New investor in Southern California. Need help with strategy

13 Replies

Hi everyone,

I've been lurking here for a while, but haven't been ready to take action until now.  I apologize up front if this post is disorganized, but I'm sure there are other people who are or have been in my shoes and can offer guidance.

About me: mid-30s, high-paying day job, telecommute and somewhat flexible hours, married with kids, own a duplex in Los Angeles county.  I have access to some capital but probably not enough to invest locally.

I want to build an empire.  My long-term goal is tens of millions in real property and hundreds of thousands a year in cash flow, so that money no longer an obstacle in life.  Not just for my family, but even my community, if I can achieve so much.  I want to leave a legacy of philanthropy.  I'm already known as a generous, hospitable person, but I want to be the guy that can handle any need of any person I know at any time without wondering what the impact to my own finances will be.  I want to care for unwed single mothers and pay their childcare costs.  I want to pay the salaries of people who work hard to make their communities better when the community itself can't afford to pay that.  Enough about that.  We all have our reasons, these are just a few of mine.

You all know LA county and Southern California in general has insane pricing for real estate. Here's my conundrum. I have access to enough capital ($110k cash, $140k HELOC) to make some good deals almost anywhere but here. I'm considering starting out somewhere cheaper, but I don't know where to begin. I hear good things about lots of up-and-coming cities (Indianapolis IN, Mesa AZ, Madison WI to name a few), but I know nothing about those markets, the culture of those towns, the good and bad areas, or even how to find a good property manager over there. Since I don't live in or near those places, I have no idea how to find good deals in those places since I have no network there. Down the road when I'm more comfortable I can see myself going out of state, but I don't think I want to for my first experience.

If I'm totally honest, I'm probably too risk-averse to make my first property(ies) outside of comfortable driving distance (max 3-4 hours), leading me to look in places like the high desert (Joshua Tree, Yucca Valley, etc) or mountain destinations like Lake Arrowhead/Big Bear. I'm attracted to the stability of SFHs and duplexes with long-term renters, though I hear vacation rentals can cash flow really nicely if you get 60%+ occupancy. I'm open to either, or another option if that's more profitable. Flipping scares me because I don't think you can flip properties that aren't local to you, and I can't afford to flip properties near where I live. Not yet, anyway. Honestly I'm way more attracted to buying something distressed in driving distance, put some cash into fixing it, re-fi to 75% LTV, and then cash flow for 30 years.

What would you do if you were in my situation?  Anywhere other than So Cal I'm basically loaded with options, but here I feel barely middle class with zero options for investing.  I'm not willing to move because my family and community are here and frankly, we love it here.  We also have a newborn and would like to remain in our current home with her at least for the next few years.

I'm willing to get creative, willing to get my hands dirty (as in demo/construction, not burying bodies...).  I'm great at money/math/analysis (my day job, senior analyst with 14 years exp), and my wife is a very good creative with an eye for design/aesthetics.  We're both hard workers.  

I admit that I have much trepidation about starting this.  I'm working on getting over it, but need any and all suggestions for alleviating that fear when so much cash is on the line.  Thank you all for reading.  Best,

Elliot

Hello.  I am a native of Joshua Tree.  I currently live in Irvine, most of my business is in LA, but in the past 15 months I've purchased and renovated three properties in Joshua Tree and run two of them as Airbnbs and one of them, a duplex, as a traditional rental property, but may convert it to vacation rental.  I go to JT every weekend to work on those properties and to look for new deals, of which I have a few in my pipeline.  I also very actively work to source off-market deals when possible.  My primary business is selling land in LA and the Inland Empire to homebuilders and other kinds of developers.  But I am slowly working to convert to the landlord side of the business as the years go on.  I'm starting to look at doing value-add multifamily deals, i.e. apartment buildings in the 4-20 units range, etc, so I'm learning about syndication.  Let me know if you want to network!

Hey guys, I too am a REI in the Inland Empire. I have done several of the things you have mentioned in your post. I have a VR in Big Bear that I have had great success with. I have flipped houses in CA as well as hung on to a few for long term rentals. Most recently I have focused my attention on investing out of state to get better return (cash flow) on my investment. If your at all interested in connecting let me know as I always like talking about real estate and making money.

Hey Elliott - I'm also based in SoCal.

I think there is a big fear when it comes to investing out of state. I've found that if you find an investment-centric broker, a lot of help will flow from that relationship. For instance, I've asked my brokers for recommendations for property managers, and sent those property managers homes I'm considering purchasing to get their opinion on the area. If you're feeling uncertain about putting your money in a "bad" market, these people will be key to helping you make a good choice.

I would try to focus on one market, if it's out of state, and learn as much as you can. I have set up Zillow alerts for certain areas and when I see new properties come on the market, I analyze them (there are some good videos on BP on how to do this). Then I look at a number of sources such as Trulia to see the crime in the area, and I'll also cross-reference rentals on the market (my strategy is buy and hold). It's also a good idea to look up unemployment and median income. I kind of put all this together when determining a "good" out of state area in which to invest.

There are lots of resources here on BP - if you have a lot of windshield time I really love the podcasts. Lots of different perspectives and strategies. There's also weekly webinars.

Beginning can feel overwhelming - I am definitely in that phase myself! I try to keep in mind it's a marathon, not a sprint. Take it a day at a time but always take some small action to get to your goals.

You can still do deals in CA, some cash, and some with leverage. I will give some examples below so you know to not limit yourself.

Deal recently in palmdale 90K acquisition, 30K rehab and holding costs, sold for 210k

Did a deal in 29 palms 35K acquisition, 35K rehab and holding costs, sold 110K. 

Did a deal in the sfv subject to, 50K investment, if I sold profit would be Est. 150K profit. 

Yes, some deals you will absolutely need more money to get into in certain parts of La, especially if the the rehab budgets are 100k+. 

Hi @Elliot Saks

I too am a local SoCal investor near the 2 Lake Elsinore posts above.  I am in a similar situation to you, and after a lot of research I decided to invest out of state and have been very happy with the results.  I know there are a lot of worries but all business models have issues to overcome but with a great PM even the hardest issues are pretty simple for us to work through.

I love REI so if you ever have questions or just want to talk let me know I love discussing investing.

Best of luck!

Com-

Hello @Elliot Saks

My husband and I are pretty much in the same spot, living in San Diego and looking at other places to invest. Setting up a team in a place we've never been is a challenge, especially for our first investment, but we are up for it to make a smart decision. I'm trying to cram as much information in my brain as is humanly possible while running our plumbing business in North County. While we are looking primarily in Texas right now, I have not given up hope that a good deal is out there in Southern California. 

I don't have any good advice to offer yet, but am working on getting the experience necessary to gain some. 

Good luck and if I can help let me know.

Hello Elliot, 

I am based in LA trying to start investing in Indy market as well. I am in a very similar situation to you and really had to spend a lot of time researching to gain the confidence (Still working on it) on what I need to do. I am now actively looking for properties in some areas that I like to focus on. 

I enjoy discussing about REI. Let me know if you want to discuss anything about investing!

-Danny 

Hi Elliot,

I recently embarked on my journey for financial freedom and started with out of state investments. Oddly enough, my financials are nearly identical to you.

It is a little daunting but I can say with confidence that BiggerPockets has been my primary forum for networking and that is how I found my team. It may or may not be necessary to meet up in person but I find getting involved and flying out to join the local real estate investor meetings has worked well also. You come across some good deals but you can also get that just by getting added to wholesaler buyer lists.

One thing that has worked well for me is joining the local REI Facebook groups where good deals are posted frequently. I stayed away from the MLS as the numbers weren’t as promising (for obvious reasons now, but did not know when I first started). I still have quite a bit to learn but as soon as deal #1 is done, your confidence starts to grow quickly.

On a side note, be prepared to get addicted to looking for deals and running numbers :)

Best of luck!

Chris

I just moved to Indianapolis from the West Coast (Portland, OR) and have been investing out here for several years prior. Finding your team on the ground can be a daunting task and unfortunately there are both uneducated investors as well as bad characters in any city. I would advise you to fly out, see the areas, meet the people, determine your goals and map out a plan of attack. Let me know if I can help, there's plenty of deals to be had and I love meeting new people! 

@Elliot Saks welcome to BP. I am from the Indianapolis area and have been living in Southern California for the past 3 years. I do all of my business back home in the Indianapolis market. I’d love to meet up and connect and discuss your strategy going forward. With the amount of Capitol you have access to there are some cash flow markets as is Indianapolis that you can definitely benefit from without spreading yourself so think and leveraging so much. If interested in connecting just shoot me a Personal Message and we can connect.

Hi @Elliot Saks -and everyone else on this thread- love the background story. I too am in a similar boat of living in SoCal and wanting to invest elsewhere- or locally if I can find a deal. Although, I do already have properties out of state and can say that if you have the right people in those locations, it isn't intimidating at all. I am originally from the Midwest and may be able to help connect you with some people in those areas, if you would like. I personally am  starting to look for my next investment (multifamily) in the areas like Vegas, Salt Lake City and Pheonix and would love to partner with the right people to purchase larger properties. Let me know if this is something that you are interested in. I would also love to connect with anyone else that likes to talk about real estate inventing as much as I do.  Hope to hear from you soon and have a great day. 

Aaron