Ca overpriced... why NOT buy several houses remotely?
Davis, CA · Member since 2016 · 595 posts · 344 votes
Ca overpriced... why NOT buy several houses remotely?
Most Popular Reply
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
10yPlease don't listen to the simplistic answers of "you will make more with appreciation" That is a possibility, perhaps even a strong possibility but it is not guaranteed. The market goes through cycles, including CA. Markets that tend to have higher appreciation also tend to have larger swings when the market changes downwards.
I am not saying whether CA is a good bet one way or the other. That is not my market or expertise. However to say it has gone up the last 5 years it will go up forever is what people said in 2006-2007.
On the other hand when you invest out of state you increase both your risk and your cost. You are going to do the best in the market you know the best. It is harder to learn a distant market.
You will get good feedback and knowledge here on BP but anyone who acts like the answer is clear and obvious is doing you a disservice.
38 Replies
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes10y
Because there are houses in Sacramento and surrounding areas for $160k that rent for $1250. In 5 years they will be worth $200k+ and rent for $1500.
- Davis, CA · Member since 2016 · 595 posts · 344 votes10y
Originally posted by @Joe Bertolino:
Because there are houses in Sacramento and surrounding areas for $160k that rent for $1250. In 5 years they will be worth $200k+ and rent for $1500.
I know... I am just starting to look... Going elsewhere I am trading that appreciation... but dang... hard to swallow. Where in general would that price point exist and still show good rents? You thinking stockton or like North Sac or...? Thanks for the post!
- Real Estate Agent · Lehi, UT · Member since 2016 · 136 posts · 91 votes10yhttp://www.fig.us/single-post/2016/09/26/Top-10-Reasons-to-Invest-in-Salt-Lake-County
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes10y
95817, 95820 and Yuba City
- Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes10y
Looks like Joe beat me to it as I was typing out my answer.
Rough number comparison:
Midwest strategy
- Invest 30k in the Midwest. Leverage 5:1 with 80% loans = Three 50k houses for total purchase price of $150k. Mortgages = 120k. You make $100/door after expenses. In five years your loan will be down to about 111k, and your properties might be worth 160k. Equity = (160k - 111k) = 49k. Add in the 18k in profits, and you're up to 67k in capital. Cash over cash ROI = (67-30)/30 = 123%. Not bad, about 17.5% annual ROI. That assumes you're hitting 100/door number. And you might not.
Sacramento
- Same 30k investment. Leverage 5:1 and get one 150k property. Rent for 1300/month. Don't plan on guaranteeing any cash flow right away, but it will pay for expenses. You should be able to generate more cash later as rents are likely to continue to increase. In five years that property is worth 200k. (Annual 6% increase). Mortgage also = 111k. Equity = 89k, Cash over cash ROI = 196%, about 24% annual ROI.
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
http://www.mercurynews.com/2016/09/25/bay-area-wag...
Case in point: Over the five years that ended in July, the median home price has rocketed up 94 percent in San Mateo County, 74 percent in Santa Clara County and 67 percent in San Francisco, according to figures from the CoreLogic real estate information service. While the median in the East Bay is lower, home prices there have increased even more: up 105 percent in Contra Costa County and up 99 percent in Alameda County.
Invest $100,000 and walk away with $600,000 in only 5 years! That's $10,000 a month that you would have to make in cash faux just to match.
- Davis, CA · Member since 2016 · 595 posts · 344 votes10y
from a buy and hold for cash flow perspective, I still just cringe at the idea...
I REALLY appreciate your responses...
- 10yGordon CuffePro MemberInvestor · Roseville, CA · Member since 2009 · 1k+ posts · 584 votes
@Carson Wilcoxif you could travel back in time then it would be a perfect time to buy because of the five years of appreciation. If you look back at the history of Sacramento real estate prices since 1988, you will see large increases in prices for four to five years then seven to nine years of no appreciation or depreciation. If you buy in St. Louis , buy at a discount so you have equity. You can find houses for 30k that rent for $800.0 per month . If you end up buying in Sacramento then only buy at a discount so that it does not matter when the appreciation stops you allready have built in equity.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes10y
Please don't listen to the simplistic answers of "you will make more with appreciation" That is a possibility, perhaps even a strong possibility but it is not guaranteed. The market goes through cycles, including CA. Markets that tend to have higher appreciation also tend to have larger swings when the market changes downwards.
I am not saying whether CA is a good bet one way or the other. That is not my market or expertise. However to say it has gone up the last 5 years it will go up forever is what people said in 2006-2007.
On the other hand when you invest out of state you increase both your risk and your cost. You are going to do the best in the market you know the best. It is harder to learn a distant market.
You will get good feedback and knowledge here on BP but anyone who acts like the answer is clear and obvious is doing you a disservice.
Originally posted by @Ned Carey:
Please don't listen to the simplistic answers of "you will make more with appreciation"
...You will get good feedback and knowledge here on BP but anyone who acts like the answer is clear and obvious is doing you a disservice.
GREAT response Ned; Recall, "only death & taxes are certain"
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
Originally posted by @Ned Carey:
Please don't listen to the simplistic answers of "you will make more with appreciation" That is a possibility, perhaps even a strong possibility but it is not guaranteed. The market goes through cycles, including CA. Markets that tend to have higher appreciation also tend to have larger swings when the market changes downwards.
I am not saying whether CA is a good bet one way or the other. That is not my market or expertise. However to say it has gone up the last 5 years it will go up forever is what people said in 2006-2007.
On the other hand when you invest out of state you increase both your risk and your cost. You are going to do the best in the market you know the best. It is harder to learn a distant market.
You will get good feedback and knowledge here on BP but anyone who acts like the answer is clear and obvious is doing you a disservice.
Um Ned, the OP is from Davis CA. That is in California.
I also don't agree that markets that have higher appreciation OVER TIME have larger swings. It is generally the markets that have a one time spurt that then have the one time crash. That is why it is so important to KNOW what the appreciation rate has been OVER TIME just as you would want to know the rent rates and expense rates and the vacancy rates, OVER TIME. I predict that a lot of people that have jumped into markets in the last 5 years of up markets are going to be in a world of hurt when their market metrics return to the mean.
- Residential Real Estate Broker · San Mateo, CA · Member since 2013 · 585 posts · 264 votes10y
@Carson Wilcox something that slips a lot of people up is property management. I am not saying that the local managers will do a better job, but you can check on it without a plan flight/hotel stay. What ends up happening for a lot of people is they think about the purchase price and monthly rent only. That is a BIG mistake. Run the numbers and just remember that in a lot of places in CA you are paying the high price for the land more than the building on top (not everywhere, but in a lot of places).
Something else that happens, especially in markets like the ones @Joe Bertolino is talking about, is renters will do the quick fix ups themselves (i.e. they don't call your management company everyday and make them send out contractors and rack up service call/fees).
I am in the Bay Area and the price of a window is pretty much the same price here as it is Sacramento and I imagine St. Louis. If I have to go fix a window/etc. here, I do not lose the entire month's rent - although you could argue my mortgage payment might be a tad higher ;)
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes10y
@Account Closed
Yes Bob what is your point? Knowing he is from CA and was likely comparing CA to other areas of the country as an option is exactly why I referred to CA in my response.
I can't believe I am going to say this but I strongly agree with you here.
- Davis, CA · Member since 2016 · 595 posts · 344 votes10y
I think in areas with ridiculous houing prices, it is reasonable to include "average" appreciation in a conservative way when you look at returns over years... but if I am looking mainly for cash flow... When I look at the $$$ being a barrier to entry in my area... it makes me think that turn keying elsewhere might be legit...
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Carson as long as you buy quality in any of the "turnkey markets" DO NOT GET SUCKED into buying 30k houses in St. Louis those are squarely in the HOOD.. and they may rent for one or two months at 800 but will never do so consistently.
there are safe places to go out of state.. and enjoy a 8 to 12% levered COC return over time.. SAFE being the operative word..
If you want to know what those 30k homes in St. Loius are like simply go to the worst parts of Stockton and you will get a picture
- Davis, CA · Member since 2016 · 595 posts · 344 votes10y
It might be kinda cool to see my rental on a future episode of Cops though...
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Carson Wilcox its cool right up to the point they kick the door in and do thousands of dollars of damage trying to arrest your lovely tenant :)
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
Originally posted by @Jay Hinrichs:
@Carson Wilcox its cool right up to the point they kick the door in and do thousands of dollars of damage trying to arrest your lovely tenant :)
Well, that's show business! LOL
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes10y
Originally posted by @Carson Wilcox:
I am working on a long term buy and hold plan.. SFH's here in Nor cal are SO overpriced. I am 40, 3 kids, full time job... I envision doing Property management at least in the first decade, but do a lot of work myself on any I can buy locally. If I am going to pay a manager anyway... WHY NOT buy a house in St Louis for $50k that rents for $600 vs a house in sacramento that costs $350k and rents for 1100...? Why wouldnt I buy rentals elsewhere that cost 1/5th the amount here for barely less rent? What is the drawback besides the finding and screening?
Disclosure: I own Holton-Wise. Our company sells turnkey product.
I've never been one to push an investor one way or the other in regards to investing in their state or investing in another state. I don't know enough about the other markets in the country to determine if investing in their backyard will work for them or not. I know my town, (Cleveland) and that's really all I pay attention to.
What I will say is that all of the "turnkey" markets are pretty similar and if you decide to invest in one of them you can go the cheapest possible route or bump up your purchase price slightly and get with a smoother ride. Here in Cleveland much like all of the other turnkey markets we have your C-class entry level single homes in the 40-50k range and rents in the $650-$799 range. However we also have the B-class homes that are in the $70-90k range with rents in the $850-$1k range.
Sometimes those entry level properties run great, sometimes they don't. Sometimes they run good for awhile then they run bad for awhile. If you only own 1 and it starts running bad it really hurts. If it's your first investment and it starts running bad it really hurts. If you are going to invest out of state my recommendation would be to bump the purchase price up a bit and buy a few B-class properties first then after you have wet your beak a bit if you so choose go after the lower cost properties in bulk.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
Let us know which episode to watch! I always want clues for better tenant screening:)
- Investor · st louis, MO · Member since 2014 · 57 posts · 26 votes10yJay Hinrichs I do have to disagree with you. Yes, there is absolutely "hood" areas. Here it can be block by block too. The bulk of the areas are perfectly investable "c" class areas however. (Disclaimer! I create those rent-ready and turn-key 30k houses. I also invest there too) As one example, there is a pocket I buy in heavily called Flordell Hills. It's a great area to invest. Now, this little city is surrounded by Jennings. A not-so-great area. There is still great money to be made in Jennings. I know a lot of people who do really well there. but I personally won't invest there. I've seen both sides of this 30k "pig" argument. But it has been excellent. You can expect solid 15-17% returns using BP's 50% rule. This is with managment in place. There is good money to be made here. A good amount of my buyers are big out-of-state firms. Why? I think it is largely due to eliminating any emotions and just looking at the numbers, including the non-sexy parts like repairs, evictions, vacancies etc. One thing you won't see is appreciation, so it is good to know this when you do your own calculations. These houses have been 30-40k for decades. I don't expect this to change either due to the fact that the most of the North County area is largely investor owned. Prices have been driven by the math rather than other factors. I will put one plug in here: when I consider buying and rehabbing a particular house, I ask the question first: "Would I buy it for myself?" If the answer is yes, I'll pull the trigger.
- Investor · Woodland Hills, CA · Member since 2016 · 51 posts · 12 votes10yI just put up a post about Las Vegas, may be that's a viable option for you and your family.
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes10y
Originally posted by @John Thedford:
Let us know which episode to watch! I always want clues for better tenant screening:)
Whoa Barney Fife! This special edition of Cops is filmed on location with the men and women of law enforcement; all suspects are innocent until proven guilty in a court of law. LOL
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
@Account Closed
LOL. I can ASSURE you I have more than one bullet. Google me:)
- Investor · Stockton, CA · Member since 2014 · 167 posts · 49 votes10y
Originally posted by @Derek Daun:
Looks like Joe beat me to it as I was typing out my answer.
Rough number comparison:
Midwest strategy
- Invest 30k in the Midwest. Leverage 5:1 with 80% loans = Three 50k houses for total purchase price of $150k. Mortgages = 120k. You make $100/door after expenses. In five years your loan will be down to about 111k, and your properties might be worth 160k. Equity = (160k - 111k) = 49k. Add in the 18k in profits, and you're up to 67k in capital. Cash over cash ROI = (67-30)/30 = 123%. Not bad, about 17.5% annual ROI. That assumes you're hitting 100/door number. And you might not.
Sacramento
- Same 30k investment. Leverage 5:1 and get one 150k property. Rent for 1300/month. Don't plan on guaranteeing any cash flow right away, but it will pay for expenses. You should be able to generate more cash later as rents are likely to continue to increase. In five years that property is worth 200k. (Annual 6% increase). Mortgage also = 111k. Equity = 89k, Cash over cash ROI = 196%, about 24% annual ROI.
But isn't this if everything goes as planned in the sunny state of California? How about some worst case scenario math?
California prices are near the peak right now or close to where they were in 06-07. Cost of houses have doubled in most counties in last 5-6 years and we all know that average income hasn't doubled in that time. How will this growth sustain without income growth? Not saying, the market will crash (it can though) but it could very easily stop to grow anymore and then you are looking at a whole different comparison which could look something like this (assuming appreciation is pretty much the same in both markets)
Midwest strategy
- Invest 30k in the Midwest. Leverage 5:1 with 80% loans = Three 50k houses for total purchase price of $150k. Mortgages = 120k. You make $100/door after expenses. In five years your loan will be down to about 111k, and your properties might be worth 160k. Equity = (160k - 111k) = 49k. Add in the 18k in profits, and you're up to 67k in capital. Cash over cash ROI = (67-30)/30 = 123%. Not bad, about 17.5% annual ROI. That assumes you're hitting 100/door number. And you might not.
Sacramento strategy
- Same 30k investment. Leverage 5:1 and get one 150k property. Rent for 1300/month. Don't plan on guaranteeing any cash flow right away, but it will pay for expenses.
You should be able to generate more cash later as rents are likely to continue to increase.In five years that property is worth 160k (200k).(Annual 6% increase). Mortgage also = 111k. Equity = 49k89k, Cash over cash ROI = 63%196%, about 9.00%24%annual ROI.
Now, i understand saying California home prices will not appreciate at all in next 5 years is not fair but so is assuming they will continue to climb by 6% year after year, so lets meet in middle here, shall we? Assuming California home prices are up by 3%. Fair enough?
Midwest strategy
- Invest 30k in the Midwest. Leverage 5:1 with 80% loans = Three 50k houses for total purchase price of $150k. Mortgages = 120k. You make $100/door after expenses. In five years your loan will be down to about 111k, and your properties might be worth 160k. Equity = (160k - 111k) = 49k. Add in the 18k in profits, and you're up to 67k in capital. Cash over cash ROI = (67-30)/30 = 123%. Not bad, about 17.5% annual ROI. That assumes you're hitting 100/door number. And you might not.
Sacramento strategy
- Same 30k investment. Leverage 5:1 and get one 150k property. Rent for 1300/month. Don't plan on guaranteeing any cash flow right away, but it will pay for expenses. In five years that property is worth 173k. (Annual 3% increase)
. Mortgage also = 111k. Equity =23k, Cash over cash ROI = 77%196%, about 10%24%annual ROI.
We are still looking at Midwest to be better strategy. Now, most of us know, we can all make this argument in favor of what/where we want to invest but in order to see 6% Appreciate every year for next 5 years, we will have to get very lucky here. I mean, look at this chart, this will look one scary chart in 2021 after 6% growth every year in California.
Just my 2 cents.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.