Affordable Investment properties Buy & Hold near San Diego, CA

80 Replies

Hi all,

I'm just starting to dive into all the great info here and I would like to start looking for properties to buy and hold for cash flow.

I live in San Diego, CA and from what I can tell, it seems almost impossible to find a property around here that you could rent out and be cash flow positive. (Median home value is around $500K and median rent is about $1300).

I was wondering if anyone has any advice on more affordable real estate opportunities within a 5-6 hour drive of San Diego. That radius covers most of Southern CA and parts of Arizona.

I would like to find a property in the $30-60K range. I've been looking at places like Phoenix, Lancaster, and Bakersfield.

Any thoughts?

Thanks,

Denny

Hi Denny, and welcome to BP!

I own rental properties in the Phoenix suburb of Tempe (near Arizona State University). Most of the houses around here were built between 1950-1960s, average about 1100-1300 sqFt, and sell for between 150k and mid to high 200ks. As an example, I have a 1300 sqFt 3/2 house that is walking distance to the university and rents for $1430/month. I paid around 130k for it at the lowest point after the crash (and it needed some work).

I'm sure you could find a property for 30-60k in metro Phoenix, but it certainly wouldn't be in an area that I'd want to deal with.

I'm not sure what the rental market looks like in the AZ/Cali border cities like Yuma, Parker, Lake Havasu etc, but I imagine the mean prices would certainly be closer to that $60k point.

Hi Ryan

Thanks for the info! My price range is probably a little unrealistic for this region. Thanks for the reality check. I'll be sure to look into those border towns you mentioned.


Be wary of any property you find in any of those cities, or within 5-6 hours drive in that price range. I'd be wary of that price range (because of increased risk which can be devastating if you are an inexperienced investor) in any US city, but most definitely in any CA or AZ city. In CA you'd be lucky to buy a bathroom for that price. So any house you find in that price, I'd be terrified of.

Sorry for the buzzkill, but for that price range you'll have to go a lot further out than 5-6 hrs from SD. Kansas City is about the closest for that.

@Denny Moody I agree completely with @Ali Boone . You're not going to be able to find anything in that price range in those areas. Why is a 5-6 hour drive your criteria? I'm a big believer that you should choose the best possible market that achieves your financial objectives first. You wouldn't choose a stock because the companies headquarters are within driving distance. Think of real estate the same way. Investing out of state does have some additional challenges but can be very lucrative especially when compared to anything in CA.

Best wishes,

Mike

Don't set your goals so low. A $30K rental? Seriously? Why would you even want that? I see no upside in owning garbage. I don't think I'd even consider a rental house that rents for less than $1,000/month.

You live in one of the most consistent best markets in the country. If you're just getting started, bird dog deals for other investors. There are lots of them in San Diego. Get connected with high level people in your market. There are some great monthly meetings you can attend like SDCIA and NSDREI.

Rehab and flip a few homes down there and you'll have enough cash saved up to buy some quality rentals that will attract good tenants who pay decent rents.

Originally posted by @Mike D'Arrigo :
Think of real estate the same way. Investing out of state does have some additional challenges but can be very lucrative especially when compared to anything in CA.

I can understand telling someone living in Michigan to invest out of state because of more lucrative opportunities, but telling someone living in California that better deals can be found in another state? That's like telling someone fishing in the ocean they can catch bigger fish in a lake!

@Aaron Mazzrillo

Flipping and wholesaling are completely different animals than straight rental properties. I know you do it a lot and love it, but not everyone is looking to do that much work. No idea how much Denny wants to do but in general, remember that you are really good at what you do and have a knack for it and it's just not realistic that everyone else is the same way.

More than that though, I'd love to see a positive cash flow rental property example that you would buy in SoCal. You are the only person I ever see on here, or anywhere, saying they can find cash flow here. Would love to see a property.

Account Closed his objective is buy and hold for cash flow. I'm from CA also. CA is a terrible cash flow market because of the prices. Where in CA can you get a 9 or 10% cap rate?

Originally posted by @Ali Boone :
@Aaron Mazzrillo
More than that though, I'd love to see a positive cash flow rental property example that you would buy in SoCal. You are the only person I ever see on here, or anywhere, saying they can find cash flow here. Would love to see a property.

One needs to have a lot of tools in one's tool box. Even a good plumber carries a hammer around with her because sometimes a wrench just can't do the job. I don't like bank loans. I like seller financing. Seller financing doesn't work on every deal, but every once in a while you can give the seller a good whack with the financing hammer and you get an accepted offer.

The last property I purchased and kept as a rental here in SoCal was for $140K for it in Dec 2013. 10% down, $625/month, 5% interest. Rent is $1,100. I spent just a few hundred getting it ready and found a tenant within 8 days. I had collected rent before I made my first payment to the seller. The house directly across the street, which I also tried to buy this morning and is a model match to mine, is going to be listed for $175,000 and will mostly likely sell at that price. Why? Because this is California where it is not unrealistic to see a house increase in value at absurd rates. Therefore, whenever I see someone telling another person that investing out of state is such a splendid idea, I do my best to prevent that person from becoming a financial victim like so many other zombies I have run into at the dozen or so REIAs we have here in SoCal.

I purchased a 3 unit building, seller financed, in December 2012 that has produced to date, over $9K in net cash flow. Not in Detroit, not in Kansas, not in Wrangler pants wearing, 30 year old truck driving, corn eatin', the-biggest-building-in town-is-a-silo middle America, but right here in sunny, rapidly appreciating southern California. Any time you want to come out to the IE and drive around and look at the many cash flowing properties I own, all purchased over the last 4 years, just let me know.

And as far as investing in real estate for cash flow is concerned, why would anyone do that in this type of market unless you got extremely favorable financing? Cash flow is a pittance compared to the profits that can be captured flipping properties here in SoCal in the current market. Which is better; $200/month or $30,000 cash today?

Originally posted by @Mike D'Arrigo :
@Aaron Mazzrillo his objective is buy and hold for cash flow. I'm from CA also. CA is a terrible cash flow market because of the prices. Where in CA can you get a 9 or 10% cap rate?

A 10 cap is probably a nice income stream when you've built a large capital reserve and you're looking for somewhere to park it. I don't know how old Denny is or what his financial situation looks like, but he looks way to young to be sitting around at home hoping for a $200 check from some junky rental every month. If he is like most 20-ish people looking to invest in RE, he'd be way better off capturing equity spreads and building wealth quickly. Then when he has a few extra hundred thousand in the bank, he can muck up his life with a bunch of low income rentals, sit home in his underwear and play Xbox waiting for his rent checks to come in and his water heaters to break.

If he were you're son, what advice would you give him? If my kid told me he wanted to work hard, save $30K so he could go buy some POS junk house, make a few hundred rent off it every month from a low income tenant, and then keep working so he could save up another $30K and get himself another one, I'd probably drive him down to the local Navy recruiters office and tell them I failed, let's see what they can do with him.

Again, you are talking about flipping. Flipping is different from straight rental properties and works under a completely different premise and skill set. Flipping is extremely profitable in SoCal, I'll be the first one to tell anyone that. Not everyone in SoCal has the time or desire tho to do as much work as you do just to make an investment property worth it. I commend what you do and am quite impressed actually, but it's not for everyone.

Even if your methods and success in SoCal are total rockstar and putting mega profits in your pockets, I'm not sure there is a need to knock people who look out-of-state. I think it takes a certain skill set to succeed in SoCal, one that you obviously have, and not many people either have that skill set or want it. There is absolutely nothing wrong with buying out of CA if you live in CA, there is nothing wrong with buying in CA if you choose to do that, and there is nothing wrong with any particular method of investing that you choose assuming it makes you happy. Everyone is different, everyone's goals and desires are different, and everyone's skill sets are different.

You are the only one on this website that I see as being an active SoCal investor. I'd love to hear more about, and I'm sure more people would love to hear about, how you make it work. If you really get irritated at people buying outside of CA, instead of knocking them, educate them. Then maybe not as many people will buy outside CA if they know how to do it in CA.

Plus $1100/month on a $140k property in a state that is so tenant-friendly isn't enticing enough to shift my attention back to CA. Can do way better than that with a lot less effort in other states.

@Aaron Mazzrillo the great thing about real estate investing is that there are a multitude of ways to make money and each person has certain strategies that they are comfortable or have mastered. @Denny Moody is looking for cash flow buy and hold so I am addressing his question from that standpoint. I am not so presumptuous as to tell him he shouldn't do that. In fact the opposite. More wealth is accumulated holding real estate. Wholesaling and flipping is great (gee what do you think my company does?) but wholesaling is a JOB that will never provide passive income. You asked me what my advice would be to him so here it is. Buy as many cash-flow properties with leverage as he can and pay them off as quickly as possible by applying all of the cash flow to the principle. He can pay them off in about 10 years that way. I would then do a cash out refinance on as many as he can and go buy more and do the same thing all over again. Wholesaling and buy and hold are not mutually exclusive since wholesaling doesn't require a lot of capital. If he decides he wants a JOB he can wholesale also and all the income from that is just icing on the cake since he has cash flowing properties providing him an income.

Well, even the person jumping off the Golden Gate bridge thinks its a good idea at the time.

I have no problem making myself heard when it comes to financial suicide whether or not the jumper wants or needs to hear it. Sometimes, a different perspective is all it takes for someone to do something different because they are going down the path that, at that moment, they believe is the best/only option for them.

Originally posted by @Ali Boone :
Again, you are talking about flipping. Flipping is different from straight rental properties and works under a completely different premise and skill set. Flipping is extremely profitable in SoCal, I'll be the first one to tell anyone that. Not everyone in SoCal has the time or desire tho to do as much work as you do just to make an investment property worth it. I commend what you do and am quite impressed actually, but it's not for everyone.

Even if your methods and success in SoCal are total rockstar and putting mega profits in your pockets, I'm not sure there is a need to knock people who look out-of-state. I think it takes a certain skill set to succeed in SoCal, one that you obviously have, and not many people either have that skill set or want it. There is absolutely nothing wrong with buying out of CA if you live in CA, there is nothing wrong with buying in CA if you choose to do that, and there is nothing wrong with any particular method of investing that you choose assuming it makes you happy. Everyone is different, everyone's goals and desires are different, and everyone's skill sets are different.

You are the only one on this website that I see as being an active SoCal investor. I'd love to hear more about, and I'm sure more people would love to hear about, how you make it work. If you really get irritated at people buying outside of CA, instead of knocking them, educate them. Then maybe not as many people will buy outside CA if they know how to do it in CA.

Plus $1100/month on a $140k property in a state that is so tenant-friendly isn't enticing enough to shift my attention back to CA. Can do way better than that with a lot less effort in other states.

I do own quite a few properties right here in SoCal that I've acquired over the last few years, some even with hard money, and they all cash flow. The offer stands, any time you want to come out to the IE and take a look around, I'm more than happy to show you a few.

As far as this state being labeled by you as tenant friendly, how did you arrive at that conclusion? Have you ever managed property here or done an eviction in CA? I've done several evictions and every one of them ended with me getting my property back and a judgement against the tenant and none took longer than 60 days. That isn't Texas time, but 60 days is reasonable. It really comes down to tenant selection and that falls on the landlord, not the state. Yes, the courts are extremely picky about paperwork, but that is solved with good housekeeping.

If you live in California and you are investing out of state, you are literally stepping over $100 bills to pick up shiny nickels. I'm flipping a townhouse right now that I just paid $205K for and will sell for $350K or more. It isn't a full time job. It's not even a part time job. I'll spend more time at the gym this week than I will at that property the entire duration I own it. I've actually never seen it even though it is 45 minutes away. It doesn't take much time to tear out a few pictures from Architectural Digest, scan and email them to my contractor and say "Make it look like that."

Off the top of my head, I can think of quite a few SoCal investors that regularly post on BP and of those that come to mind, I know they have far exceeded what I've accomplished. I actually think I'm quite a small operation compared to my peer group. I'm not a rock star. At best, at least in this state, I'm an opening act for an indie band.

Originally posted by @Aaron Mazzrillo :
Well, even the person jumping off the Golden Gate bridge thinks its a good idea at the time.

Why can't you just accept that there are lots of different ways to invest and what is right for one person isn't best for another? Buy and hold is hardly committing "financial suicide". It's a proven strategy for creating wealth and passive income. I'm glad that wholesaling and flipping is working well for you but people have different objectives and buy and hold is the best way of creating an income stream for retirement. When 3 out of 5 people will outlive their savings after retirement, having a permanent income stream that you don't have to draw down and live on is more important than ever. Wholesaling and flipping doesn't give you that permanent income stream.

I admire how strongly you feel about what you're doing and wish you much success.

@Denny Moody There is wisdom in price and usually a very good reason an asset is selling for the price that it is. Penny stocks sell for pennies because they are garbage. Junk bonds (or as the wall street cats like to call them "high yield debt)" offer very high interests rates because the risk of default is huge. Out of state investing offers high cap rates for a reason. The analogy @Mike D'Arrigo used is inaccurate. Owning property out of state is very different than owning a stock with headquarters out of state.

Another thing to keep in mind is "who is on the other side of your transaction?" Is it a savvy investment company trying to sell you a turnkey property and manage it for you?

Don't get hoodwinked be careful out of state investing works for some but its priced the way it is because investors vote with their $ and the market is telling you that most agree with Account Closed

Wow. Thanks for all the replies. I wasn't expecting such an engaged reaction, but I'm enjoying the conversation.

@Mike D'Arrigo My reasons for wanting it to be within a day's drive is simply so that I can spend weekends in that area checking out homes without having to buy a plane ticket each time. I'd like to spend a lot of time looking at potential properties and that's not super feasible if I have to fly somewhere. T would love to see your info on how to invest out of state.

@Ali Boone Thanks for the "buzzkill" haha. I'm starting to realize that those numbers are a bit ridiculous. The reality is I have a significant cash savings and I'm looking to invest 20-30K of it. So If I use that as a 20% down I could buy something in the 100K - 150K range. That is probably a little more reasonable.

Account Closed You offered to show some of your cash-flowing properties in Socal? If that's a legitimate offer, I will 100% take you up on that. By IE are you referring to the Inland Empire?

As far as flipping/rehabbing, I'm not looking to get into that bc it seems much more speculative than buying a property that I know will cash flow each month. Making tens of thousands in a few months sounds awesome, but I'm not ready for the risk of hoping I can sell something for more than I bought it for. I'm looking for steady, smaller wins. I have a day job and I'm launching a start-up, so I don't have time to make RE a full time thing.

Question: Does the first time buyer deal with 3.5% down work for investment properties as well? Or does it have to be your residence?

Both owner occupied and investors, although the down payment is now 5%

more info ---> http://www.homepath.com/financing.html

Originally posted by @Denny Moody :

@Aaron Mazzrillo You offered to show some of your cash-flowing properties in Socal? If that's a legitimate offer, I will 100% take you up on that. By IE are you referring to the Inland Empire?

As far as flipping/rehabbing, I'm not looking to get into that bc it seems much more speculative than buying a property that I know will cash flow each month. Making tens of thousands in a few months sounds awesome, but I'm not ready for the risk of hoping I can sell something for more than I bought it for. I'm looking for steady, smaller wins. I have a day job and I'm launching a start-up, so I don't have time to make RE a full time thing.

I think there is more risk in buying and holding a property within 5 hours of where you live that would sell for under $60K. You'll end up in some ghetto east San Diego town or outlying area of Phoenix and you'll regret it as soon as you start looking over the rental applications. If you are free on a Tuesday, I have lunch with a handful of investors. Quite a few BP members show up as well. It is a good group of people and we sometimes buy and sell houses to each other. One girl who comes even flips donut shops! Come up to Riverside, we can look at some houses, go eat lunch, then go look at a few more properties. I'll tell you how I found them, financed them and what they are rented for.

@Ryan S. Thanks for the info!

Account Closed That sounds awesome. Does this happen every Tuesday? If so, I'll figure out when is the next Tuesday I can take off work in the next few weeks and let you know.

Yeah, they meet every Tuesday. I don't go every week. I can do next week, but not the week after that.

Account Closed I can't do next week. But I could do the 15th, 22nd, or 29th.

Origninally posted by@Mike S.
"There is wisdom in price and usually a very good reason an asset is selling for the price that it is. Penny stocks sell for pennies because they are garbage. Junk bonds (or as the wall street cats like to call them "high yield debt)" offer very high interests rates because the risk of default is huge. Out of state investing offers high cap rates for a reason."

I'm not sure what your perspective is on markets outside of CA but the fact is that CA has the highest real estate prices in the nation. Just because someone goes out of state for lower cost real estate doesn't mean they are buying in run down areas? Are you suggesting that CA is the only state you can get good properties? The median price of a home in Dallas TX is around $110,000. Are you saying that because that is cheap by CA standards that Dallas is a bad market??? TX has the best economy in the nation. Oklahoma City has a median home price of $122,000 with a 5% unemployment rate. Should we assume that because homes are so cheap there that it's a terrible market? I happen to like Indianapolis and Kansas City. It might come as a surprise to you but both of those cities have diverse, robust economies with unemployment rates lower than CA. No one is talking about depressed markets like Detroit. I wouldn't touch a market like that.

You should educate yourself on these markets before making broad generalizations that just because they are very affordable that they are bad. I have spent a considerable amount of time in both. I have yet to see anyone show us how to get cash flow in CA. If you share you're secret, I'll gladly switch to CA but so far no one has shown me how it makes sense.

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