I live in the Southern California market and am beginning to consider RE investing. My wife and I already technically have a property (we moved out of our condo and have been renting it out with a $700/mo net).
Our best option right now would be a cash out refi on the condo. We owe 105k and it's worth 400k.
However, the SoCal area is cost preventative for RE right now (especially considering we have, at most, 215k out of the refi and would then be operating our condo at a loss.
I'm starting to consider Phoenix, AZ. It's a growing economy, prices are in our range, it's a fairly close drive/flight for us and, here's why I'm leaning there, my parents are retired there.
My questions:
What are some of the big hurdles that you have found doing out of state RE?
In my position, what kind of properties should I be looking at?
Does the area I'm looking make sense from a RE sense?
@Tyler Galloway - I would consider selling the condo outright. I think Return on Equity is a very important metric, so you want to look at what that metric would look like after a refi vs. what you could earn on after investing sale proceeds into something with better cash flow.
I would also take a look at linear markets that cash flow and distinguish them from cyclical markets like the big cities on the coasts, including Phoenix. I think a lot can be learned from the GFC in terms of distinguishing the two market types. While the future is an untold mystery, I personally would be looking to pull equity out of cyclical markets at this time and moving over to solid cash flow investments.
I've invested out of state, but in a place where I grew up. I'm a big believer in investing where you know. If you do not know any cash flow markets, I would begin doing some homework and finding a market that you believe in.
Finally, I would caution to not buy simply what you can afford now and hope the price goes up. To me, that is speculation. Rather, I would look for opportunities that provide the what you perceive to be the best potential return on your capital.
@Mike Roy - Thank you Mike for your advice. I guess I had never really thought of just outright selling the condo. If we were to do that, it would be eligible for a 1031 Exchange correct?
If so, that would certainly open up the local market and would probably make me feel a lot more comfortable. My in-laws own rental property in SoCal already (a cash flowing triplex in the San Gabriel Valley) and it would be ideal to follow in that same mould and have properties that are nearby.
Our ultimate goal, for now, is to more or less supplement our income, not to replace it.
@Tyler Galloway - If you lived in the condo for two consecutive years in the last five, you should be able to sell it outright with a $250k capital gains exemption for a single person or $500k for a married couple. I would run this by your CPA if you think you qualify.
Otherwise, you can do a 1031 if you can find a good replacement. Some investors simply pay the tax rather than be forced into a bad deal. That is a personal decision based on the opportunities you have access to.