BP, help me pick a city for Buy and Hold!

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BP, help me pick a city for Buy and Hold!

Denny Moody
Investor · San Diego, CA · Member since 2014 · 17 posts · 5 votes

Hey BP,

I live in San Diego, CA and would like to invest out of state. I like the idea of investing OOS because it means my investments will have to be passive and it gives me the whole country to choose from. The downside of having the whole country to choose from is it can be somewhat overwhelming. After spending some time researching various markets around the country and getting overwhelmed, I figured it wouldn't hurt to ask BP for suggestions. 

Here's the deal:

- Looking to invest this fall when I will have approx $50k cash to invest

- I also have approx $200k in equity in primary residence that I can tap into with HELOC

- interested in properties ranging from $50K - $200K

- Interested in buy and hold properties with >10% COC return

- Prefer landlord friendly cities, ideally with low property taxes

- open to SFR or small multi

BP, what cities would you recommend I take a closer look at?

P.S. I'm not interested in hearing how I should be flipping or wholesaling in my hometown. I'm only interested in Buy and Hold at this time, and even the war zone neighborhoods in SD don't cash flow.

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Andrew FidlerBusiness Member
Real Estate Broker · Toledo, OH · Member since 2011 · 384 posts · 434 votes
9y

Denny, I agree with Rebecca...the water is warm, jump in!

You can buy turn key or you can buy foreclosed and renovate or pickup some of the auctions I've seen come across lately for investor-owned fully operational properties. There are a thousand ways to get involved in this town!

I am a buy and hold investor like yourself, happy to show you around if you come to down or answer any questions you have...of course when it comes time to buy I'd love to be your realtor as well.

[email protected]419-410-3836
LaPlante Real Estate
WebsiteView Page
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  • Thomas Breedlove
    Jacksonville, NC · Member since 2016 · 13 posts · 4 votes
    9y
    Jacksonville NC the numbers work out great on almost every property you can find and there is a constant flow of tenants and no shortage of cash because of marines being paid to live off base.
    1Reply
  • Michael Ramos
    Orange County, CA · Member since 2016 · 33 posts · 13 votes
    9y

    @David Faulkner, Im new to this as well and curious why you advise new investors to always look in state for buy/hold at this point in the market. We are well beyond 2008 sales prices and many are foreseeing a correction on the horizon. I admit that I benefitted well with appreciation but that was 2012 and this is now. What's your "secret" CA buy-hold advice? I'm sure you're not playing for standard COC returns at this point.

    2Reply
  • Maxwell Lee
    Real Estate Investor · Miami, FL · Member since 2013 · 474 posts · 214 votes
    9y

    I advise you to stay relatively close to you. Also if there are any markets where you already have trusted contacts those would be a bit more favorable. Oklahoma has some good cash-flow markets like OKC and Tulsa. Kansas City also looks pretty good. 

    FWIW I have no experience in those markets but I have researched them to some degree and would be interested if I were a little closer. 

    0Reply
  • Andrey Y.
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Michael Ramos:

    @David Faulkner, Im new to this as well and curious why you advise new investors to always look in state for buy/hold at this point in the market. We are well beyond 2008 sales prices and many are foreseeing a correction on the horizon. I admit that I benefitted well with appreciation but that was 2012 and this is now. What's your "secret" CA buy-hold advice? I'm sure you're not playing for standard COC returns at this point.

    There is no "secret" advice. 'Cash flow' can be a dangerous play when there is no profit (equity growth). I think the idea is, if you buy now and there is a correction say in 2018, you can hold longer term and end up with a greater ROI down the road.

    I would be buying in SF or SD myself but I don't think I can scale appropriately with SFHs, in ANY market.

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Michael Ramos:

    @David Faulkner, Im new to this as well and curious why you advise new investors to always look in state for buy/hold at this point in the market. We are well beyond 2008 sales prices and many are foreseeing a correction on the horizon. I admit that I benefitted well with appreciation but that was 2012 and this is now. What's your "secret" CA buy-hold advice? I'm sure you're not playing for standard COC returns at this point.

    I'm playing the long game ... I don't know nor do I care so much what happens over the next year or two ... I do have confidence that I know based on multi-decades of history and long term supply and demand fundamentals what will happen over the next decade or so. That is what I care about, and I'm positioned conservatively enough to practically guarantee that I can make it there and still do well even if my predictions don't pan out. Heads I win big, tails I win small, but the house always wins, and I'm the house by design. If I can't stack the deck in my favor in this way, then I don't play the game. Much harder to stack a deck of cards that you've never played with that is shuffled by others thousands of miles away. No secret, just hard work, patience, and discipline.

    1Reply
  • Michael Ramos
    Orange County, CA · Member since 2016 · 33 posts · 13 votes
    9y

    @Andrey Y., @David Faulkner.  Got it and I hate speculating but one just can't ignore the market when starting out! If I put all my eggs in one basket in a SF or MF and the market dips next year, where does that leave me? How can I scale from here? It took around 7-8 years to get back to these levels and I'm probably just close to breaking even with the property.  Maybe another reason why I'm noticing many flippers in the market.   

    0Reply
  • Carrie Cavins
    Keller, TX · Member since 2017 · 57 posts · 18 votes
    9y
    Andrew Fidler I'm sure many more experienced people would balk at the hand shake for keys but I think it's admirable.
    1Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Michael Ramos:

    @Andrey Y., @David Faulkner.  Got it and I hate speculating but one just can't ignore the market when starting out! If I put all my eggs in one basket in a SF or MF and the market dips next year, where does that leave me? How can I scale from here? It took around 7-8 years to get back to these levels and I'm probably just close to breaking even with the property.  Maybe another reason why I'm noticing many flippers in the market.   

    There are literally a million and one ways to make money in REI, but they all start with finding a great deal that you can afford. If you find a great deal that you can afford, you are insulated to some degree from the short term market fluctuations, and can afford to hold through a downturn to make it to the longterm, which looks beautiful for investors in SoCal IMHO ... and if there is no short term dip your ROI is even better by doing things this way ... heads you win big, tails you win small. Learn to put in the hard work to find such deals, and have the patience and discipline to walk whenever you don't find that and the world is your oyster ... and that is not just in CA or San Diego, but everywhere, only it is MUCH easier to pull off locally than OOS. If you don't immediately have the skills or know how to do that, then you can try to earn while you learn in a part or full time RE job and/or network with locals to see what you can learn from them. You will get better as you go too ... I'll be the first to admit that I was a dumb kid that knew nothing about REI and payed retail for my first place, but I got lucky on timing and was smart enough not to over extend, so in the long haul I still did very well even though I too held through the downturn. It was a little blip on the radar in the longterm view of things ... good luck. Sorry if this response gets a bit off the original topic, but think the advice is still applicable to the OP and many others ...

    1Reply
  • Eric Delcol
    Investor · Tampa, FL · Member since 2016 · 334 posts · 215 votes
    9y

    A poll I created yesterday might help you make your decision -

    It shows what cities other members on BP are investing in:

    https://www.biggerpockets.com/forums/311/topics/421479-poll-w-results-what-cities-are-investors-primarily-invested-in

    3Reply
  • Grant Diggles
    Professional · Portland, OR · Member since 2017 · 21 posts · 16 votes
    9y

    @Denny Moody, @Jeff Wallenius makes a good point. You may want to considered the BRRRR method to reach your real estate goals. Using this method you can possibly move much quicker in getting where you want to go while maximizing the use of your cash. I'm surprised this hasn't been mentioned more in this post yet. Ping me if you don't know how this strategy works and want to understand how it might be a good fit for you.

    In consideration of more traditional turnkey options both @Engelo Rumora and @Tom Ott both offer unique solutions that may be a good fit.

    Happy Investing

    2Reply
  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    9y

    Dave is 100 percent correct. You must buy what you can afford and think on a long term basis. Those that do not will get hurt. Make sure you have a cushion and an outside source of income and buy in a market where the population is larger and there is a diversification of jobs.

    [email protected]
    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    Hey Denny! I'm in SoCal too, but in LA, so same situation for cash flow (i.e. none). There are plenty of good markets out there.

    Unlike some of the suggestions, I'm not all that down with most of the Ohio cities. Ohio or Detroit, not so much. Memphis either, but for different reasons (it's prime was a few years ago and there's some dynamics going on there now with the hedge funds selling off the properties they bought and it's not very favorable to investors, plus there is higher cash flow elsewhere). Similar with Atlanta- was great, now it's kind of spent.

    I wrote an article that talks about what I look for in a market (good call on the options being huge when you are looking at the whole country)-

    https://www.biggerpockets.com/renewsblog/2015/12/2...

    Happy to chat markets anytime!

    1Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    9y
    Originally posted by @Grant Diggles:

    @Denny Moody, @Jeff Wallenius makes a good point. You may want to considered the BRRRR method to reach your real estate goals. Using this method you can possibly move much quicker in getting where you want to go while maximizing the use of your cash. I'm surprised this hasn't been mentioned more in this post yet. Ping me if you don't know how this strategy works and want to understand how it might be a good fit for you.

    In consideration of more traditional turnkey options both @Engelo Rumora and @Tom Ott both offer unique solutions that may be a good fit.

    Happy Investing

    Thanks for mention mate

    Podcast Guest on Show #89
    Oz Realty4.5369 Reviews
    WebsiteView Page
    1Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    9y

    @Denny Moody I also Invest in PUEBLO, CO. It is perfect! I buy houses for around $50K. That's $15,000 down with closing costs. Mortgage is around $350/month PITI. Rent around $850-$950 no problem. There are not enough rentals in pueblo. There are not enough rental in Colorado as it is. This is the cheapest area in Colorado to Invest and be in a Main City. I love the cashflow. Here is a little Pueblo Secret... most people make close to Minimum wage, at around 8-9hr. Since the law is changing, all these people will be making $15/hr by 2020. That's only 3 years away. This will drive rents WAY Higher, and i expect Pueblo to fall in line with property values in Colorado Springs. This will make them worth about Double!... Just my Opinion on it. I own property in Denver that i'm selling to Invest more in This market. i own 11 properties, with 8 of them being in Pueblo, CO.

    3Reply
  • Bryan Wilson
    Colorado Springs, CO · Member since 2017 · 74 posts · 41 votes
    9y

    @Robert Herrera you finding any trouble with certain areas in Pueblo?  I live in Colorado Springs and have been looking at Pueblo for sometime, but have always had some reservations since it always seems to be on the uptick before something sets it back as a city all over again.  

    Would love to connect with you and chat about your approach in Pueblo.  

    1Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    9y
    Bryan Wilson I invest all over Pueblo. South Side, east side, west side. Doesn't matter. Well it kinda matters. Under 4th st on the east side is a little more crime and trash area. Above that is just fine. This isn't the Pueblo from years past. With the marijuana here, most of my renters are from out of state, and the dynamic has changed for the better. 10,000 people a month moving to Colorado. Most can't afford Denver prices. Default to southern Colorado. No rentals. I'm charging $950/month on and east side 3br house. Message me for more information. Also go to PuebloRiverWalk .com. Don't go to the .org as it is not a good site. Watch the videos there to get some insight into Pueblo.
    2Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    9y
    Originally posted by @Denny Moody:

    Hey BP,

    I live in San Diego, CA and would like to invest out of state. ...

    P.S. I'm not interested in hearing how I should be flipping or wholesaling in my hometown. I'm only interested in Buy and Hold at this time, and even the war zone neighborhoods in SD don't cash flow.

    by the way I see buy n hold RE close all the time that have cash flow with conservative expected expenditures in non war zone neighborhoods.  But I did not post this to convince you to invest in San Diego but to correct a common perception of many people.   The trick is simply knowing what type of properties are intended to cash flow.  

    Good luck with your OOS buy n hold investing.  

    0Reply
  • Thomas Parsley
    Real Estate Agent · Jacksonville, NC · Member since 2016 · 27 posts · 7 votes
    9y

    @Denny Moody Jacksonville, NC is a great place for buy and hold with some great returns. Always a constant flow of new renters with money to spend for housing. Other cities near here that area also great are Holly Ridge, and Hampstead. SFR in Onslow county have some great cash flow however there are not a lot of Multi Family Deals available. Let me know if I can help. And if you don't mind have a double-double from In-n-Out for me! I miss San Diego.

    0Reply
  • Bill Pate
    Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes
    9y

    I own six properties with seven units in the Cleveland area and surrounding suburbs. From the time of listing the property for lease until finding a qualified tenant I usually average two to three weeks of vacancy time. Personally I use Smartmove by Transunion for the initial screening, and then follow-up with a check on income and cleanliness. Buy properties that allow you to keep the rents on the lower side of the market while still making a good COC return. Especially in the Cleveland market demand continues to remain strong in my opinion. In the 10 years I have been renting properties there has never been a vacancy longer than one month. Like people said keep a well maintained clean property, a simple easy to understand lease, and manage the property well. My returns are 12.5% COC at the lowest and 40% at the highest.

    1Reply
  • Denny Moody
    OP
    Investor · San Diego, CA · Member since 2014 · 17 posts · 5 votes
    9y

    @Dan H.Are these properties financed? I see you specialize in small multis in Escondido. Looks like these type properties' RTV is somewhere around 0.5% (at least with what's currently available on MLS). Just a newbie here, but it's hard for me to imagine that these type of properties would cash flow with conventional financing at current prices. Seems you would need a 50% discount on the retail price to achieve 1% RTV.

    @Robert Herrera Thanks for the recommendation on Pueblo. I'll take a look.

    @David Faulkner I think you have some great points and appreciate your sober perspective. I would love to invest in SD but I can't afford to make a half million dollar investment that will be cash flow negative for the next decade. The reason I'm focused on cash flow is to increase current income. I have my SD house and significant index fund portfolio that should provide long-term wealth building. But with a baby on the way and my wife quitting her job, I'm hoping to develop another stream of income besides my 9-5.

    @Matt R.  excellent point about inflation eating away at value of rents, if rents stay level. 

    0Reply
  • Stephen Flynt
    Alpharetta, GA · Member since 2015 · 44 posts · 23 votes
    9y
    Originally posted by @Robert Herrera:

    @Denny Moody I also Invest in PUEBLO, CO. It is perfect! I buy houses for around $50K. That's $15,000 down with closing costs. Mortgage is around $350/month PITI. Rent around $850-$950 no problem. There are not enough rentals in pueblo. There are not enough rental in Colorado as it is. This is the cheapest area in Colorado to Invest and be in a Main City. I love the cashflow. Here is a little Pueblo Secret... most people make close to Minimum wage, at around 8-9hr. Since the law is changing, all these people will be making $15/hr by 2020. That's only 3 years away. This will drive rents WAY Higher, and i expect Pueblo to fall in line with property values in Colorado Springs. This will make them worth about Double!... Just my Opinion on it. I own property in Denver that i'm selling to Invest more in This market. i own 11 properties, with 8 of them being in Pueblo, CO.

    @Robert Herrera, what lenders have you found that will originate a $35K loan ($50K - $15K down)?  Thanks!

    0Reply
  • Ozzy SmithPro Member
    Specialist · Dayton, OH · Member since 2014 · 352 posts · 265 votes
    9y

    @Denny Moody I specialize in finding deals and assisting out of state investors with putting the right pieces in place here in Dayton OH.  I live and invest here and believe you can't make more money anywhere else in the country from a cash flow standpoint.  Feel free to get in touch with me anytime with questions and I can show you some of the past deals I have done with other investors or myself.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    9y
    Originally posted by @Denny Moody:

    @Dan H.Are these properties financed? I see you specialize in small multis in Escondido. Looks like these type properties' RTV is somewhere around 0.5% (at least with what's currently available on MLS). Just a newbie here, but it's hard for me to imagine that these type of properties would cash flow with conventional financing at current prices. Seems you would need a 50% discount on the retail price to achieve 1% RTV.

    @Robert Herrera Thanks for the recommendation on Pueblo. I'll take a look.

    @David Faulkner I think you have some great points and appreciate your sober perspective. I would love to invest in SD but I can't afford to make a half million dollar investment that will be cash flow negative for the next decade. The reason I'm focused on cash flow is to increase current income. I have my SD house and significant index fund portfolio that should provide long-term wealth building. But with a baby on the way and my wife quitting her job, I'm hoping to develop another stream of income besides my 9-5.

    @Matt R.  excellent point about inflation eating away at value of rents, if rents stay level. 

    The thing about duplex to quads in my area (I post less often my area) is looking at what is available on the MLS does not provide comps (or provides comps only worthy of wiping your ***). Look at the duplex to quads sold in my market over the last 6 months. Figure a 5% conventional non owner occupied loan (with recent rate increases unfortunately this is the number that I am currently using when evaluating a property). Figure ~$250/unit per month cap expense (typical size detached area rentals - increase if larger than normal). Figure ~$100/month unit maintenance if self managed but using handyman (less if you do the work yourself). Figure 5% vacancy if self-managed.

    I suspect if you take the time to do this exercise you will be surprised.  This exercise by itself may convince you that there are some alternatives to OOS.

    I am not a fan of the rules that are based on rent or property cost to figure your overall ownership cost.  A 3/2 that rents for $1K in Ohio has virtually the same cap expense as my 3/2 in my area that rents for $2200.  Ditto the maintenance is mostly unrelated to the rent or unit cost but more based on footage, bathrooms, tenant, quality of materials used, etc.  Vacancy costs do make sense being based off the rental price but my vacancy costs are in reality far less than the 5% that I use in my calculations.

    I will state I can make a case to convince you the value of investing local but your initial post indicated you were uninterested (if you are interested let me know even though I do not need more competition :=)). So I only addressed the factuality of your statement. If you indicated cash flowing SFR are difficult to find in safe San Diego neighborhoods I would not have bothered with a reply.

    If you take the time to do my proposed exercise PM me and let me know if you think I am wrong about the current duplex to quad MLS listings in my area being worthless. Let me know if you gained any insight. I suspect you will be surprised.

    BTW I have much of the information of the exercise and know what you will see.

    Good luck

    0Reply
  • Catherine Peters
    Investor · Denver, CO · Member since 2017 · 42 posts · 17 votes
    9y
    Originally posted by @Robert Herrera:

    @Denny Moody I also Invest in PUEBLO, CO. It is perfect! I buy houses for around $50K. That's $15,000 down with closing costs. Mortgage is around $350/month PITI. Rent around $850-$950 no problem. There are not enough rentals in pueblo. There are not enough rental in Colorado as it is. This is the cheapest area in Colorado to Invest and be in a Main City. I love the cashflow. Here is a little Pueblo Secret... most people make close to Minimum wage, at around 8-9hr. Since the law is changing, all these people will be making $15/hr by 2020. That's only 3 years away. This will drive rents WAY Higher, and i expect Pueblo to fall in line with property values in Colorado Springs. This will make them worth about Double!... Just my Opinion on it. I own property in Denver that i'm selling to Invest more in This market. i own 11 properties, with 8 of them being in Pueblo, CO.

    @Robert Herrera not sure why I can't get your name to come up so I can link it so apologies for that. Just curious what your average cash flow is per unit after Capex and property management, etc. Do you use a property manager and if so, have you found a good one? Since this is two hours from Denver, I would think that would be a given. Really interested in your strategy!

    0Reply
  • Dan Johnson
    Real Estate Agent · Playa Del Rey, CA · Member since 2016 · 14 posts · 4 votes
    9y
    Hi Denny Moody look into Grand Rapids MI. My wife and I just bought our first rental. Taxes are a bit high but our COC is pretty good after all expenses. You may want to reach out to our agent Jake Thomas he was very knowledgeable and very helpful through our transaction. Good luck!
    0Reply
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