Investing in Southern CA or Long Distance

Member since 2019 · 12 posts · 7 votes

Hi everyone! My husband and I are looking at buying our first investment property. We are trying to decide on trying to find a property in Southern CA/surrounding areas like Phoenix or Nevada or if we should look to invest long distance in Texas where our family lives. We don't have much cash, but we feel ready to jump into the game. Any advice would be greatly appreciated!

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Lee RipmaPro Member

Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes

@Madison Guess

A good deal is not determined by if it’s on the market or off the market. Often “off market” deals are not as good because the seller isn’t subjected to market forces and forced to realize their property isn’t as valuable as they think it is. Sometimes they are good because the seller doesn’t know their value. There are good deals on the market all the time. All of my deals have been on the market in one way or another. The skill is not finding off market deals, it’s finding good deals that work for you. So the skill is knowing the good from the bad. Or what you can make give you your desired returns. The exact same deal done by two different people can have widely different outcomes.

Everyone has their own definition of a good deal. To me a good deal is in a decent neighborhood. I look at demographic data including median household income and school ratings. I personally like rents that are over 750 per unit so that income is high enough to cover all my expenses, save for cap ex, and provide cash flow. Every investor has what works for them. I also like some upside in rents. Upside in rents can’t usually be realized without doing rehab and getting new tenants. So you need some cash set aside for that. When you increase your rents, you increase the value of your building and increase your cash flow.

Really focus on educating yourself. It’s going to take time to do so and that is okay. Once you’d educated enough jump in. You’ll learn way more by doing. That first deal won’t make you rich or financially free, it’ll just get you started on a path that will make you both of those things.

Podcast Guest on Show #373

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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
6y
@Madison Martindale depends on what strategy you are trying to pursue, what you define as SoCal and what kind of returns you are looking for.
1 Reply
Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
@Aaron K. we are aiming to purchase a buy and hold rental possibly using the BRRRR method. We are in Northern San Diego county and would be willing to go anywhere within a five hour radius of us. As far as returns, we are looking at long term rental properties.
1 Reply
Nic S.Pro Member
Danville. CA · Member since 2017 · 313 posts · 221 votes
6y
@Madison Guess I think Aaron was asking about the monetary return you’re trying to achieve.
Both Cali and Texas property taxes will hurt your bottom line. I'd choose Texas over California based on purchase prices and the landlord friendly it is. Will be hard to BRRR out of state. I live in NorCal and won't invest here, too hard to evict, tenants have too many rights here.
1 Reply
Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
@Nic S. ah thank you. Do you invest in properties long distance that don’t need any renovations or just outside of California? We were also considering Arizona or Nevada since they are within driving distance.
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Aaron K.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
6y
@Madison Martindale for buy and hold in state I'd probably do either the Inland Empire or North county. If you want to go out of state I'd expand beyond just the neighboring states because once you are driving 3+ hours it just isn't worth it to drive often enough for that to be a good criteria for purchase in my opinion. and yes as @Nic S. said I was referring to a rate of return of x%
1 Reply
Nic S.Pro Member
Danville. CA · Member since 2017 · 313 posts · 221 votes
6y
Do you plan on renovating yourself or being the property manager? I have no interest in either so location doesn’t matter
3 Reply
Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
6y
@Madison Guess
I agree with others who have said that you should determine the rate of return you want. I don’t do work on the properies I own - I have contractors and PMs for that. Therefore, I do not need to drive to my properies, so they can be any market that I KNOW.
I think an out of state investment that is good to get started with when you have limited capital is a duplex in a B to C+ market in the Midwest. I invest in the Kansas City market where duplexes for 150k in these areas that gross 1600-1800/mo are plentiful.
Of course you have to determine what is right investment for you based on risk appetite and desired returns.
Podcast Guest on Show #373
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Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
@Nic S. gotcha - just curious what other people were doing since you didn’t invest in California. This is kind of the hard part to figure out if we should be planning on doing our own renovations/hiring a PM/out of state. Little overwhelmed with where to begin to figure it out! Read a few books and love the rookie podcast, but we’re struggling with making the first move. And thanks @Aaron K.! That’s helpful and makes sense if we’re driving that far anyway to consider other places besides neighboring.
1 Reply
Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
Thanks @Lee Ripma! That’s really helpful. When trying to find a good deal in a market that you’re aware of, but do not live in, how do you go about finding these off market deals? When listening to the podcast it seems like most everyone finds a deal that is a gem, but if you’re not connected in the market how do you find these kinds of deals? Or are these properties, like you mentioned in Kansas, found on Zillow/Redfin?
1 Reply
Alex Olson
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
6y
@Madison Guess I think you can find great deals on the MLS. You just have to know what to look for and be patient. When they drop prices on been on the market awhile and you have a good agent you can get a great deal.
1 Reply
Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
6y
@Madison Guess
A good deal is not determined by if it’s on the market or off the market. Often “off market” deals are not as good because the seller isn’t subjected to market forces and forced to realize their property isn’t as valuable as they think it is. Sometimes they are good because the seller doesn’t know their value. There are good deals on the market all the time. All of my deals have been on the market in one way or another. The skill is not finding off market deals, it’s finding good deals that work for you. So the skill is knowing the good from the bad. Or what you can make give you your desired returns. The exact same deal done by two different people can have widely different outcomes.
Everyone has their own definition of a good deal. To me a good deal is in a decent neighborhood. I look at demographic data including median household income and school ratings. I personally like rents that are over 750 per unit so that income is high enough to cover all my expenses, save for cap ex, and provide cash flow. Every investor has what works for them. I also like some upside in rents. Upside in rents can’t usually be realized without doing rehab and getting new tenants. So you need some cash set aside for that. When you increase your rents, you increase the value of your building and increase your cash flow.
Really focus on educating yourself. It’s going to take time to do so and that is okay. Once you’d educated enough jump in. You’ll learn way more by doing. That first deal won’t make you rich or financially free, it’ll just get you started on a path that will make you both of those things.
Podcast Guest on Show #373
8 Reply
Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
@Lee Ripma super helpful! Really appreciate you sharing with me. Trying to sort through the information available is a blessing and a curse at this stage (young & inexperienced here)! We’re focusing on educating ourselves now before we jump into anything and comments like these are really great at providing a new perspective to think about. I’ll take what you said and think more about our own criteria for a good deal and how to go about finding one.
2 Reply
Alex Olson
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
6y
@Madison Martindale Know what return requirements you need and you will be fine!
1 Reply
Soh Tanaka
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
6y
@Madison Martindale You can certainly find a god deal on your own, but if you work with a reputable turnkey company, they will do pretty much all the work for you. The return may not be as good as you finding a great deal on your own, but what turnkey company is offering is good enough for you, maybe it's worth it, especially if you don't have to do all the work. I do invest in North West Indiana and use a turnkey company. I can almost just pick up a phone and buy a property.
1 Reply
Pamela Sandberg
Realtor / Attorney · Phoenix, AZ · Member since 2018 · 388 posts · 265 votes
6y
Phoenix has been a great option for many SoCal investors - close enough to drive over when you need to, and the entry point is still manageable. I work with many OOS clients, happy to answer any questions about our local market!
1 Reply
David Holt
Rental Property Investor · Phoenix, AZ · Member since 2019 · 14 posts · 17 votes
6y
I'm new/starting out as well and have had the same questions and problems....as I think most do. A lot of the ideas posted already are solid and good advice.
I'd search for real estate agents in some of the markets you are thinking about investing, here on BP. Tell them you're criteria (the more specific the better), and see what the MLS has. Then start crunching numbers on the BP calculators for the BRRRR or just a regular buy and hold. See what you guys come up with.
Also network with people in the markets you are thinking about. Search here on BP for meetups and also on the Meetup app or website. A few times I've seen virtual meeting or walk through of properties that you can do remote...from home. This will help you see what areas are good/bad to invest in especially being out of state.
Then do some research in the areas that will solidify the area (colleges near by, big companies or organizations that will have work for employees in most economic situation, city improvements, etc).
1 Reply
Dustin Haug
Chino Hills, CA · Member since 2018 · 24 posts · 12 votes
6y
@Lee Ripma. Very well said. Thank you.
1 Reply
Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
@Soh Tanaka thanks for the info! Maybe we'll check some out.

@Pamela Sandberg thank you for reaching out! Yes, Phoenix seemed like a good place for us with our work schedules and driving distance.

@David Holt Thanks for the info, I really appreciate it! Yes, starting out with the wealth of information on BP and beyond has been awesome, but it has been a little overwhelming with how many different ways there are to go about it. We are going to figure out more specifically what we are looking for as far as property type and location and reach out to some local realtors from there. Thanks again for the advice! It's nice to learn more tangible steps we can take to get to the point of being able to purchase.
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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Madison Guess if you can have your first investment be in something you live in would be great with favorable financing options available. After that, choose a market that has a diverse economy and not too heavy in one sector or another. PM is most important when you are investing from far away. Someone you can trust and ideally have someone else that you trust who can help you verify whenever you need.
Best of luck to you both!
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Ben McMahonPro Member
Investor · San Diego CA · Member since 2014 · 341 posts · 140 votes
6y
@Madison Martindale

Hey Neighbor, I'm also in North County. Everything that everyone has been said is solid advice. I moved to SD a year ago. Its a different strategy investing in SoCAl. Theres no such thing as cashflow here. Unless you refer to Negative Cashflow. Ha.

That being said, there are certain advantages to investing near home. If you really want to learn, you need to get your hands dirty. Go through the process yourself of managing the property, dealing with Tenants and all that. After that, it will be a lot easier for you to invest out of state knowing what questions to ask PM companies etc. Out of state, this is a great place to VET a turnkey provider. I agree with @Soh Tanaka.

If you want to chat more, just DM me.
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Tom Ott
Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
6y
Originally posted by @Madison Martindale:
Hi everyone! My husband and I are looking at buying our first investment property. We are trying to decide on trying to find a property in Southern CA/surrounding areas like Phoenix or Nevada or if we should look to invest long distance in Texas where our family lives. We don't have much cash, but we feel ready to jump into the game. Any advice would be greatly appreciated!

Hello,
Investing OOS is great now. Prices have dropped a bit and interest rates are down. I would stick to the Midwest where prices are so slow that each property hits the 1% rule each time.
2 Reply
Maxwell Ventura
Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
6y
@Madison Martindale I agree w/ @Ben McMahon. Sometimes the best way is to dive in and figure it out.
For 2-4 units here in San Diego, there are deals in north county but IMO there are more down here in the metro area, east county, & southbay.
Happy to be of any assistance. Feel free to shoot me a DM
1 Reply
Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
6y
@Madison Martindale I don't see any of those as good options if your goal is cash flow. Nothing is CA will cash flow and the time to buy in Phoenix and Las Vegas for good cash flow has long since passed. Buying in TX just because your family lives there isn't a good reason. It says nothing about whether it's a good market and fits your investment criteria. TX has very high property taxes and insurance and doesn't cash flow well. If you're going to look at of state, then look for the best market possible. The Midwest is generally best for cash flow. I particularly like Indianapolis and Kansas City.
1 Reply
Madison Martindale
OP
Member since 2019 · 12 posts · 7 votes
6y
@Ben McMahon hey there! Thanks so much for the info! Yeah we have definitely held off on jumping into anything in this area, since there doesn't seem to be a good deal in sight and the prices are just outrageous. We would love to get into the process of getting into the details of it. It's a little overwhelming with the different avenues, even though everything says pick one and stick to it. I think the struggle comes from finding what it is to stick to and balancing it with full time jobs outside of real estate. I think we will have to look into some turn key options for sure! Initially, we did not consider starting out with a turn key property since we figured we'd save by managing it ourselves the first time/possibly renovating to increase value. We don't plan to live here in SD for too much longer, but we have about two more years here and not sure about how to take the next step in real estate not investing here in SoCal.

@Mike D'Arrigo the draw towards Texas is more of our opportunity to utilize the VA loan to buy a duplex and house hack. Also, because our family is there to help if we had a property we wanted to renovate using the BRRR method. Even though the property taxes aren't the best. Thank you for the info on the midwest! I appreciate it.
Again, we definitely need to sit down and define our criteria a little more. But this is super helpful info all around to get the ball rolling in the right direction!
0 Reply
Vivian Ly
Newport Beach, CA · Member since 2020 · 2 posts · 1 vote
6y
@Madison Martindale, I had the exact same questio and am on a similar path! Thanks for posting and starting this thread. This has been invaluable for me to learn from too!
@Lee Ripma thanks for your insight & generosity with your knowledge! I was wondering how much would you recommend that a new investor put down on an out of state investment? Taking your $150K property for example, how much cash should an investor have to close on the property, to renovate, and in reserves. Additionally would you recommend starting with a single family home or duplex-quad?
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