California Apartments? NEWBIE
Wholesaler · Fairfield, CA · Member since 2017 · 472 posts · 145 votes
Hi all,
I am a young man with his first 50k annual job stating next year. In the meantime I am trying to get educated on real estate apartments which is what I plan on investing in. I am reading books and have learned many valuation measures such as IRR and its mods, cap rates relating to value and NOI. I understand discounted cash flow. Ive spent months learning every day and all weekend and am the real deal. The issue I got to thinking of when doing case studies is that all the apartments were only 700k but when I have briefly looked on Loopnet for Northern California all I see is multimillion dollar apartment options! I want to invest by the time I am 25(I am 22) and get this off the ground for real. Are apartments realistic for starting out in Northern California? What are my realistic options and how is the market like in Nor Cal?
Thank you so much to people that reply and I apologize if I have a forum faux pas; this is my first post.
Hello gentlemen,
I currently have in my pipe line 11 different smaller unit complexes in LA, Inglewood, Sana Monica, Hollywood and San Pedro. LA- 4 plex- 785K + finders fee. There are off market deals out there, it's about connecting with the right people who are focused on helping you grow your business, with honesty and ethics. Larger units as well but I can definitely provide some small options as well.
Hi David,
Do you have any good sources(books preferrably) on learning about of state investing and partnering?
Hello gentlemen,
I currently have in my pipe line 11 different smaller unit complexes in LA, Inglewood, Sana Monica, Hollywood and San Pedro. LA- 4 plex- 785K + finders fee. There are off market deals out there, it's about connecting with the right people who are focused on helping you grow your business, with honesty and ethics. Larger units as well but I can definitely provide some small options as well.
Hi there,
Many people started in your shoes, including myself. You're asking for "realistic options". Is it realistic to be able to buy multifamily buildings in CA on a $50K/year salary? Perhaps. I wouldn't know. I live in CA as well, and granted, I do make more, but it is still a stretch here. If you have no living expenses and can save it all, maybe you could.
I bought in other markets and for the most part it's been going very well. I say most part, since recently I got into apartment buildings and it's been a lot more challenging, and not so profitable. However, on the equity side it's been great. Now, the market is different today, even in lower cost out of state markets. There are many markets I would no longer touch today because of the high valuation. You are smart to think of real estate as a long term scenario. In the short term it could be very painful.
If you only want to do Northern CA, it's worth considering that today's prices are a function of certain economic and demographic patterns, many of them are very complex and hard to understand (despite what many economists think or may say). Low interest rates, over supply of currency, inflow of foreign investment money, low employment rate and high stock market prices all drive housing prices to different directions. When some of these parameters change, the swing can go the other direction. It is not a reason to do nothing, but it is worth considering this as part of your risk assessment.
Welcome
@Cody Evans, I'm in the same boat as you also. Im 25 and in northern california (Sacramento). What I have found so far is that you will be blown out by cash buyers if you go through the MLS route. Right now Im trying to find off market deals as that seems to be the only option to make the numbers work for me here in the region. Make a marketing plan and try to find that needle in a haystack to get you started. Good luck!!
@Guy Azta did my @ tag work? I am on Mobile.
I am not interested solely in the Nor Cal market; just what works. How did you go about selecting outside markets (logistic steps)? Also how do you find trustworthy property managers and screen them when they are out of state? I hear many horror stories about these companies and the need to be ready to switch to a new one ASAP.
@Alex Rodriguez I am over here in Fairfield Are you getting blown out on the MLS because you check infrequently (how frequently?) and do you have a real estate license so you can view the MLS quickly? Do you look at any meet up groups? There is one in Fairfield I have gone to and another In San Francisco Im interested in joining.
@Cody Evans yes the tag worked. Before answering your question, I remember having a chat with a college friend of mine last year. His family has a large portfolio here in Southern Cali worth millions and millions of dollars. Very substantial portfolio. He was telling me they buy a building a year, and when I asked about the high pricing and low cap rates, he said they want the losses to offset their income, with the end goal that the mortgage will be paid off down the line. So you're easily competing here in pricey Cali with people like him, who are actually seeking losses.
Regarding out of state, it's actually very easy. Every time I hear what you call a "horror story" or meet someone who tells me it's a bad idea, I smile to myself, knowing that person is one less competition. It's great that so many people are afraid of it, and so many others are stuck want to manage their own thing and buy local. You never want to convince them otherwise! If you haven't bought anything yet, start small and modest. That's my opinion. You're in the multifamily forum. From my experience, multifamily can be very challenging and can be a money pit for a protracted duration. How long can yo afford losing money + putting more money in repairs? One bad deal like this can turn you cold and sour on real estate.
Doing to of state deals come in 2 flavors - turn-key operators and going your own deals. I started on the turn-key side. Because I bought when prices were low, coming out of the last recession, I bought many properties at a relatively low price (even though it wasn't as good as 2009 prices!). It's not as easy to do now, so you have to be more careful, but to be honest, nobody knew at the time that prices will continue to climb. We were all clueless just like we are now. Which means - you have to buy smart. I use the rule of 3 bed 2 bath SFR with at least 1,500 sqft. You can come up with your own guidelines. There's nothing inherently smart with my guideline - it's simply what I was comfortable with.
The benefit of turn-key is that you don't have to worry about repairs, they normally come rented or they place tenants for you, they tend to pick the right houses in ok neighborhoods (note I did not say "great" neighborhoods) and they either can manage for you or got a trusted company. You often don't end up completion much against other buyers, so the acquisition process is very simple. It's a pretty simple operation. Of course, some are better than others. I think that those I worked with, were decent. Now, you have to remember that they are all sort of mercenaries - they will get you the house and collect their commission, but you end up being the owner, so you need to always make sure you're getting something that seems doable in the long run. Always check employment base, demographics, growth and other developments, as well as comps and rent ranges. The main drawback is that they take a premium on their service. Now, there's nothing wrong with it and they definitely deserve that premium. Your risk is that their premium can have long lasting impact on your investment returns, and that goes back to "buy smart" and make sure the numbers work.
The other option, doing your own deal, is looking for brokers in the out of state area, looking for properties yourself and being your own turn-key guy. That normally means you have to compete and go after distressed situations, which may require repairs and additional out-of-pocket costs. It's more involved and more headache. A lot more. The main reward for all this drama is that you can pick up properties at a discount, thus having better equity position and in theory making higher returns (lower purchase price equals lower mortgage equal higher returns in many cases). This is all in theory, since in many markets, they can assess taxes and insurance based on what the property is now worth, and not based on what you paid, and so your expenses may go higher than expected, and the repairs may end up costing far more. Also, there's the risk of buying in a terrible part of town, something the turn-key guys will normally not do.
Looking back, I wish I did my own deal for everything, however, I started like you being somewhat fearful of buying properties and trying it out and preferred the safety of the turn-key guys first. You don't necessary need to do this. It's about comfort level and risk appetite. All in all, I did pretty well with turn-key stuff, but again, it's important to remember that I bought when he prices were much lower. If you look at real estate as a long term strategy, buy smart and manage your risk, then in my humble opinion, in the long run, buying turn-key or your own deals shouldn't really matter. You'll definitely become more savvy if yo do your own deals, but again, it comes at a price of time, effort and headache and more money now.
Last, about property management companies, I don't get why so many seem to be so obsessed over it. Let me ask you - how well do most people trust, know and understand the management of the company they work for? Or the city they live at? Or the companies whose stock their buying and stake their retirement upon? If you think about it, we know nothing about anything. Property management companies can be good or bad. It's up to you to interview them, choose them, manage them and if they don't work, then replace them. The key is to not buy a property where there aren't too many options to choose from. I employ the services of 7 different companies. I love it. The only companies I talk to are those that manage my apartment buildings, because multifamily is management intensive. The companies that manage my SFRs, I hardly ever hear from. The one thing I was 100% clear on when starting is that I do not want to manage anything but the management companies.
Hope this helps. Good luck
@Garrett vita
You are very close to me. We should have a talk. Do you have a skype account? I can set you up with one if needed
@Guy Azta
Thanks so much for the great post. I would like to help you out with something: What do you have going on? I have an analytical and creative mind (says everyone right? Lol) and consider more possibilities when solving problems than most people.
How do you go about finding out the information about different markets (employment base, demographics, growth and other developments, as well as comps and rent ranges) as mentioned in your post?
Hi @Sam Shueh
Thank you for the advice. I use loopnet. Is there a preferred site to do this sort of searching on?