Purchase a Home in the Bay Area or Invest Out-of-State?!

6 Replies

Hi BP Members!

I am currently in the SF Bay Area and ready to begin my real estate investing journey. I had initially began pursuing a property to house hack in the Bay Area through a realtor here, however the properties available within the FHA loan limits (below 1,053,000 for a duplex and 1,272,750 for a triplex) are in C-class neighborhoods with moderate crime rankings and very poor school rankings. Safety is a non-negotiable, so I am trying to pivot and explore different strategies.

My realtor recommended instead purchasing a townhome or condo with a mortgage that is equal to or less than what I am currently paying in rent; this way, the money I am paying towards rent is at least going towards an asset. My concern is that this feels less like an investment and simply a property purchase. Another strategy we discussed was also buying a home that I could force appreciation into.

And my other option would be to just continue renting here and take my saved capital out of state! With so many approaches and options on the table, I would greatly appreciate any reccomendations and advice!

@Krystin Aversa , investing out of state is a real option. Your state is known as being tenant friendly (aka UNfriendly to landlords). Also, expensive markets don't usually have the same returns as less expensive markets.

Your realtors idea of purchasing a townhouse or condo isn't bad either. You could still househack it with a roomate or two, or you could move out after a year and just rent it. That might be what your realtor intended since they mentioned finding something where the payment was similar to or less than your current rent. 

Buying and trying to make the numbers work in the Bay Area is extremely difficult, but not impossible. The market is booming right now in the Bay, with everything listed on the MLS being sold for well over 50k on asking.

One strategy that can work in the Bay Area is that you buy a SFH in a neighborhood of your choice and build an ADU in the backyard. You move into the ADU and rent out the front. This wont completely cover your mortgage, but it should be a comparable to what you are paying for rent if not less.

ADUs are a good route of go right now in the Bay due to high rents and California practically wants you to build them.

Your Realtor does not sound like someone with an investor mindset. You may want to ask him/her how many investment properties they own here in the Bay Area. How they answer that question should help determine if you should continue working with them regarding your goals.

@Krystin Aversa

It really depends on your goals and comfort level, if you are willing to house hack you greatly reduce your cost of living which will give you the opportunity to increase your savings rate. Also when you move out you’ll be able to cash flow. This something that is possible in the Bay Area and a great way to start investing.

If you are interested in building substantial wealth over the long-term, there has been no better bet than California in general and the Bay Area in particular over the past 40-50 years.  My recommendation: be patient and continue saving until you qualify for a home in the Bay in a desirable area, preferably a fixer.  Live there for 3-7 years, make some improvements and rent it out when it is time to move on to something bigger and better.  The first home I purchased in the Bay in the late 1990's for $445,000 (a fabulous sum of money at the time) is now worth $1.6 million and generates over $5,000/month in gross rent.  There has not been a vacancy since 2009.  Twenty years later, it feels pretty nice to have a spare million or so in your back pocket as well as thousands in positive cash flow per month.  Try repeating that in any "cash flow" market where your capital expenditures are almost certain to eat up most or all of your income over time.  I did, only to walk away with pocket change instead of quadrupling my money like my other California investments.  In my opinion, too many prospective investors focus on an ideal projection of the short term instead of on a realistic picture of the long term.

@Krystin Aversa

I am totally on the same page, just that I am trying to do it from San Diego. My price point of even 700k$ does not meet good safe neighborhoods for a multi-family here, add that to a negative cash-flowing property for a first time buyer. Scary enough to make me consider out of state investing.!