San Diego Investor looking to invest out of state, BUT WHERE?

[Anthony D'Angelo]

Hi All!

I am an agent and investor in San Diego, but I like cash flow and a little appreciation of course. Where are places to invest? I prefer landlord friendly states. Where do you invest, do you have good agents to find deals, lenders, property managers, contractors/handymen?

Thanks in advance!

Anthony

[Dan H.]

Quote from @Anthony D'Angelo:

Hi All!

I am an agent and investor in San Diego, but I like cash flow and a little appreciation of course. Where are places to invest? I prefer landlord friendly states. Where do you invest, do you have good agents to find deals, lenders, property managers, contractors/handymen?

Thanks in advance!

Anthony

 I am an investor in San Diego area (not an agent, lender, or in any way profit from what market you choose).   I would put my cash flow against any residential (<5 units) against anywhere if we were using purchase cost versus realistic estimate of expenses (note this would be as though I had not extracted any value, in reality my cash flow is modest because I have extracted value regularly).

How would my cash flow be so great?

There is poor correlation between initial cash flow and actual long term cash flow. The reason for this is that RE market prices are based on numerous criteria. Some of the big ones are expected appreciation, expected rent growth, and risks.

In most markets, the market with the highest rent to price ratio is the lowest class areas. This is because of the risks and effort to have rentals in that market.

Similarly, the markets with the best initial cash flow typically have poor historical appreciation and rent growth. The properties with poor initial cash flow often have good/great historical appreciation. Rent growth has a strong relationship to appreciation.

The higher rent growth market will always surpass a market with better initial cash flow but lower rent growth given enough time.

On a long term hold, the rent growth is much more important than the initial rent growth.

If I invested $100k in the year 2000 using the same leverage and no extraction of value in both San Diego and Cleveland, which investments do you think would have the better cash flow over the hold? Which do you think would have appreciated more? If the answer is not obvious, remember the relationship between appreciation and rent growth so the answer is the same for both questions.

My worst appreciating property has appreciated $2700/month over its hold.   I have a couple (maybe 3) that have appreciated over $10k/month over their hold.   What do you think has happened to their market rent?

If you decide not to invest locally (my suggestion would be a house hack of a detached duplex), I still highly recommend looking at appreciation and rent growth forecasts instead of  the initial cash flow   Do you think if I invest $200k today in San Diego RE and $200k in Cleveland RE at same point of leverage, which do you think will have the better cash flow over the next 20 years (assuming no extract of value)?  Which do you think would have the higher appreciation?  Do not over value the initial cash flow.   Look at population trends, available housing stock, areas to build, robust/diverse economy, etc to project likely future appreciation and rent growth.

Case Shiller used to publish a list of top performing total return (cash flow, appreciation, etc) residential RE in large markets since the year 2000.  I have not seen this list in quite a few years (maybe 5 years, probably a bit longer).  The first one I saw was maybe 2012 (I suspect that was not the first year of their data).   Every one that I saw had San Francisco #1, Los Angeles #2, San Diego #3.    A Look at the list showed a relationship between appreciation and rent growth.  The top of the list had both good appreciation and good cash flow.  note none of those top markets had good initial cash flow.

good luck