First Deal...but my area is extremely expensive

25 Replies

Hi everyone,

This is my very first post. I would like to start off by saying how much I absolutely love this community just from everything I have witnessed over the last few weeks of scouring the forums. It's amazing to see people going out of their way to help others out!

My question is fairly straightforward. I live in one of the most expensive areas in the country, Southern California (specifically Orange County). I make a modest income, nothing crazy, but am very smart with money and do not have much debt. My issue is that for my first deal, there is no way that I can afford to buy a place within a reasonable distance from my home town and place of employment.

I was thinking about starting off by purchasing something out in the desert (29 Palms area) where it is much more affordable. But to be honest, I am using a HomeReady loan and do not see myself actually moving out to the desert and driving 2-3 hours to work everyday. I also do not want to rent the place out and get in trouble for mortgage fraud...

I am eager to start my real estate investing career, but am not quite sure how to overcome this dilemma. Any pointers or feedback would be greatly appreciated.

Thanks again!

@Caleb Heimsoth Thanks man. That is kind of the issue. I would have to move further away in order to owner occupy anything that I could qualify for. But in doing so I would have to quit my job. And if I quit my job I won't be able to get a loan. 

@Drew Slater what most people in your situation do is invest out of state.  What’s the price range in this area 2-3 hours away that you’re looking at?

A lot of CA investors will either start out of state or they sell rentals or primary they own in CA and then go buy out of state.  

The main upside to California (at least the Southern part) is the opportunity for a lot of appreciation but being so late in the cycle I’m not sure how much you can expect there now.  

In almost every other way real estate wise (broadly speaking) California isn’t great.  Higher taxes, super unfriendly landlord laws etc.  in other states you can go from tenant notice to full sheriff eviction in 2-3 weeks.  Imagine doing that in California 

@Drew Slater

  Can you move out there and commute a couple days a week and house hack the other rooms?

  Then after a year look for something closer and have a rental property?

   Also in a similar situation working in the Bay Area and commute every day. 

  Don’t be afraid to look out of state either. Just do your homework. 



@Caleb Heimsoth I agree with what you said Caleb 100% about California. I would love to invest out of state, my only issue is due to what I mentioned before. The houses I am looking at are in the 100-150k range and are 3/2.

Under the HomeReady loan you have to live in the property. So doing that drive everyday would probably kill me! My strategy would be to buy a multi-unit property. Given my current salary, I highly doubt I will be able to afford a duplex in my area.

Maybe I should focus on making more money at work instead!

@Michael Kistner Thanks for the pointers Michael. I am not sure what % of my time needs to be spent there, definitely something I will look into it. 

@Drew Slater well that price range is probably all I'd ever recommend spending on at least a SFR but multifamily would probably bump that up.

I don’t think you should really consider doing that commute in any way honestly.

You can either wait til you have the rest of the down payment, increase income or go out of state. That’s what I’d recommend 

Another suggestion would be to try and find a seller financed multifamily deal closer to where you want to be.

First of all, your budget is unrealistic. If the house you are looking for is in 100-150k range, then you cannot buy anywhere but in the desert

Second, if you cannot afford to buy anywhere but 2-3 hours from where you work, then we have a huge affordability problem

Third, if you do buy for a more realistic 500k, there is no way you will make 5k rent monthly. Thus you will have issues with cashflow.

Therefore, in California, you can only buy a house if you have money and expect to make more money. In other words, housing in California is now just like stocks in 1999. Only for speculation and appreciation purposes and no longer for living.

@Brian Garrett Thanks man, I will look into that. I have been using Trulia and Zillow to look at properties. Would you recommend these as good resources for finding Seller Financed deals?

@Vinay H. I agree 100%. It is a difficult situation, especially having grown up here and lived here my entire life. I guess I should get a better paying job! Lol. But as you said, even if I could afford a place, the cashflow from renting it out would be an issue.

That is what led me to the desert area, which is my next dilemma. I can't get a FHA/Homeready loan for a place that I can't live in.

Looking for advice on some alternate solutions that I perhaps have overlooked, in terms of financing or strategy.

I think finding a better paying or second job is always a good strategy. If the economy is so hot that prices are unaffordable, then the jobs and opportunity for earning more should be commensurate.

As for strategy, it seems your strategy is just to buy anything you can? You haven't actually said you wanted to flip or rent or house hack. If you are just looking to buy, right now I would say focus on earning and rent as cheaply as you can and build you cash reserves. Evaluate in 6 months to 1 year.

@Vinay H. Thanks Vinay. I should have defined my goal a little more clearly.

Initially I wanted to just buy something and rent it out with a decent cash flow. Not just anything. Something that I felt was valuable after doing research in the area. That was why I was initially drawn to the 29 palms area. It is affordable, the National park is gaining in popularity and brings a lot of business to the area, the city is investing heavily into a downtown revitalization plan, there is a military base nearby with a constant flow of military personnel living offsite, etc...

Problem is, I can't technically be "owner occupied", so that is basically off limits for now. Even if I tried to justify it to the lender that I could commute down to San Clemente, I wouldn't honestly make that drive everyday.

Part of me is eager to get started, because I am worried that after a few months of not doing anything actionable this dream will just fade away. But at the same time, as I learn more and more, it seems like I should just wait on the sidelines for now, keep researching, saving up some cash, and let the market cool off a bit...and act when it really makes sense.

@Caleb Heimsoth Average eviction time in LA County takes 6 weeks and can be as little as 3 weeks. Don't pay your rent and beleive it you will be evicted pretty quickly in most cases. It depends on the area but in some CA areas evictions seem less common when compared. Anything can happen still. 

Originally posted by @Matt R. :

@Caleb Heimsoth Average eviction time in LA County takes 6 weeks and can be as little as 3 weeks. Don't pay your rent and beleive it you will be evicted pretty quickly in most cases. It depends on the area but in some CA areas evictions seem less common when compared. Anything can happen still. 

In addition to what Matt indicated, I do not know a landlord in San Diego who has had to formally evict a tenant.  I have been doing this for a while and I have not yet needed to formally evict a tenant.  I basically informally evict when I provide a move-out date.  If they miss their payment they have always been out fairly fast.

The reason tenants want to avoid being evicted is because the tenants realize that with an eviction they will be very limited where they can rent.  This is because the vacancy rate is very low.  I have a criteria for my units of tenant never having been evicted.  It is in my ad postings.  If when I screen I find an eviction then the screening is over and they do not get their application fee back (typically it has been spent to find out about the eviction).

So there may be tenant friendly laws but in practice the low vacancy rate makes San Diego a very Landlord friendly city.

As to the OP, I see many posters from out of state suggesting various ideas but RE in So Cal is different than most other areas.  I suggest you network with experienced OC RE investors and inexperienced OC RE investors.   You never know here that would lead but a great scenario would be a partnering.  Imagine 3 newbies partnering on a detached triplex with each unit having its own yard.  The key is the networking needs to be local.

Good luck

Hey Drew,

I'm in the same boat! I own in Fullerton, (North OC), but even up here fixer-uppers are 500k plus. I've also been looking at multi-family in the 29 Palms area but since there's no way I'd move I'm looking at 20% down with a conventional loan. If you have enough saved and don't want to commute that's my suggestion.

Originally posted by @Dennis Rootes :

Hey Drew,

I'm in the same boat! I own in Fullerton, (North OC), but even up here fixer-uppers are 500k plus. I've also been looking at multi-family in the 29 Palms area but since there's no way I'd move I'm looking at 20% down with a conventional loan. If you have enough saved and don't want to commute that's my suggestion.

As Bpers and using this site to the networks fullest, like Dan says, we or some should just partner up and get some choice REI locations is always the other alternative. TBH, I would rather own the stairs or parking as in % to a CA beach location than an entire SFH in many other states.

@Drew Slater

I was in your exact position and I went out of state. I now own 10 doors in Kansas City and I'm looking at larger deals everyday. I think you can do what I'm doing in KC in Twentynine Palms and I often recommend it to people as a strategy. Being able to drive to your rentals rather than getting on a plane is really nice (I imagine at least). 

I also now understand the CA is purely an appreciation market and after buying RE in KC I'm attracted to buying in CA in addition to building up my cash flowing portfolio in KC. I hate to commute and don't think it is worth sacrificing quality of life over. I know people will disagree with me, but just think of CA as an appreciation market and try to get into a place that is up and coming and still has room to appreciate. If you buy in an up and coming area then you can still ride the upside no matter what happens with the market short term. I also think getting a home and renting out the bedrooms could work. But it coastal CA unless you have a TON of cash saved up you probably won't' be able to afford to buy. Even with a low downpayment loan you won't qualify for a loan amount large enough (I know this firsthand). Seems very unlikely that you'll find someone to give you owner financing but worth a shot! 

So think about living close to work on the cheap and getting RE elsewhere that is not owner-occupied. I am going to buy a second home in Mammoth Lakes even though I don't have a first home in LA. You could do something similar in Big Bear or Idyllwild and use it as a vacation rental. There are plenty of ideas but you really need to think about what your goals are and work backward. If you really want to build up a cash flowing RE portfolio, you could always move to a market that is more favorable for it. There are folks on here that have picked up and moved to Tennessee, Ohio, Missouri, etc. gotten a new job and started buying starting with a house hack 4plex. I don't think it is a bad idea. I have grown to love Kansas City in the time I've spent investing there. There are so many places that are not CA and CA is a ridiculous place to live! It is so expensive. Even if you made 70% of your salary working in a good place to buy RE you'd still have far more money relative to what you have in San Clemente. I'm a CA native and there are good things about this state (weather, jobs, liberal) but there are so many places in the US that are more affordable! 

Anyway, good luck and let us know what you decide. 

CA is a tough beast to wrap your head around. The perpetual influx of people from other states along with big foreign money makes it very difficult to start your investing career here, especially if you're looking to buy and hold.

I've also thought investing in the high desert, but it's a tough proposition. Jobs are lacking and for as many people as we get coming to CA, no one really wants to live there. The folks that usually live out there are in it either for a niche lifestyle choice or because they can't afford to live in coastal CA. 

As @Lee Ripma mentioned, there's a few otheroptions out there:

  1. buying long distance out of state
  2. moving to a new market

Investing long distance is the path I've chosen because both my wife's and my family live in Southern CA and we just view the cost of purchasing our primary home as the "tax" we have to pay to live in Socal. We bought a home that suits our needs and we're under no illusion that it's an investment. Because we're in Socal there's a good chance it appreciates, but that's just a bonus.  

If you're not tied to Socal, option two is pretty appealing. I'd 100% rather do option two over buying in 29 Palms and commuting 2-3 hours to work everyday. On the flip side with most owner-occupant loan programs, you only have to live there for a year before you're able to fully move out. One year of that horrible commute would really suck, but it's only really 200 or so work days. 

At the end of the day, real estate investing is about building wealth so you can live the lifestyle you want. For me, investing/living in places like the high desert or even the Inland Empire and commuting to Orange County for work defeats the purpose of why I invest in the first place.

@Drew Slater

Everyone has different goals, but these are just my two cents. Having a commute that long is more expensive and painful than working on your personal finance and increasing your savings rate. You waste money on gas, vehicle wear and tear, and most importantly time. Time you could spend learning about REI, learning a new skill/trade (maybe for that better paying job you hinted at?), and just relaxing downtime with friends and family.

California is without a doubt an expensive place to live and get started in.  If you're looking to buy a primary residence in CA to live in long-term, then I recommend saving up and buying when you can afford it.  Get a place close to work with roommates, ditch the car for a bike, dine out less, etc. to ramp up your savings even more.  It sucks, but that's the reality if you're going to save up for a down payment on a $600k house.  If you're looking to just invest in real estate and grow a portfolio, then consider looking OOS and maybe years down the road you can bring some of the cash earned back to CA.

Thank you to everyone. There was so much great feedback from this post. You guys are awesome!

After reading all of your suggestions, I definitely need to go back to the drawing board and come up with another strategy. Going the conventional loan route and trying to find a SFH or Multi-unit in my area is just highly unlikely given the cost of my area.

@Drew Slater This is a common dilemma for Californians that are looking for cash flow. Since you're already forced to look outside of your home town, you might as well broaden you horizons and look at the many good cash flow markets across the country. It might seem intimidating at first, but it doesn't have to be as difficult as it sounds. The midwest has some great cash flow markets. Personally, I like Indianapolis and Kansas City. I know both markets well and would be happy to share my perspectives and help if I can.