BRRRR Investing in Southern California

25 Replies

Hi All,

I'm just starting my real estate investment journey. I don't have too much experience yet, but I've been a mortgage banker for some time so I have a decent base knowledge.

I was wondering if anyone could give me some advice on investing in southern California (I'm in Orange County). The rent/price ratios are terrible and so far it seems like even if I can find the perfect BRRRR deal, the rent will barely cover the PITI (at least for SFR). So right now I'm trying to search for 3-4 units in LA and Orange county, but does anyone have any other areas they would suggest I search in? I'm really willing to look anywhere in SoCal.

Also, any advice on long-distance investing would be great as well. I'm beginning to think that would be my best option and I'm searching around the country for good areas to buy in. I feel comfortable finding a good realtor and property management company in an out-of-state area, but I'm definitely nervous about buying a fixer-upper and trusting a local contractor to rehab it. Anyone have experience with this? Any advice? 

Thanks in advance for your help!!

It's hard to make numbers work in SoCal (or anywhere in CA) unless you plan to buy and hold for 5+ years and cash in on the appreciation. I do like the idea of looking out of state. First thing is to READ READ READ. Find 3-4 areas (cities/counties) you want to invest in. Call local agents and PM. Tell them what you are looking for and see if they think it could work. Ask them if they have contractors they work with to give you bids. Also find 3 more contractors on your own to give their bids. Compare work needed and costs. Make sure you have your agent and/or PM checking in on them. Understand that people will F*** you over, but that is part of the business so go in with eyes open.

Good luck

Originally posted by @Kevin Luttrell :

Hi All,

I'm just starting my real estate investment journey. I don't have too much experience yet, but I've been a mortgage banker for some time so I have a decent base knowledge. 

I was wondering if anyone could give me some advice on investing in southern California (I'm in Orange County). The rent/price ratios are terrible and so far it seems like even if I can find the perfect BRRRR deal, the rent will barely cover the PITI (at least for SFR). So right now I'm trying to search for 3-4 units in LA and Orange county, but does anyone have any other areas they would suggest I search in? I'm really willing to look anywhere in SoCal.

Also, any advice on long-distance investing would be great as well. I'm beginning to think that would be my best option and I'm searching around the country for good areas to buy in. I feel comfortable finding a good realtor and property management company in an out-of-state area, but I'm definitely nervous about buying a fixer-upper and trusting a local contractor to rehab it. Anyone have experience with this? Any advice? 

Thanks in advance for your help!!

Hi Kevin, 

I'm about to purchase my 1st investment here in California & the best I've found is .8 rent-price ratio. Best deals I've seen is on Duplex or Quadruplex. For SFR's .5-.6 ratio is most common from what I've seen. What I'm focusing is on houses on distress that have a garage or enough space to add a bedroom and then remodel the house with the minimum necessary. Only then I can break-even. In my case I'm doing this local to learn but then I'm planning on Investing out of state as standard ratios in the Midwest are 1.3% from what I was just looking 1 hour ago.
Challenge will be to find a reliable team, boots on the ground...

@Kevin Luttrell   Welcome to BP.  I would begin by checking out some local meetups here in Orange County.  There are usually several people who attend those groups that are investing out of state.  I don't do out of state investing myself and mostly just concentrate on flipping here in the OC.  Educating yourself first will go a long way to accomplishing your goals.

Good investing...

You're really not going to find cash flow anywhere in SoCal. For long-distance, there's really two ways you can do it-

https://www.biggerpockets.com/...

I've always gone the turnkey route myself (I'm in LA/Venice and buy long-distance), but plenty of people on here do the DIY route. For that one, I hear David Greene's book is great. But that is more with rehabbing and such. The turnkeys don't have any of that, that's why I like them.

Hope that helps!

@Kevin Luttrell

Hi Kevin,

I'm in the same boat as you. In Fullerton and hungry to invest, but none of the numbers make sense in LA/OC. I saw some off market stuff recently in OC/Riverside but again, the numbers don't make sense. Saw a couple of duplexes in LA for around $500k, but I'm honestly not at that point where I can put that kind of money into a property. There's a meetup in Fullerton tomorrow at 6:30pm thru a local REI club. I'm like 80/20 on going and I think it's $20 to go. I'm always happy to meet investors and learn from others experiences. I'm looking into out of state investing as well. Happy to connect anytime.

Hi Kevin,

I agree with what everyone has said here. However, I still see a couple fix and flips around the Inland Empire, so I'm sure there are deals waiting to be found. I would say this would be the point where one has to be creative with their deals (seller financing?). For example, something Tyler Sheff (Cashflow Guys) always says is "my price, their terms or their price, my terms." It seems to be that the way to find deals is to keep writing offers with numbers that work. Especially with all this talk about the incoming market correction, it will be a buyers market at some point. Brandon Turner always mentions in the webinars how out of 300 potential properties, he was able to get 1. Hope this helps. 

You mention you were a mortgage banker. I was wondering if you could share any tips on how to start the journey of becoming one (this is where I also want to start). 

Thanks in advance! 




@Kevin Luttrell Market here is hard (SPECIALLY ORANGE AND LA - THATS A NO NO NO), invest out of state.

If you still want to stay in the area try to look more into less fancy areas, san bernardino, bakersfield..

Good to meet you . The invest club in Irvine is a good start . Also coming up some realistic goals and expectations. Jumping in is really hard but adding long distance adds another layer as number one  you are not there and two it takes awhile to establish trusted professional relationships to mange and source the subjects . Please feel free to reach out anytime .

Originally posted by @Alfonso Aramburo Zepeda:
Originally posted by @Kevin Luttrell:

Hi All,

I'm just starting my real estate investment journey. I don't have too much experience yet, but I've been a mortgage banker for some time so I have a decent base knowledge.

I was wondering if anyone could give me some advice on investing in southern California (I'm in Orange County). The rent/price ratios are terrible and so far it seems like even if I can find the perfect BRRRR deal, the rent will barely cover the PITI (at least for SFR). So right now I'm trying to search for 3-4 units in LA and Orange county, but does anyone have any other areas they would suggest I search in? I'm really willing to look anywhere in SoCal.

Also, any advice on long-distance investing would be great as well. I'm beginning to think that would be my best option and I'm searching around the country for good areas to buy in. I feel comfortable finding a good realtor and property management company in an out-of-state area, but I'm definitely nervous about buying a fixer-upper and trusting a local contractor to rehab it. Anyone have experience with this? Any advice? 

Thanks in advance for your help!!


Hi Kevin, 

I'm about to purchase my 1st investment here in California & the best I've found is .8 rent-price ratio. Best deals I've seen is on Duplex or Quadruplex. For SFR's .5-.6 ratio is most common from what I've seen. What I'm focusing is on houses on distress that have a garage or enough space to add a bedroom and then remodel the house with the minimum necessary. Only then I can break-even. In my case I'm doing this local to learn but then I'm planning on Investing out of state as standard ratios in the Midwest are 1.3% from what I was just looking 1 hour ago.
Challenge will be to find a reliable team, boots on the ground...



 

A couple of items:
1) in my market I can have solid cash flow with a 0.8 ratio and very conservative vacancy, maintenance, and cap ex estimates. My break even on cash flow is just above 0.7 ratio using very conservative estimates (like $500/month for maintenance/cap ex for 2 BR SFR).
2) A good value add can cover a lot of negative cash flow. My last couple BRRRR both had low appraisals but still netted over 6 digits over purchase and rehab cost. Neither of these purchases were cash flow negative (one was basically projected cash flow neutral). The BRRRR did not significantly change the cash flow situation (i.e. the associated rent increase was very similar to the loan payment increase from the refi). However, the rent will go up. The payment is fixed. The cash flow will increase each year and this is on top of the over $100K I made on the value add (with an assist from market appreciation).

I will say it has been over a year since my last purchase (Oct 2017) and that competition for value adds is significant. However, if I were willing to accept smaller returns than my minimum, I could have purchased some RE (with values adds that may net $20K). So the competition is stiff, but there is still value adds that can provide margin for any poor cash flow.

Good luck

Originally posted by @Dan Heuschele :

Originally posted by @Alfonso Aramburo Zepeda:
Originally posted by @Kevin Luttrell:

Hi All,

I'm just starting my real estate investment journey. I don't have too much experience yet, but I've been a mortgage banker for some time so I have a decent base knowledge. 

I was wondering if anyone could give me some advice on investing in southern California (I'm in Orange County). The rent/price ratios are terrible and so far it seems like even if I can find the perfect BRRRR deal, the rent will barely cover the PITI (at least for SFR). So right now I'm trying to search for 3-4 units in LA and Orange county, but does anyone have any other areas they would suggest I search in? I'm really willing to look anywhere in SoCal.

Also, any advice on long-distance investing would be great as well. I'm beginning to think that would be my best option and I'm searching around the country for good areas to buy in. I feel comfortable finding a good realtor and property management company in an out-of-state area, but I'm definitely nervous about buying a fixer-upper and trusting a local contractor to rehab it. Anyone have experience with this? Any advice? 

Thanks in advance for your help!!


Hi Kevin, 

I'm about to purchase my 1st investment here in California & the best I've found is .8 rent-price ratio. Best deals I've seen is on Duplex or Quadruplex. For SFR's .5-.6 ratio is most common from what I've seen. What I'm focusing is on houses on distress that have a garage or enough space to add a bedroom and then remodel the house with the minimum necessary. Only then I can break-even. In my case I'm doing this local to learn but then I'm planning on Investing out of state as standard ratios in the Midwest are 1.3% from what I was just looking 1 hour ago.
Challenge will be to find a reliable team, boots on the ground...



 

A couple of items:
1) in my market I can have solid cash flow with a 0.8 ratio and very conservative vacancy, maintenance, and cap ex estimates. My break even on cash flow is just above 0.7 ratio using very conservative estimates (like $500/month for maintenance/cap ex for 2 BR SFR).
2) A good value add can cover a lot of negative cash flow. My last couple BRRRR both had low appraisals but still netted over 6 digits over purchase and rehab cost. Neither of these purchases were cash flow negative (one was basically projected cash flow neutral). The BRRRR did not significantly change the cash flow situation (i.e. the associated rent increase was very similar to the loan payment increase from the refi). However, the rent will go up. The payment is fixed. The cash flow will increase each year and this is on top of the over $100K I made on the value add (with an assist from market appreciation).

I will say it has been over a year since my last purchase (Oct 2017) and that competition for value adds is significant. However, if I were willing to accept smaller returns than my minimum, I could have purchased some RE (with values adds that may net $20K). So the competition is stiff, but there is still value adds that can provide margin for any poor cash flow.

Good luck

We are not too far from each other.  I'm planning on investing on the Inland Empire-San Fernando Valley within a 3 hour drive at the most where rates are better than Orange County or LA for the most part.  

I live in socal too and am near the start of my journey too just like you. Everything I've read leads me to investing out of state. I think it's too difficult to BRRR in such a hot market and high value market. When demand is too high then you really have to have connections to get deals before they hit the market and it has to be some level of distress so that you can get the property at a discount. That's why I'm looking to invest out of state. It's also a smaller amount of capital to get in those first few properties where I will most likely make the largest amount of mistakes while learning the ropes. Hope that helps.

I do the same as @Ali Boone : live in LA, but invest out of state through a turnkey provider. In my case I invest in Memphis, where there's a stable market and decent returns. Since I'm starting out, I like the peace of mind of using a turnkey rather than trying to BRRR it myself. The process is easy and I sleep good at night :).

You can be successful in Southern California if you're in it for the long haul. Appreciation and rent increases will eventually run their course and you'll have a winning property. That said, it's hard to make money right off the bat. Buy and hold investors will take a temporary monthly loss and flippers will do jobs for next to nothing. Barrier to entry is extremely high as properties, even beaters, are expensive. (House behind my primary is for sale. Drug house. Complete gut job. Asking 485. Arv is 535, generously.) if you're going to make a go of it here be prepared and able to take a monthly loss for 3ish years, at least.

Out of state isn’t a bad option it just presents certain challenges. Do whatever is necessary to mitigate them. IE fly out there a few times to look at neighborhoods/properties. Interview PMs, get referrals and buy good deals.

Whatever you decide on...good luck!

Hi Kevin, 

I live in Ventura County and there are some areas around here where I have seen some investors succeed. My husband and I do not have enough capital to start out in Southern California so we decided to invest out of state as well. I highly recommend both of David Greene's books to get started and watch the webinars. They really help guide you towards what to look for and what to be careful of. 

@Ali Boone  and @Tim Harwick : What turnkey companies are you using if you don't mind me asking? Do they primarily offer properties that are already in move-in ready condition, or do they have some good deals at a discount that need rehab (where I could possibly make a BRRRR strategy work)?

@Alonso Escalante , I was fortunate enough to find a Jr Loan Officer position back in 2012. I got paid training and they paid for my licensing while I worked under a senior loan officer for 4-6 months. These opportunities are still out there, but hard to find. I'd recommend getting your license through the NMLS first and then start looking and applying at different mortgage companies. Most companies I'm aware of that hire fresh licensees with little or no experience are pretty cutthroat and you'll be making a lot of calls and have strict numbers to hit. The best mortgage companies, the ones you want to work for, usually stick to hiring experienced loan officers. There are always exceptions of course but this is what I've found. PM me if you'd like any other tips or advice, and good luck! 

Following this thread as I'm in the same area and going to be starting out soon. Where the OP lives prices are at $950+ per square foot. Where I live, they're a still-crazy $600 per square foot.

Originally posted by @Kevin Luttrell :

@Ali Boone and @Tim Harwick : What turnkey companies are you using if you don't mind me asking? Do they primarily offer properties that are already in move-in ready condition, or do they have some good deals at a discount that need rehab (where I could possibly make a BRRRR strategy work)?

I have access to both models. For the BRRRR ones, you buy it all for BRRRR but the turnkey company does all the work for you. It's gives the best of both worlds! Message me or email my address below and can give you info.

 

@Kevin Luttrell I agree with others that CA isn't a bad place to invest if you have long term objectives. I've purchased properties in CA over the past decade and confirm that it takes ~3 years until appreciation brings rental income to break-even cash flow. Negative cash flow is uncomfortable, even with ample reserves, but the significant capital gain potential is worth the early-year discomfort.

I have completed a number of remote renovations and I highly encourage you to avoid this pathway.

I also invest in out of state MF properties, but I focus on B class or better. Yield is proportional to risk and effort, and you’ll have to determine how much effort and risk you are willing to take on. Having a PM does not mean that you are fully hands off - I follow the trust, but verify school of thought.

@Kevin Luttrell I went with MidSouth Home Buyers. I believe they only offer properties that are already rehabbed and rent ready. Their property management division can get tenants in the property quickly. Even though it's a turnkey property, their large scale (they do hundreds of properties a year) reduces rehab costs, making it an attractive investment. In fact I doubt I could make more money doing the rehab myself.  

@Tanner Marsey as far as making out on long term appreciation... prices right now in SOCAL are at all time highs driven by low mortgage rates, hedge funds buying up rentals (Blackrock), and a large influx of foreign cash buyers (Chinese alone made up around 35% of the buying in California last year). Those factors have been running their course for years now and we are seeing the result. Whats going to happen from here? 0% mortgages and double the foreign investorship? The Chinese have already pulled back on buying this year. 

Then there's the fact that this property has to have a certain amount of relative yield for the investors to consider it. Renters in Los Angeles are already paying an average of 30% of their income to their landlords. Unless they somehow get big raises, jacking up the rents can only go so far.

The easy money has been made in appreciation during this last cycle. Someone lucky enough to get in for a reasonable price during the early phases of the next cycle will have much better odds. 


Unless you can find somebody willing to sell below market, the prices here do not work.  The time to buy is when prices are low, and there is nowhere in the USA where that is now true.  I expect president Trump to be reelected, and the economy to continue to zoom, but it will eventually fall. Have you considered investing in a low expense index fund such as VOOG, and/or a stock with substantial dividend, such as AT&T or IRM?