CA vs. FL Market: Buy & Hold

13 Replies

Hi All,

I want to first start out by saying thank you to the many of you that I have had the chance to connect with through Bigger Pockets, both over lunch/coffee and here online.

With that being said, over the past two years, my wife and I have virtually eliminated all of our "bad" debt and currently saving capital for our first real estate investment purchase.

We have truly been committing ourselves to better understanding the in's and out's through our own research and are getting much closer to finally taking action.

I am from San Diego, recently moved to Orange County, and I'm sure as many of you know the entry level capital required for investing in CA is quite high due to the cost of living (I could be completely mistaken as I only know the OC & SD market to an extent). We also have extensive family members out in Jacksonville and Ft. Laurderdale areas therefore after much research, thought about starting our venture out there.

At the same time I would much prefer to start in CA, and have an acquaintance that is heavily in the LA market. Long term game, we are looking to really target multifamily properties for long term wealth accumulation and cash flow, but I don't see how that could even be remotely possible in the CA market without substantial starting capital.

Some of my other thoughts creating our indecisiveness include:

-Despite the amount of research and networking we do, would out of state investing for a beginner not be advised?

-If we did start in the CA market. We thought condos may be a good entry point due to lower entry capital required and not needing to worry about some of the larger expenses like roof, etc due to HOA.

-Is FL even a good market for a buy and hold strategy? We ideally are thinking of multifamily investments of concrete construction toward the more inland area and the Daytona to Jacksonville stretch. I heard the insurance can also be a real pain due to the hurricanes etc.

Anyone with experience in either/both the FL & CA market that can weigh in on this? I guess what I am asking is.... what is your take on where to start in buy and hold investing in CA or FL and why?

We currently have about 50K saved up for our first purchase but want to be sure to do this right and not rush; therefore would love to get some of your thoughts.... thanks!

@Bernard Royal My market is getting quite pricey as well, and I am looking to invest out of state as well.  I recently went under contract for a four plex in Florida.  It is a new build in Ocala and the price is $339,000.  After all our expenses are factored in including insurance, management, etc.  we will cash flow about $700/month.  It isn't a knock your socks off great deal, but it is affordable, cash flows, and is brand spanking new.  I haven't looked much in California as it really isn't known to offer these things.  I just wanted to help by giving you an example of what you could find in Florida to see if that is more appealing that what you are finding in California.  It will be my first out of state investment personally, but I know several other investors who have had good experiences so far.  Good luck and let me know if I can be of any help to you!

Amy Kendall, Real Estate Agent in UT (#6763564-SA00)
801-318-6693
Originally posted by @Amy Kendall :

@Bernard Royal My market is getting quite pricey as well, and I am looking to invest out of state as well.  I recently went under contract for a four plex in Florida.  It is a new build in Ocala and the price is $339,000.  After all our expenses are factored in including insurance, management, etc.  we will cash flow about $700/month.  It isn't a knock your socks off great deal, but it is affordable, cash flows, and is brand spanking new.  I haven't looked much in California as it really isn't known to offer these things.  I just wanted to help by giving you an example of what you could find in Florida to see if that is more appealing that what you are finding in California.  It will be my first out of state investment personally, but I know several other investors who have had good experiences so far.  Good luck and let me know if I can be of any help to you!

Interesting you say that because we were actually looking at Ocala and Mt Dora areas as well.

If you don't mind me asking. What made you decide on FL  compared to other markets?

50K might not get you much here in Orlando and Daytona.  For me I think Florida is a great place for buy and hold, I currently holding 10 properties and the turnaround is about 30 days to find a renter

@Bernard Royal I was looking in several markets.  I flew out to Memphis last year, but just didn't feel like I found what I was looking for.  I know of other investors who had bought in the Florida market and had a good experience with this provider.  I also called a few property managers in the Ocala area and asked them about the area, the rent and location.  All the feedback I got was positive, so I decided to go for it.  I bought a few brand new townhomes here in Utah and I really like the new aspect if you can get the numbers to work.  Brand new affordable fourplexes are not easy to find, so this was one that came up and seemed to check out.  Time will tell!

Amy Kendall, Real Estate Agent in UT (#6763564-SA00)
801-318-6693

Jacksonville is good buy and hold location, can get more properties for your money here than in Calf.  to spread your risk.   Have property management company that can manage for you too.  If you have family here they can also keep an eye on your investments.

That said,  50K does not buy much unless your are going to do your own repairs.   100k range is better home and location.  Closed one last week for 96k for another investor that needs about 10k rehab to be rent ready.  Multiple offer situation is common. Appreciation last year was 10.1% in Jacksonville.

I wholesale here in Orlando. The only properties I see for 50k are the ones I've sourced myself. Other than that properties are going for 75K and up. At 50K there's gonna be a bidding War and the price go up to about 80K - 85K. If you have a relationship with a seller that's the best way to grab a property for 50K. 

..at 50K you are looking at bout 30K in repairs. 

Hey guys,

Thanks a lot for the responses. Keep em coming! 

So I mentioned the 50k comment moreso so you understand where we are at currently. We were planning to save a minimum of 70k before starting (I work as an executive recruiter and my wife a cardiac nurse, therefore raising capital can be done somewhat quickly.)

But a lot of you are saying we should at least save 100k before getting into the multifamily market in FL?

I am very pro San Diego REI investing but I am even more pro for newbies to invest local (i.e. in your case OC).

There are a lot of similarities in San Diego RE and OC RE. The entry price is high in both but that is because of outstanding historical appreciation. This is both property and rent appreciation. Both markets historically beat in ROI of almost every other market. This is true if the duration is 5, 10, 20, 30, 40, 50, 60 years; it does not matter what number of years you want to start the basis at.

I do not know your current living situation but knowing that I am pro investing local this is what I would do: 1) Look for a detached duplex local (in OC) that has sweat equity but can still qualifies for an FHA loan. 2) Purchase the detached duplex using the FHA loan (at 5% of FHA down your $50K will go a long ways) and house hack the duplex living in the more thrashed unit 3) Rent the "bettter" unit while referring to yourself as the Property Manager (not the owner) 4) while you live in the more thrashed unit I would work on earning the sweat equity (rehab the place) 5) when done rehabbing the more thrashed place I would consider if I want to keep the tenant of the other unit. If I do, I give him an opportunity to rent the newly rehabbed unit just below market rent. If I do not desire the tenant or he does not want the increased rent I look for a new tenant for the rehabbed unit. 6) I move into the not rehabbed unit and start rehabbing it. 7) when I am done rehabbing it I refinance it pulling out hopefully all of my invested money (using contractors I usually get my down and part of my rehab cost but if you are doing much of the work yourself I think you may be able to get out all of your invested money 8) Use all that knowledge you have obtained to do it again with less mistakes trying for that homerun investment (I think most experienced So Cal RE investors have the Homerun deal: the type of deal you can potentially retire on).

Here is also something you may not know: Commercial RE loans (5+ units) are more based on the numbers of the property than the numbers of the investor.  Granted you would need to find some partners because in the OC market it is too competitive to find the deal that would allow a low down payment option.  I point this out not because I think this is where you should start as much as pointing out the loan qualifications are different.

You live in a market that has historically produced some of the best ROI numbers in the nation and you are looking to invest elsewhere. Think about what you know of OC and San Diego appreciation. What was the rent when you were young? What did your parents pay for their first home? What did homes cost 5 years ago? 10, 20, 30, 40, 50 years ago?

BTW I have purchased near market highs twice.  Both look great investments today.  Do not get over leveraged so that you need to sell when the market is depressed and historically you will do great.

I have also purchased an RE at near cash neutral.  I cash flows great today.

My point is that I know the arguments against investing in So Cal but I have first hand experience with most of the arguments and it has always worked out great for me.  Here is the final case: My money goes to what I preach.  My last close Oct 2017.  I continue to look, make offers, and occasionally close on So Cal RE.  I expect to make an offer this month or early next month.

Good luck

Originally posted by @Meenah Kay :

I wholesale here in Orlando. The only properties I see for 50k are the ones I've sourced myself. Other than that properties are going for 75K and up. At 50K there's gonna be a bidding War and the price go up to about 80K - 85K. If you have a relationship with a seller that's the best way to grab a property for 50K. 

 Hi Meenah, to clarify we currently have about 50k in capital and looking to save more. Our thoughts were that 50k would give us about 250k in purchasing power (20% down of 250k investment). Obviously this is not taking into account also having money for repairs, vacancies, etc. hence why we are still defining our criteria and establishing our target market/ area.

@Dan Heuschele I really do appreciate the detailed feedback. I would say I am somewhat educated on some of the differences/ requirements when going 5+ units and also can strongly agree on the significant CA property appreciation.

I'm curious as to what lead you to really focusing on the Poway, Escondido, & Rancho Bernardo markets? (Not that I disagree those are strong markets but would love to hear your "why")

Originally posted by @Bernard Royal :

@Dan Heuschele I really do appreciate the detailed feedback. I would say I am somewhat educated on some of the differences/ requirements when going 5+ units and also can strongly agree on the significant CA property appreciation.

I'm curious as to what lead you to really focusing on the Poway, Escondido, & Rancho Bernardo markets? (Not that I disagree those are strong markets but would love to hear your "why")

I search for poway n RB duplex to quad but have yet to close.  The last one we offered on we came in aggressive with offer $20k over ask and did not get a response. 

So we are largely in escondido with a few others scattered about.  Escondido started because it was close to our home in Poway and provided better initial cash flow than most other locations in San Diego.  My most recent purchase (oct 2017) has positive cash flow at purchase.  A surprise has been how easy the tenants have been to manage and the appreciation.  Redfin shows our escondido market appreciated 17.5% in the past year (this is significantly higher than San Diego county as a whole).   In the last 5 years the lowest has been 8% and the highest over 20%.  

It also is an area where many of the units offer sweat equity opportunity.  If we purchase near retail but there is $50k sweat equity opportunity we are ok paying near retail.  

I suspect other blue collar areas can produce similar results so the deciding factor was close to us.  Of our 3 local properties that are not in escondido 2 have management (if I include my brother as a PM on the Pt Loma quad).  Escondido is 10 minutes away.   Easy to self manage those properties. 

Hey @Bernard Royal

I'm not sure why people are poo pooing the $50K start. First of all it's great that you saved that much. I imagine they're assuming your plan is to pay cash for the property. If that were the case you could get a property in the rougher areas of Jacksonville with a considerably high return on investment but coupled with some pretty high risks. 

If you're entertaining financing I would say $50K is about how much you need to purchase a decent investment property here for an SFR. That would give you enough money to put a 20-25% down payment for conventional financing. Add closing costs, renovation costs and other associated fees you're looking at around $40-50K for a single family or townhome valued at about $120,000 rented for $1,200. You would purchase around the $90K mark, renovated and place a tenant. After mortgage and expenses you would be cash flowing with a great Cash on Cash ROI. That is what a lot of my clients are doing.

To mitigate the obstacles of investing out of state I would recommend getting a good project manager. With my out of state investors I found quickly that they were struggling to get the returns I was projecting because they couldn't manage the renovation and leasing from a distance well. That's when I had to start doing project management to ensure they were getting those returns. It's really about having a good team. 

If you do invest in CA I would definitely go the condo route but it will be very difficult from what I hear to find a good deal there. 

If you have any questions about Jacksonville feel free to reach out. I'd love to connect with you or anyone else interested in the Jacksonville market. 

Joseph Hamaoui, Real Estate Agent in FL (#SL3330699)

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