Which would you buy as your first investment property..
Real Estate Agent · Member since 2020 · 10 posts · 3 votes
Which would you buy as your first investment property..
Most Popular Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesI recommend all new RE investors start local. There are various reasons for this including local knowledge, easier to build and maintain team, ability to perform heroics if necessary.
Historically:
- AZ will have better initial cash flow.
- AZ will be more landlord friendly in their regulations.
- San Diego has rent control. The max increase is high enough that the capping the rent increase is not the most problematic aspect of rent control. The bigger issue is making it difficult to get rid or tenants that may not meet your standards but still pay the rent. I used to get rid of these via a large rent increase. That is no longer an option. In addition, terminating their lease without them breaking the lease and be given opportunity to address the problem also is not an option. So mostly rent control increases the need to thoroughly screen tenants.
- San Diego will appreciate more. This is both property and rent appreciation. This implies that historically San Diego will out cash flow AZ over a long hold period.
- San Diego is very constrained on its supply side. This relates to a reason for its historical appreciation.
- San Diego has a nicer climate. This has helped with the appreciation but it also helps with the longevity of certain cap expense items.
- AZ has cheaper labor costs. This results in lower maintenance and individual cap expense costs. Counter this with shorter lifespan of roofs, windows, paint, HVAC.
- Case Shiller has San Diego as one of the best buy n hold returns for this century in the entire US.
- San Diego will be easier to build and maintain the team.
If you lived in AZ, my recommendation would be for you to start in AZ. Seeing you live in San Diego, my recommendation is you start in San Diego.
I have been investing for a while. My entire team except for the home inspector has turned over at least once. In late 2019, the plumber we had used for the majority of work over the last 8 years and us went our separate ways. We have tried a handful of plumbers since then and have not found one. We got two quotes to solder one elbow in a crawl space. One wanted $680 (and was already onsite), the other wanted $400. I expected the cost to be ~$150 and consider that already high but plumbers' prices I virtually always consider high. This job, if nothing goes wrong, should be less than an hour. If something goes wrong it should still be less than 2 hours. The one that quoted $680, we will never call again. They were already on the near never to use again list but they crossed it. So we have been searching for a new plumber for 5 months and have yet to identify one. I had a contractor that I used a handful of times just poor a curb that looked like it was poured by drunk. He says he will fix it, but I do not know how. We will see but if we cannot come to an agreement I may be looking for a new contractor. Wife was thinking $400 off. I told her I would rather have it straight then get only $400 off (it is that bad). Hopefully the contractor can fix it.
6 Replies
- Rental Property Investor · Denver, CO · Member since 2018 · 46 posts · 48 votes6y
Live where you want, invest where the numbers make sense. That being said, Arizona is more landlord friendly than CA, and AZ will have less threat of rent control.
If they are same price, can you share what the difference in cash flow is? How much research have you done on the markets? What are your ultimate goals?
There is plenty of info around here to help with any concerns you may have about investing out of state. Feel free to reach out to me for advice and I'd be happy to walk you through how my wife and I decided to buy our first rental in Fort Worth, TX which is 800 miles away from our home in Denver.
Collin
- Member since 2018 · 138 posts · 56 votes6y
i would sit on my hands and do neither and see how the virus starts to play out on the market.....you may see more opportunities to deploy capital in the next year.....all things being equal
- 6yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
I recommend all new RE investors start local. There are various reasons for this including local knowledge, easier to build and maintain team, ability to perform heroics if necessary.
Historically:
- AZ will have better initial cash flow.
- AZ will be more landlord friendly in their regulations.
- San Diego has rent control. The max increase is high enough that the capping the rent increase is not the most problematic aspect of rent control. The bigger issue is making it difficult to get rid or tenants that may not meet your standards but still pay the rent. I used to get rid of these via a large rent increase. That is no longer an option. In addition, terminating their lease without them breaking the lease and be given opportunity to address the problem also is not an option. So mostly rent control increases the need to thoroughly screen tenants.
- San Diego will appreciate more. This is both property and rent appreciation. This implies that historically San Diego will out cash flow AZ over a long hold period.
- San Diego is very constrained on its supply side. This relates to a reason for its historical appreciation.
- San Diego has a nicer climate. This has helped with the appreciation but it also helps with the longevity of certain cap expense items.
- AZ has cheaper labor costs. This results in lower maintenance and individual cap expense costs. Counter this with shorter lifespan of roofs, windows, paint, HVAC.
- Case Shiller has San Diego as one of the best buy n hold returns for this century in the entire US.
- San Diego will be easier to build and maintain the team.
If you lived in AZ, my recommendation would be for you to start in AZ. Seeing you live in San Diego, my recommendation is you start in San Diego.
I have been investing for a while. My entire team except for the home inspector has turned over at least once. In late 2019, the plumber we had used for the majority of work over the last 8 years and us went our separate ways. We have tried a handful of plumbers since then and have not found one. We got two quotes to solder one elbow in a crawl space. One wanted $680 (and was already onsite), the other wanted $400. I expected the cost to be ~$150 and consider that already high but plumbers' prices I virtually always consider high. This job, if nothing goes wrong, should be less than an hour. If something goes wrong it should still be less than 2 hours. The one that quoted $680, we will never call again. They were already on the near never to use again list but they crossed it. So we have been searching for a new plumber for 5 months and have yet to identify one. I had a contractor that I used a handful of times just poor a curb that looked like it was poured by drunk. He says he will fix it, but I do not know how. We will see but if we cannot come to an agreement I may be looking for a new contractor. Wife was thinking $400 off. I told her I would rather have it straight then get only $400 off (it is that bad). Hopefully the contractor can fix it.
- 6yDoug McVinuaPro MemberProperty Manager · Queen Creek, AZ · Member since 2016 · 608 posts · 426 votes
@Rachel Blackwell As an Arizona Property Manager managing properties that range from 1 bedroom condos to 12 plex I have really grown to like the multiplex. The revenue stream (cash flow) is consistent and lasting. Of course, we see some turnover but we are always able to maintain 50% cash flow at a minimum and frankly, that's rare to see it that low. One 4 plex has had the same 4 tenants for 2 years and another one has had 2 long term tenants. The vacancy is measured in days per year for each unit, not weeks.
Nothing wrong with single-family either, they are just a bit different with different risks and rewards.
- Real Estate Agent · Member since 2020 · 10 posts · 3 votes6y
Thank you for the comparisons and info.
- 6yJonathan GreeneBusiness MemberReal Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
Staying local is always a better practice for your first deal unless you have boots on the ground in AZ that can manage the property and provide the updates and advance warnings you would need as a first-time investor. It's not all about the cash flow when you start because much more can go wrong when you can't put your eyes on a property every day.
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