Southern California Investing or Out of State Investing

26 Replies

Hi Everyone!

My wife and I are newly married and have been doing our research and are about to get into real estate investing.

We however have become torn between whether we should buy something here close to where we live in Southern California (which would be our first property and we would want to buy a duplex to house hack) or buy something out of state as our first investment to get started as it would be much cheaper. 

We know there's pros and cons of each but could use some additional feedback, insight or additional ideas.

We also currently live with our in-laws, so whatever we buy in state or out as I stated would be our first property/purchase.

Thanks in advance for any and all feedback and advice as well as opinions!

@Andrew Atakpo both are valid options, it somewhat depends on what part of SoCal West LA is very different than the IE.  If I were in your shoes I'd house hack out of personal preference because living with in laws doesn't appeal to me.  A question you may want to ask yourself is how long are you welcome at your in-laws are they expecting temporary?  It may also come down to what you can afford some areas are much more affordable than others as I'm sure you're aware and how far you are willing to commute may also have an impact.  I've done both in and out of state so ask away.

Thank you @Aaron K. for your response! Yes we do have have some time to stay still with in-laws but definitely still a shorter term/temporary situation. I live in South Bay L.A area currently and we are looking at some areas in Long Beach area potentially for house hacking. Prices obviously are still quite high all over the Los Angeles county area and beyond so these cause some concerns on buying in California at the or close to "height of the market".

You still live in the IE currently? Have you owned rentals here in CA?

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@Andrew Atakpo congratulations for starting the process of real estate investing!  There can be some great multi unit options in the Long Beach area which is definitely more affordable than places like Manhattan Beach and El Segundo.  

I invest in multi units here in the Los Angeles area for appreciation and out of state for cash flow.

I currently live in a multi unit in the Inglewood area and it's been one of the better investments I've made as I have a tenant who pays half my mortgage and the property has had great appreciation.

If you're okay with appreciation and don't need the immediate cash flow then I recommend investing in Southern California.

I'm confident you'll do great!


@Andrew Atakpo Congratulations on your start of your journey - both in marriage and RE Investing ;) 

I'm also just starting out in my RE investing and I've been weighing the pros and cons of investing in-state or out-of-state. Eventually, I settled in investing in-state for my first RE deal, preferably something within 30-1.5 hr drive from where I live. This is my first investment property, and I would just feel a lot more comfortable if it was closer to me since I will be self-managing it myself. My whole goal is to learn the ropes with an investment property close by. And then I can scale it to out of state. Would out of state properties make more cash flow? Sure. But I would rather make mistakes with a property that is within my driving distance, than with a property that is a few states away where I have to rely on other people for everything. 

With that being said, I've been analyzing a lot of duplexes in and around of Los Angeles County. I'm seeing some good properties in Long Beach, like Rose Park for example, which is starting to be gentrified. Outside of LA County, you could take a look into Ventura County. They still have some relatively cheaper housing over there. And in San Bernandino County, Redlands/Loma Linda is a strong market. 

It just really depends on your risk tolerance, your price range and your criteria. Feel free to ask any other questions regarding this, I'm in the exact same path as you so there are a lot of things that would be similar. 

Goodluck with your search!

@Andrew Atakpo, this very much depends on your longterm goals.

In SoCal, you'll get excellent property appreciation, but little to no cashflow. Out of state, the world is your oyster! There are plenty of high-cashflow markets all across the country.

For me, my wife and I both work, so we see our real estate investments as tools for longterm wealth creation. At the same time, we both work for ourselves, so "wealth" in our minds means net worth and passive income.

Here's what we did: we purchased a duplex in LA and moved into the upstairs unit. The downstairs unit pays about half the carrying cost. It's not cashflowing while we live there, and it'd be modest cashflow if we moved out now. but the appreciation is going to be very rewarding. And now, we that purchased wrapped up, I'm exploring a small handful of markets (in AR, TN, and KY) to make further investments.

If I were you, I'd take advantage of the FHA loan program and buy a duplex (or triplex or fourplex!) in SoCal for little down. You probably won't live for free, but after accounting for your tenants, your monthly carry cost will be really small compared to the size of the appreciating asset. Then, go out of state.

Best!

Jon

Thank you
@Vanessa Ganaden for your input and feedback! Where do you live currently? Are you looking to live in one unit of what you buy or just have as an investment property?

Do you have good amount of cash cushion in reserve? If you have enough to survive 2 years of low occupancy during a recession, then house hacking may work in this environment. Honestly though it's really hard to make money in California unless you're away from the major metros. 

Out of state is great but can be a real handful for you to manage at this stage of your life. Have you considered maybe investing passively in a syndication? It'll allow you exposure to good returns on real estate while freeing your time to concentrate on generating higher income to invest in more properties down the road. 

Originally posted by @Andrew Atakpo:

Thank you @Jonathan Schwartz for your input and feedback! When you moved into your duplex did you and your wife do any upgrades to the rental unit before you rented it out?

Yes. In fact, we're still renovating. We closed escrow in mid-August and will be renovating until mid-November. The building, built in 1923, hadn't seen a facelift for 30 or 40 years. We're gutting the bathrooms and kitchens and starting from scratch, then doing minor improvements (resanding floors, repainting walls) through the rest.

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@Andrew Atakpo very very different strategies. I would only house hack if you really want to own... and I still wouldn't recommend that with the way prices are now. 

If you are looking for cash flow, C+/B- assets in secondary markets out of state, that offer a 10 cap by YOUR pro forma, in cities with high rental demand & landlord friendly laws are your best friend. I'm going to emphasize that ALL of these criteria must be met simultaneously for me to consider an OOS market a good one to buy rentals in during this phase of the market. Not just 1 or 2 of them

@Andrew Atakpo

Congrats on getting ready to take the leap into real estate investing!

In addition to thinking what your goals are for this investment, another thing to consider is your own time and quality of life. If you go the house hacking route, you will have to give up time (and maybe adding another stress factor) dealing with tenants, corresponding with vendors, etc. Your time is not free, even if you're not paying another person to provide you with a service. What is your time worth? 

Are willing to take that on for the purpose of building wealth? Or do you want to be more hands off and have someone else do that for you in another state? 

@Andrew Atakpo my Husband and I are in the same exact situation. We're in Ontario CA. We currently rent and we're looking into buying/house hacking our first home but I also want to purchase a BRRRR property in San Antonio TX.

I think you can pull off both if you’re living with your in laws. I don’t know your income or if you have anything saved yet but if expenses are really cut down I’m sure you two can save a ton and you honestly don’t need that much $$ to get started.

Here’s what I’ve decided to do:

Purchase our first property under 75k. An out of state rental where we’ll have to put 20% down. (Investment loan)

Purchase our second property in CA that will be a 1 year live in rehab. (FHA loan) We'll buy an under budget fixer upper and either flip it after a year or keep it as a rental and then do the same thing for year 2. I'd like to get a home that we can turn either the basement or garage into a rental unit so we can work on that portion first and house hack within 2-3 months of buying the property.

By year 3 we should be able to buy a nice duplex that will be our close to forever home so we can still continue to house hack but we’ll be settled in time before our first child starts kindergarten

As much as California prices are ridiculously high compared to the Midwest, South, etc., I would probably want to learn the ropes with a property close-by, at least in driving distance, before going out-of-state. Real estate just has so many running parts/things that can go wrong (realtor, property manager, contractor, etc.) that you really want to know what you're doing before giving feeling helpless thousand of miles away from a property...

@Andrew Atakpo Hi Andrew. I would invest near where I live within an hour or so. There are still good properties to invest in located in Southern California. The Inland Empire and High Desert is still affordable. 2-4 units in the High Desert are between $90,000-$120,000 per unit and the rents are between $800-$1000 for the average 2 bedroom unit. You can also find a 3 bed / 2 bath SFR in the High Desert for between $175,000-$220,000 and can rent it for $1,200-1,400.

Originally posted by @Andrew Atakpo:

Hi Everyone!

My wife and I are newly married and have been doing our research and are about to get into real estate investing.

We however have become torn between whether we should buy something here close to where we live in Southern California (which would be our first property and we would want to buy a duplex to house hack) or buy something out of state as our first investment to get started as it would be much cheaper. 

We know there's pros and cons of each but could use some additional feedback, insight or additional ideas.

We also currently live with our in-laws, so whatever we buy in state or out as I stated would be our first property/purchase.

Thanks in advance for any and all feedback and advice as well as opinions!

 Investing OOS when you live in CA is a great idea. Many investors look towards the Midwest to find properties where the prices are low and the rent is still decent.

Good luck to you! 

Determine what you’re looking for as far as immediate cash flow vs appreciation and future cashflow. That will tell you where to park your money. Also, no reason not to entertain/pursue both. A property in so cal that you hold long term, have the tenant pay down the mortgage and appreciates will far out weigh any return you’ll see in the mid west/south. A few hundred bucks per door is nothing compared to 100s of thousands of dollars in appreciation.

Originally posted by @Andrew Atakpo:

Thank you
@Vanessa Ganaden for your input and feedback! Where do you live currently? Are you looking to live in one unit of what you buy or just have as an investment property?

I live in an apartment right now with my boyfriend. But I'm convincing him to partner with me to purchase an investment property :D 

Most likely, the first property will be an investment property just because anything that we can afford will be too far for work in Orange County. And no problem! DM me, and if you are around in DTLA, happy to connect and grab coffee. Been trying to get out of my cave and network more with fellow RE enthusiasts 

I’m in SoCal and on a similar boat. Properties here are super expensive and 1% is almost impossible to find... but I’m hesitating about starting with an out of state property when I’m a newby and I don’t have contacts in other states.