Sacramento, CA vs. Little Rock, AR

22 Replies

My husband and I are trying to determine the most viable market for us to get more involved in REI. We are primarily looking into two metro areas: Sacramento, CA and Little Rock, AR. Here is the summary from our prospective. We're hoping you can help us out with additional insight.

Sacramento Pros: We live here, can network easily/do some of the due diligence in person, have a better change of the properties appreciating 

Sacramento Cons: We don't know as many people in the industry, the contractor we like is booked 3+months out for larger projects which doesn't seem uncommon for the area, we have demanding/long hour day jobs that would limit the amount of sweat equity equity we can put in, higher barrier to entry/ability to scale with our capital (due to contractor timeline, competition, price point etc.)

Little Rock Pros: We used to live here and have a number of contacts in the area including a realtor that we trust, the price point is low enough that we could scale quicker by not having so more tied up in a single property, favorable landlord laws

Little Rock Cons: Appreciation is almost non-existent at least in the neighborhood we used to live in (which is tied to top schools), we aren't close enough to do any of the leg work/would have to rely on others/wouldn't be experiencing the trends the same way as living in the area, a chunk of the networking would have to be done from afar vs. in person

Thanks in advance!

You have laid out most of the options so it comes down to what you want to get out of the property, a $500k house in CA vs 5 $100k houses in AR is the same investment amount.  Yes saying 5 houses seems like more scale but it is really only an advantage when dealing with vacancy.  Do you want cash flow now or are you willing to wait for it depending on how much you put down.  If you plan on doing rehab you need to put at least 20% down plus the rehab which can complicate things for many people.  Just some more things to think about.

@Jean Marx   here is my .20c and it may through you out thinking but feel free to ask more questions.

Sacramento: Get out there and network/ form new relationships through meet ups and local REIA. Find a new Referral for Builder.

Price point can be an issue if you let it be, if you buy right and add value you should be able to refinance your money out and repeat the process. (check out my blog about the BRRRR strategy)

The Cons are not an excuse, i understand you have busy life, we all do.

Little Rock: sounds like you could start working there regardless, anyway you are saying that you are very busy and will not be able to be hands on as much in Sacramento. 

OK so capital gain is slower, that's why we do the BRRRR strategy, add value, manufacture the equity.

You can learn to invest from out of area, i been doing it for over a decade, don't let it hold you back. 

In addition to that you could possible work the 2 markets, if you set up the systems and teams on the ground.  Note: i wouldn't recommend working more then 2 markets.

Originally posted by @Aaron K. :

You have laid out most of the options so it comes down to what you want to get out of the property, a $500k house in CA vs 5 $100k houses in AR is the same investment amount.  Yes saying 5 houses seems like more scale but it is really only an advantage when dealing with vacancy.  Do you want cash flow now or are you willing to wait for it depending on how much you put down.  If you plan on doing rehab you need to put at least 20% down plus the rehab which can complicate things for many people.  Just some more things to think about.

Some of the draw to AR is the vacancy, the ability to purchase immediately without taping into other equity, and that cashflow looks like it would be easier to obtain (but we still have to do a little more research to confirm and it's dependent on the deal). We are anticipating the properties to have at least some rehab work. Additionally, we are taking into account that we're learning and it might be nice to make our mistakes on cheaper properties :)

Originally posted by @Hadar Orkibi :

@Jean Marx  here is my .20c and it may through you out thinking but feel free to ask more questions.

Sacramento: Get out there and network/ form new relationships through meet ups and local REIA. Find a new Referral for Builder.

Price point can be an issue if you let it be, if you buy right and add value you should be able to refinance your money out and repeat the process. (check out my blog about the BRRRR strategy)

The Cons are not an excuse, i understand you have busy life, we all do.

Little Rock: sounds like you could start working there regardless, anyway you are saying that you are very busy and will not be able to be hands on as much in Sacramento. 

OK so capital gain is slower, that's why we do the BRRRR strategy, add value, manufacture the equity.

You can learn to invest from out of area, i been doing it for over a decade, don't let it hold you back. 

In addition to that you could possible work the 2 markets, if you set up the systems and teams on the ground.  Note: i wouldn't recommend working more then 2 markets.

Thanks for the response! We have just started networking in CA. The meetup type groups/guest speakers have definitely been helpful. We haven't had much luck on the new contractor hunt but we've just started our search and plan to keep at it. On the busy note, we are definitely not alone or wanting to use that as an excuse :) It's more to point out that even local, we'd probably have to hire out the most of the work vs. doing it ourselves.  

Originally posted by @AJ Singh :
@Jean Marx Are u doing flips or value add play for rentals

I think Little Rock Market has appreciated thirty percent last three years 

I Doubt that... that's 10% per year, I haven't seen it in the last 2 years I been in Little Rock.

Any thought of going back to Arkansas to retire? If so, you might think about investing there. It is one of the cheapest retirement areas in the country. But that is partly because of the low property values. 

Originally posted by @AJ Singh :
@Jean Marx Are u doing flips or value add play for rentals

I think Little Rock Market has appreciated thirty percent last three years as in Memphis and Mississippi suburbs.

We are doing value add. We're also not opposed to flips. We're just really getting started from the investment perspective and beginning to network/reach out to our connections. I don't know that it's 30%, but to be fair to LR, it is more than non-existent. The house that we currently have there is in a suburb verses Little Rock itself and was bought by my husband in 2006/2007 from more of a consumer mindset. On the plus side, the forced rental has been good to us and got us to get more serious about REI.

Originally posted by @Vivek Khoche :

@Jean Marx- You are comparing apples and oranges. I own in CA and Memphis TN.

Good Luck

Vivek

Most definitely! That is where the challenge has been (the fact that the areas are so different). We may very well work in both markets. However, at the moment we're trying to determine where to spend our energy first.

Originally posted by @Susan Maneck :

Any thought of going back to Arkansas to retire? If so, you might think about investing there. It is one of the cheapest retirement areas in the country. But that is partly because of the low property values. 

That's a good question/thought. We loved our time there but retirement in AR (or CA) is unlikely. I'm a bit of a Montana girl at heart. However, we'll have to see where our adventures take us unless I can sell my husband on the cold winters.

Its simple really... 

If you want to invest for appreciation, invest in Sacramento...  If you want to invest for cash-flow, invest in Little Rock or other Midwest communities.  The best cash-flow deals are in the Midwest in B/C and blue collar neighborhoods, not necessarily in the AA or A neighborhoods with the best schools.  I live in an AA neighborhood, but I hold zero other properties here.  All my cash-flow properties are in B/C & blue collar neighborhoods or communities.

If you are thinking long term perhaps Sacramento will have more profits overall and eventually the cash flow would surpass LR too. LL laws favor LR big time although that may not be an issue unless you have crappy tenants. Good luck with your search!

@Hadar Orkibi

i was using the same appreciation values as investors have experienced in Memphis metro areas since little rock is not that far from Memphis. 

what ever inventory was bought three years ago in memphis B neighborhoods has definitely risen 30% as long as not in bad zipcodes. 

@Jean Marx

i would definitely choose Little rock for cash flow but would not invest in ca right now unless off market opportunity. Cap rates are very low in CA. Brokers are selling multifamily on Proforma values rather than actual rents. Be wary and patient

Good Luck!

Originally posted by @AJ Singh :

@Jean Marx

i would definitely choose Little rock for cash flow but would not invest in ca right now unless off market opportunity. Cap rates are very low in CA. Brokers are selling multifamily on Proforma values rather than actual rents. Be wary and patient

Good Luck!

 Thanks AJ!

Originally posted by @Dave Cranford :
@Jean Marx Sacramento and never look back . (Granite Bay ) If you can find something . I own property in Texas and Florida as well as the Sacramento area . Many San Fran transplants are relocatIng to the area Dave

 Thanks Dave! I appreciate the input, especially with the varied markets that overlap some of what we are looking at.