 2500 dollar rents ???? So never mind 2% rules, or 1% rules. We want to do 0.25% rules ? No thanks.
There are actually turnkey companies that invest in LA. They don'the need to advertise or call themselves turnkeys, they call them investments. They typically can hit the 1% still. I am not trying to convince you...just sharing what I know.
I don't think its against the rules to name them on here. If not, you could PM me the names. I'd like to check them out. Thanks, Matt
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
Originally posted by @Charles Lemelle:

Originally posted by @Matt R.:
Originally posted by @Charles Lemelle:

"Matt's point on why locals don't buy these if they were so great is absolutely accurate.".............................But you never answered why Cali the Great Investor Frontier doesn't offer Turnkey properties............hmmmmmmm..................
Great Cali value of 800k homes that have 2500 dollar rents ???? So never mind 2% rules, or 1% rules. We want to do 0.25% rules ? No thanks.
There are actually turnkey companies that invest in LA. They don'the need to advertise or call themselves turnkeys, they call them investments. They typically can hit the 1% still. I am not trying to convince you...just sharing what I know.
I don't think its against the rules to name them on here. If not, you could PM me the names. I'd like to check them out. Thanks, Matt
Right on. Check out OceanDevelopment dot com. They have been doing this for 20 years in LA.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Charles Lemelle People who invest in So Cal and San Francisco area are not investing for monthly cash flow but for appreciation. I have purchased units that at time of purchase had negative cash flow using my cap expense numbers (-0.2% maybe). Historically those area (So Cal and San Fran)and their appreciation has clobbered the cash flow areas.
To give you an idea for my properties, every one that I have owned at least 3 years has returned better than 10% compounded annually on initial investment and my longest goes back to 1992. Homes I bought in 2011-2012 with $30K to $45K down have over 100% annual compounded return (cash flow + appreciation). I realize buying today is very unlikely to perform similar to the properties I purchased in 2011 and 2012 but I am just using those to show the extreme on what appreciation can do.
Maybe So Cal is at a market high and is not likely to go up in the short term. Well that unit I purchased in in 1992 was close to market high and has returned over 10% compounded annual return. A unit purchased in 2003 was close to market high and it has returned over 10% compounded annual return.
The great recession's impact on my REI. I lowered one rent $50. There were a lot more people looking to rent than there was before the great recession (when many were looking to buy).
You are correct that no one knows what the future market wise or rent wise will be but if the past is any indication those that invest in So Cal will do better than virtually everyone that invests out of state.
I currently am looking at properties were I can obtain instant equity because I predict an appreciation growth in my market (San Diego county) of <3% over the next couple years (3% at 25% down still would give 10% return) and I want better. I figure rents will go up about >5% in my market for the next couple of years which also will help. But if I can purchase a place and get an instant doubling of my investment either because of rehab, buying below market, or more extensive project then that is how I hope to home run in what I speculate will be a lower appreciating market for So Cal.
I do understand those that invest for cash flow. It can work. Appreciation has historically done better.
Good luck
1 Reply
Matt Mason
Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
10y
Originally posted by @Charles Lemelle:

Originally posted by @Matt Mason:

Originally posted by @Charles Lemelle:
Originally posted by @Matt Mason:

Kaitlyn,
At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career. House hacking is a great way to start in CA as you will learn a lot quickly. You may not want to live next to your tenants long term, but you don't have to live there forever. I know a lot more people who are successful now that started house hacking over going out of state.
As far as buying a few small properties out of state, I think there are a lot of problems. One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on. You still have to manage your manager or asset manage your properties. That is much tougher from afar and you better subtract occasional travel costs from your returns. A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.
You have to think of your exit strategies too. Who are you going to sell to? Another out of state investor? If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs. If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated? Not easy from long distance.
Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively. I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13. Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better. However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot. The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.
Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them. I'd always ask myself on these out state deals why isn't someone locally buying this. Just my 2 cents.
Hi Matt, I wanted to take up the other side of this a little bit. I'm researching Turnkey companies, so my angle is from there. I think the counter question for "Why aren't local people buying in those out of state markets?" is Why aren't Turnkey companies buying in California ??? They can go anywhere, and purposefully avoid CA. Heck, the one I really like are HEADQUARTERED in California, and don't sell in that market !!!! That tells me a lot.
You waited 5 years for your CA investment to match out of state deals ? I personally would have taken 5 years of better cash flow. 60 months worth of net rent ?
I am in the middle of a LONG Probate case in California. Do you know the major hang up ? Neither side can get a handle on proper retail value of the house. The retail price recently went down $31,000 dollars in 30 days ! There are WILD swings in home values in CA. Most investors want some kind of stability in order to not go bingo bongo trying to do a deal. It may be cyclical in CA, where no one can forecast the cycle either BTW, but you guess wrong and buy in during the wrong cycle and its bye bye birdie for an investor. I'm sure there are savvy investors making money out there. Just like there are maverick stock buyers and hedge funds, short sellers, etc. Not everyone's cup of tea.
Turnkey companies are not in many cities in the US. Except for some in Texas, they seem to concentrate in low growth areas. You won't find them in Denver, Seattle, Portland, DC, Boston, etc... either. I wouldn't necessarily say those are all bad markets.
The turnkey cos tend to go after newbies in expensive markets trying to get in on their first property and while the initial cash on cash returns look good, I have my doubts on many achieve these returns over the long term. In fact, there was a forum a while back asking people who had turkeys over a long period about their experience and almost no one spoke up, which I thought was telling.
On the other hand I've seen quite a few people who bought turnkey, complain about tenant quality, evictions, vacancy, excess maintenance costs, etc... At least in the Bay Area and LA and the tighter markets I mentioned above, your units won't ever sit vacant from lack of demand and you get professional tenants that would their own houses in lower markets. Unless you price incorrectly, you are talking days or a week or two of vacancy at most. Even during the Great Recession, rents barely dipped here.
You are right if all you care about is cash flow for the next few years, then the OP should maybe think about turnkey. However, if she takes a longer term view and wants to learn more about real estate, she should house hack locally IMHO.
"The turnkey cos tend to go after newbies in expensive markets trying to get in on their first property..." I have seen just the opposite. They are selling houses at low price points, so you don't need as big of a down payment. I've seen a lot of properties between 40k and 350k at Turnkey companies. The majority seem to be 80k-140k. These same properties in CA would be sky high. They look for for price points that also have high Rent numbers in the area. 1% rule is very very common, usually a tad higher. 100k home for 1100 month rent, etc.
We do agree that House Hacking is a great investment vehicle no matter what. Thanks for exploring these topics with me. Cali is too expensive and too volatile for myself, but to each is own.
Turnkey companies go after newbies who live in expensive markets. Some turnkey marketers are headquartered in CA, because they need to find investors for their often overpriced deals.
You would really give up a ton of equity for increased cash flow in years 1-3? If you find mismanaged properties in LA where you can do some nice returning value add projects you will have both appreciation and in a few years cash flow better than you will get on anything turnkey.
With turnkey you don't have much of a viable exit. Everybody is focused on initial cash flow, which is often over marketed and overstated that they have no plans for their investment 7-10 years down the line. I suggest almost everyone take a long look at their local market first and see what they can do before going out of area. Doesn't matter to me though so best of luck to those doing so.
2 Reply
Ron B.
Los Angeles, CA · Member since 2014 · 12 posts · 5 votes
10y
Hi Kaitlyn,
Welcome to BP ! I am also a new RE investor from Torrance and it's always good to see another RE investor from here. Like you, I started with the BP podcasts and have found them to be an invaluable resource in learning about RE. Even though there is an obvious survivorship bias to the podcasts, I have found them to be excellent in shortening that learning curve.
These days, I find myself spending a lot of time on the BP forums and reading the blogs. In fact, given the range of investors you will find here, there is hardly any topic that is not discussed. I would say that most of what you will find in RE books have been covered in the blogs/forums, although reading books also help as the information is arranged in more digestible format.
As for investments, I have been looking at deals both in CA as well as out-of-state ( your dollar stretches further outside CA). I have been talking to some investors/partners in LA as well as out of state and will probably invest in my first RE deal soon. Even though my ultimate goal is to own cash flow properties, the expected returns on the properties I have looked at until now haven't been that great ( I prefer to own properties in A/B locations and not C/D) , once you dig deep into the numbers ( be careful of pro-forma numbers provided by sellers, brokers or turn-key providers). So for now, I have been considering investing in most flipping/rehab deals.
Good luck with the house-hacking and feel free to reach out anytime.

0 Reply
Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
10y
The question you need to ask is Why? Why are properties in other states going for so much less? Supply and demand drives the price of housing. In areas such as southern California where we have perfect year round weather, all of the Forbes list companies have offices, high tech, low tech, manufacturing, medical centers, universities galore, amusements, sports venues, zoos, beaches, etc. there is ALWAYS going to be a high demand, thus higher prices. The closer to the beach you get the higher the prices will go.
However; the workforce is well paid, and it's a broad based economy. We have very low unemployment compared to other areas. ALL of those things factor into what drives values, and appreciation.
Sure you can go to another state with a high unemployment rate, terrible weather for much of the year, and little hope for economic growth, and buy a cheap house that might cashflow. Unfortunately in areas like that with no economy, once rents reach the peak for what the rental market can bear, then what? If by some chance the area does have some type of economy, and demand begins to rise for rental units, then a developer comes in, buys some cheap land, puts in some new units and there goes your cash flow! Of course developers building units spurs construction spending for a time, which feeds into every other type business in a town and things can be great, but eventually, it ends.
When you're looking at real estate you want to look at the big picture. What is causing the depressed prices? What is the local economy? Do people have a lot of spendable income? Is the economy based on one sector or broad based? Is it seasonal? Are people moving to or away from the area? What is the drawing point for the area?
I always advise people to stick close to home where you KNOW your local market. You know the trends, neighborhoods, etc., because doing anything else; and you are relying on someone else's knowledge of their area or worse yet, someone that has no connection to the area at all except selling you property there, and why trust them more than yourself?
1 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Karen Margrave:
The question you need to ask is Why? Why are properties in other states going for so much less? Supply and demand drives the price of housing. In areas such as southern California where we have perfect year round weather, all of the Forbes list companies have offices, high tech, low tech, manufacturing, medical centers, universities galore, amusements, sports venues, zoos, beaches, etc. there is ALWAYS going to be a high demand, thus higher prices. The closer to the beach you get the higher the prices will go.
However; the workforce is well paid, and it's a broad based economy. We have very low unemployment compared to other areas. ALL of those things factor into what drives values, and appreciation.
Sure you can go to another state with a high unemployment rate, terrible weather for much of the year, and little hope for economic growth, and buy a cheap house that might cashflow. Unfortunately in areas like that with no economy, once rents reach the peak for what the rental market can bear, then what? If by some chance the area does have some type of economy, and demand begins to rise for rental units, then a developer comes in, buys some cheap land, puts in some new units and there goes your cash flow! Of course developers building units spurs construction spending for a time, which feeds into every other type business in a town and things can be great, but eventually, it ends.
When you're looking at real estate you want to look at the big picture. What is causing the depressed prices? What is the local economy? Do people have a lot of spendable income? Is the economy based on one sector or broad based? Is it seasonal? Are people moving to or away from the area? What is the drawing point for the area?
I always advise people to stick close to home where you KNOW your local market. You know the trends, neighborhoods, etc., because doing anything else; and you are relying on someone else's knowledge of their area or worse yet, someone that has no connection to the area at all except selling you property there, and why trust them more than yourself?
Hi Moderator,
I think you have to guard against your living in So. Cal, so you think its the norm. It's not. Believe me. There's a big Country out there. What you are referring to is economies of scale. I was born and raised in So Cal, and moved to rural North East. So I believe I can speak to both directly. I believe a lot of the draw for many investors is money--their money, how much they have, and how much they are able and willing to risk. I buy a Indianapolis Turnkey property at 100k, it costs me 20k for a downpayment. That same home in So Cal we can pretend would be 500k, that's 100k downpayment. Not only won't most investors have that much, some may not be willing to risk it. That same 100k downpayment would buy the Indy house free and clear. You would still have a mortgage payment of over 2000 dollars for the So Cal one. Rent money in Indy might be 1100 a month with no mortgage. The So Cal high rent would be eaten by the mortgage payment.
Further, I could borrow about 80k on the Indy house to leverage for more investments. The So Cal one wouldn't even be eligible for a loan.
0 Reply
Sydney Hall
Home Stager · San Luis Obispo, CA · Member since 2016 · 312 posts · 49 votes
10y
good morning kaitlyn, welcome! newbie here too. just wished to introduce myself. formerly from washington, dc, i'm just getting started in the staging arena in california and i'm looking to make some connections as well. thanks and sincerely, sydney
0 Reply
Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
@Kaitlyn Masai I'm in CA also. The biggest downside to CA for many is that it is very hard to get any cash flow. On the other hand, the upside appreciation potential can be great. Personally, I think if house hacking is an option for you and you can do it long term, that could be a great strategy. You might not have cash flow but your tenant is paying your housing expense while you're reaping the appreciation. Be careful though. Many markets in CA have reached peak price and rent levels and could start seeing some softening later this year.
0 Reply
Robert L.
Ventura, CA · Member since 2016 · 97 posts · 43 votes
10y
Hi Kaitlyn, welcome to the BP community. I'm a fellow newbie. I love the discussion you have going here. One of these days there should be a SoCal Meetup. Not to exclude Northern Cali, but it seems there are so many investors in just SoCal, that we could probably fill up a place easily. All the best to you with your PhD and investing plans!
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