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!
@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.
@Vivian Ly - If you are going conventional lending then a SFH you can do 15% investment prop (with PMI) or 20%. On a duplex-quad you'll need 25%. Some commercial lenders will do 20% down on 2-4 units but if you're just starting out and have a stable income then you can just go conventional (conventional, confirming, etc, this all means loans sold off to the government rather than being held on the books/portfolio of the banks).
In KC specifically, there are a LOT of duplexes and not a ton of triplexes and quads. There are some, but duplexes are much more prevalent. So whatever market you pick make sure there are the small MF you're looking for. Like if you want quads in x city but that city doesn't have them, that is a problem!
The duplexes I am specifically talking about in KC at 150 are already in good shape in a B- to C area. In KC it's really easy to find a stabilized duplex at ~150 that will produce 1600-1800/mo as I think I already said in another post. So that is already stabilized and cash flowing. If you want to get those rents to 1900-2100 now you need to do rehab, spend maybe 12-15k per unit depending on the size. I'm generalizing here. So you could buy the duplex with 25% down so 37.5k down plus 2k in closing. You'll want to have a reserve capex fund of 5-10k depending on how conservative and liquid you are in your non-RE investor life. Then you can think about investing another 24-30k to really up those rents (an increase the value of the duplex). You'll make sure you inspect everything before you buy and get the seller to give you credit if major systems have issues -roof, plumbing, electrical, HVAC. Also if there are lots of problems you can always just cancel and find a different duplex to buy. So that is what I would say about doing this in KC. I can't speak for other markets!
I always encourage new investors who want to start small to start with a duplex over a SFH. They really are not that different in terms of systems but they produce so much more income. So they might cost a little more and have 2x HVAC, water heater, etc. BUT you get so much more income from a duplex over a SFH.
Those are just MY thoughts. Lots of people do things completely differently and that's okay. There are so many paths that work. I personally had a lot of success getting going with small MF in KC so I recommend it. As I think you'll hear a lot of people say, the obstacle is getting started. I guess my duplex example is one way that I personally think is easy to get started. Just no there is no right or wrong answer to getting started! I hope something in that helped!
@Lee Ripma
This was super helpful! I share the same sentiment, I’d prefer to start with at least a duplex because of the additional cash flow and since it’s essentially the same amount of work. Now aware that I need to put 25% down does help narrow my search to a duplex, since a triplex or quad would be beyond my budget. I’m working on building out a spreadsheet to determine how much I’d need to save, and how much I can spend to buy a duplex by the end of the year. Your figures helped tremendously!
It’s reassuring the hear that there are properties that are already stabilized for $150K, cash flowing at $1600-1800 already. Having to take on rehab work out of state is a little unnerving, and adds an additional hurdle and layer of complexity. I’d ideally like to avoid that unless I can secure a property for a cheap enough and can make the risk worth the reward.
I also just noticed that you’ve been interviewed on BiggerPockets. I clicked into my podcasts to search for your your episode by episode number, and serendipitously enough it was actually the one I was in the middle of listening to a few days ago!!
I’ll need to go back and listen to the whole episode, and do some additional research based on your advice. I have a million and a half more questions but before I post them here I want to try to see what answers I can find for myself first. Thank you again for your contribution to Bigger Pockets and helping all of us start our real estate journeys!
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!
Where do you live? Please fill out your profile at least that much, so people don't have to always ask you where you are - this is needed to be able to answer landlord-tenant law questions, etc., too. Thanks.
@Madison Martindale CA and AZ are too expensive these days to be able to beat the 1% rv ratio. Unless you go to a Class D or C area. But if you don't have much money then that is another problem. I did turnkey rentals back in the day from Seattle to Birmingham, Atlanta, Indianapolis.