First home purchase, should I buy nearby or out of state?

Question

Hey guys I live in Santa Barbara and am hoping to make my first real estate purchase within the next 8 months or so. However living in SB is beautiful it is also ridiculously expensive. I have recently been fortunate enough to find somewhere in the area to rent (8 months out of the year) for $375/month utilities included which is going to save me about $1,000/month from my previous rent. I currently have about $30k saved including my bank/stocks/Roth IRA and everything. With the reduced rent should be able to save up about $2-3,000/month. Here is my main debate:

1. Should I start by investing in out of state? If so, any recommendations?

or

2. Try to find something 1-2hrs away that I could afford?

I know there are certain perks to living in your first home purchase but not sure if it would be worth it considering the prices around here.

Looking forward to any and all feedback.

Thank you,

Shane

1. Should I start by investing in out of state? If so, any recommendations?

or

2. Try to find something 1-2hrs away that I could afford?

I know there are certain perks to living in your first home purchase but not sure if it would be worth it considering the prices around here.

Looking forward to any and all feedback.

Thank you,

Shane

Zachary Moore · Answer

Santa Barbara is tough market for cash flow for small time investors. We were lucky enough to get in on a 3 properties from 2008-2014, but have sat on the sidelines since, in an effort to gain equity and improve cash flow.  We are currently looking north county SB, SY valley, but not much pencils out well for cash flow and if they do, multiple offers abound.  We are going to keep looking an hope the market slows a bit and the rates don't drop.

We are also looking out of state, but focusing on areas where we have family or some meaningful connection.  But out of state is a last resort for us - both work full time with young kids.  Happy to talk further if you want to DM me.

Lee Ripma · Answer

@Shane Dunne

Sounds like you’re on a good path with researching and picking a market. Often I hear I want to “get a ton of cash flow and then save that up and get more properties.” If you do the math you’ll actually be able to get a lot more properties if you focus on getting equity in your properties first. You can always convert equity to cash flow. Just something to think about. So maybe don’t go for markets that have low prices and a lot of cash flow, instead go for markets that have a lot of population growth and lower prices that CA but not really cheap. Supply and demand matter! Just an alternative perspective to think about as you go down the path of picking a market.

Lee Ripma · Answer

@Shane Dunne

You’ve got such an incredible deal on rent that I would keep that regardless of what you do. If you’re not planning to live in your real estate that frees you up to purely invest in real estate. Figure out the returns you want and the goals you have and then start investing.

My guess is those first investments will be outside of SB just due to high price of entry in the SB market.

Theresa Harris · Answer

I would find something within 1-2 hours of where you are and as others said, keep your current place-great deal.  Buying in an expensive area is hard.

Shane Dunne · Answer

@Lee Ripma

Yeah I pounced on the opportunity once presented, figured I wouldn’t get one like this again here. My goal is to accumulate as much cash flow as possible right now and use that to gain more properties eventually. After some research I think out of state is the way to go. Now just have to decide on the market. Thinking somewhere in the Southeast? Will just have to figure out what to do for the 4 months I have to vacate. Appreciate the feedback! :-)

Shawn Morey · Answer

Hey Shane,

Born and raised in SB! Have done many deals there, but moved down to LA for more opportunity, and we invest a lot out of state also. Would love to connect, and I can also connect you with my business partner who is still in SB full time @Tony Cavalli

Shane Dunne · Answer

Thanks for the reply Victor. If you don’t mind how are you house hacking and how do you like it? Duplex/renting by room?

Victor Contreras · Answer

Hey Shane, I live in Goleta. doing some house hacking currently. I'm going out of state

First home purchase, should I buy nearby or out of state?

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