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?
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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 · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes10y
Originally posted by @Account Closed:
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
Bad boys, bad boys! What ya gonna do? What ya gonna do when landlord comes for you? LOL
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes10yMy 02 cents again. With just a little effort you can pick up houses in Sacramento that have $30k+ in equity on the day you close. I do it or see it done every month in my farm areas. The dynamic I like about CA is that your exit plan is selling at a retail price to a homeowner. That simply doesn't happen in these "high cash flow" markets. The $50k pig will be sold for roughly $50k to the next out of state sucker from CA or NY after you get tired of class C tenants doing the types of things class C tenants do. The turn key gets get to sell the same houses over and over to a new set of rubes. CA will have a population of 50 million people by 2030. Very little new construction has been done in the past 8 years and any now building nearing completion or in process is targeting well above the entry level price points. Rents are increasing rapidly to the point where buying anything under $250-300k is often cheaper than renting. I admit CA real estate is a roller coaster but I like how Sacramento is positioned as a stable tier 2 city getting a ton of overflow from SF, Oakland and San Jose as the cheaper but still cool alternative. I will eventually do a 1031 exchange and roll the equity of my SFR's into a large apartment complex (80+ units) in a higher cash flow area... but I truly believe you need a critical mass of units to make out of state investing work. The small investor owning 1-5 units 1500 miles from home is spinning their wheels in my opinion. That $100-200 a door per month gets eaten up easily by class C tenants.
- Davis, CA · Member since 2016 · 595 posts · 344 votes10y
I am with you @Joe Bertolino, it just seems so EASY to just snap up those turn keys...
- Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes10y
I agree with your math as a worst case scenario, and if you're talking about many places in CA, the current market would make me question investing locally (Although you didn't adjust the out of state calculation for worst case scenarios of bad management, or bad tenants leading to zero or negative cash flow)
The truth is I over simplified the appreciation calculations; I'm not really banking on overall market appreciation, but gentrification. I buy on specific streets, of specific areas that I think will be improving drastically. I worked backwards to get to that 6% appreciation number, starting at a very pessimistic future value of 200k. Realistically, the value in five years is more likely to be much higher, even if the market drops. That's why I decided to stay in state after seriously considering going out.
I wouldn't trust those numbers for other areas in CA, even around here. Like you said, it could happen, and is maybe likely, but not guaranteed.
- Sacramento, CA · Member since 2015 · 35 posts · 13 votes10y
Originally posted by @Joe Bertolino:
My 02 cents again.
With just a little effort you can pick up houses in Sacramento that have $30k+ in equity on the day you close. I do it or see it done every month in my farm areas. The dynamic I like about CA is that your exit plan is selling at a retail price to a homeowner. That simply doesn't happen in these "high cash flow" markets. The $50k pig will be sold for roughly $50k to the next out of state sucker from CA or NY after you get tired of class C tenants doing the types of things class C tenants do. The turn key gets get to sell the same houses over and over to a new set of rubes.
CA will have a population of 50 million people by 2030. Very little new construction has been done in the past 8 years and any now building nearing completion or in process is targeting well above the entry level
price points. Rents are increasing rapidly to the point where buying anything under $250-300k is often cheaper than renting. I admit CA real estate is a roller coaster but I like how Sacramento is positioned as a stable tier 2 city getting a ton of overflow from SF, Oakland and San Jose as the cheaper but still cool alternative.I will eventually do a 1031 exchange and roll the equity of my SFR's into a large apartment complex (80+ units) in a higher cash flow area... but I truly believe you need a critical mass of units to make out of state investing work. The small investor owning 1-5 units 1500 miles from home is spinning their wheels in my opinion. That $100-200 a door per month gets eaten up easily by class C tenants.
Quote of the year Joe! "get tired of class C tenants doing the types of things class C tenants do." Still laughing about that.
Gotta disagree that Sacramento was, is or ever will be cool though. Just my very strong opinion. Solid place to invest with great long term RE returns but I can't say this place will ever be anything more than a massive "small town" I think at best it becomes a glorified Bay Area Bedroom Community. Again just my very opinionated two cents but thats the great part about business, don't have to like or truly believe in something to profit from it.
- Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes10y
Originally posted by @Frank Lienert:
I love to hear other investors keep that opinion!
Seriously though, I'm guessing you don't get to Midtown very often. Walk buy the Marrs building at K & 20th any Thursday, Friday, or Saturday evening, and it's hard to say Sacramento hasn't become a self supported trendy place to live. Realistically, Sacramento is just too far away from the Bay Area to become a bedroom community. Those Bay Area transplants are coming here to live. Yes, some of them commute once or twice a week, but the majority either work remotely, or in most cases have jobs right here.
I've lived in central Sacramento since I moved here 11 years ago. Back then you would be right; my roommates would head to the "city" every weekend. Every. Single Weekend. If you wanted to go out, that generally meant diving it at Old Tavern or Zebra Club. That started to change around 2008 or so. Suddenly more and more people were sticking around. There were bars and restaurants of a different caliber. New developments. The food became an attraction in itself. My generation stuck around Midtown if we could afford it, and every year there's a new class of new grads coming as well. Not to mention the retirees simplifying their life style with modern downtown condos. Now a days, you're more often hearing people complaining about Bay Area housing refugees than you are to hear people striving to move to the coast. There is simply just not enough housing to go around in the central core.
And I haven't even mentioned the downtown/Kstreet Mall/Stadium yet. I'm not fully sold on the endeavor, it seems to be more likely to work than not. We'll find out in the next couple of years though.
But like I said, I fully encourage you to continue thing that, and make sure to tell all your investor friends the same. And when you finally realize the lost potential, I'll even sell you some of my SFRs; they won't be cheap though. :)
- Davis, CA · Member since 2016 · 595 posts · 344 votes10y
The Zebra! lord... we used to do a bar crawl from UCD, starting at the brick shot house in west sac on industrial, then club raven, and if we were upright, the Zebra.
- 10yRobert AdamsBusiness MemberReal Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
We see investors coming to Vegas all the time due to high property prices, income taxes, property taxes, etc.
This has made Vegas attractive to investors for very long time.
The Adams Team at Rothwell Gornt Companies4.971 Reviews - Property Manager · Sacramento, CA · Member since 2016 · 91 posts · 34 votes10y
@Carson Wilcox this is a great discussion, I love it! Thanks for getting it started.
I think everyone makes some super solid points here. To me, it does really just depend on what you are looking for in your long term goals. Are you looking for a guarantee cash flow, in which case you probably are better off buying a turnkey property (or the like) in the midwest where you can be pretty sure that will happen. My only warning about going the just cash flow route is to think about expenses in the future as well, because if you are only earning $1200/yr in cash flow and all the sudden you have to replace your HVAC for $1-2k, there goes your entire years worth of cash flow.
The same though could be said about an appreciation play, if you are buying with the goal of appreciation then you are taking a risk that your home will increase in value. In Sacramento/CA that's generally a pretty good bet to take, but it's definitely a risk, like @Jeff B.say.
Some investors only like to buy properties they could imagine themselves actually living in. That tends to also be a reason why people choose to purchase closer to home.
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes10y
Originally posted by @Frank Lienert:
Originally posted by @Joe Bertolino:
My 02 cents again.
With just a little effort you can pick up houses in Sacramento that have $30k+ in equity on the day you close. I do it or see it done every month in my farm areas. The dynamic I like about CA is that your exit plan is selling at a retail price to a homeowner. That simply doesn't happen in these "high cash flow" markets. The $50k pig will be sold for roughly $50k to the next out of state sucker from CA or NY after you get tired of class C tenants doing the types of things class C tenants do. The turn key gets get to sell the same houses over and over to a new set of rubes.
CA will have a population of 50 million people by 2030. Very little new construction has been done in the past 8 years and any now building nearing completion or in process is targeting well above the entry level
price points. Rents are increasing rapidly to the point where buying anything under $250-300k is often cheaper than renting. I admit CA real estate is a roller coaster but I like how Sacramento is positioned as a stable tier 2 city getting a ton of overflow from SF, Oakland and San Jose as the cheaper but still cool alternative.I will eventually do a 1031 exchange and roll the equity of my SFR's into a large apartment complex (80+ units) in a higher cash flow area... but I truly believe you need a critical mass of units to make out of state investing work. The small investor owning 1-5 units 1500 miles from home is spinning their wheels in my opinion. That $100-200 a door per month gets eaten up easily by class C tenants.
Quote of the year Joe! "get tired of class C tenants doing the types of things class C tenants do." Still laughing about that.
Gotta disagree that Sacramento was, is or ever will be cool though. Just my very strong opinion. Solid place to invest with great long term RE returns but I can't say this place will ever be anything more than a massive "small town" I think at best it becomes a glorified Bay Area Bedroom Community. Again just my very opinionated two cents but thats the great part about business, don't have to like or truly believe in something to profit from it.
I acknowledged it is a tier 2 city but we have finally learned how to embrace that role and play to our strengths. If you can't have fun in Sacramento right now... it isn't a Sacramento problem it is a you problem. I have lived and traveled all over the country after growing up in Rocklin and I can tell you that we have it pretty damn good. You name it I have been there so my frame of reference isn't small. I have friends visit from all over the country and they come in with low expectations but leave somewhere between pleasantly surprised and blown away. It may not be LA, San Diego or SF but if you want to compare it to those great cash flow markets like St Louis, Indy, Memphis or anywhere in Ohio I will take Sacramento 10/10 times.
- 10yJoe ThompsonPro MemberInvestor · Sacramento, CA · Member since 2010 · 14 posts · 6 votesI will offer my 2 cents for what they are worth. First off, I am a buy and hold guy ONLY. I have properties in Nor Cal and Ohio. My questions are 1) what are your goals, cash flow or appreciation? 2) Are you using your own money for purchases or loans? 3) what is your exit strategy? 4) what is your "pain" threshold if you go out of state? Based on what we learned in the 2008 crash, we only buy for cash flow (appreciation is icing on the cake) . Many investors lost their "appreciation" in the crash and had zero cash flow. Just my 2 cents. Good luck
- 10yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Carson Wilcox:
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...
Why are you mainly looking for cash flow. If you believe a property will appreciate it is trivial pulling equity out of a property. I am about to do it for the second time in 2 years.
I agree with everyone that indicates that RE goes in cycles. This is true even in Cal. However in coastal So Cal you can look at any number of years and the market has appreciated faster than virtually everywhere else (I suspect to a lesser degree this is true in Sacramento). Do you think something has changed so that this history will not continue? My point is if you can ride a down cycle in the long run Cal buy and hold when financed has historically whooped the higher cash flow areas on ROI and that it is trivial getting this appreciation out of a REI (and you do not pay taxes on this money until you sell the asset without doing an exchange - I never plan to pay taxes on this money (If I sell I plan to do a 1031 exchange)). So I do not understand a preference for cash flow especially if historically that cash flow does not approach the ROI of your local REI. Add in the extra headaches and effort of a distant REI and you understand why I currently only invest local (We still have one out of state property but it was purchased more than a decade ago).
Good luck on whatever you decide.
- Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes10y
I prefer a couple of things: 1) diversification and 2) ability to have tax deductible trips to cities I like. Owning real estate in different cities gives me both of these things. I, for one, already have California real estate exposure (in my home) so would rather not limit my diversification when it is so easy to diversify to so many completely different markets. I suppose if a person owns no real estate they have a harder decision to make for that first purchase. However, for people that already own some to me it's an easy decision. For everybody that acts like they KNOW what will happen in the future. Ya right. I don't have a crystal ball myself. Diversification helps me sleep the best at night.
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