Out of State Investing - need help finding a good location!
Valencia, CA · Member since 2016 · 26 posts · 18 votes
@Zach Quick I am from California as well. While I do agree with you on investing where you live. Unless you have a good amount of capital to start with, it is really hard to start here. On top of that since the prices are so high right now, if there is a downturn you will have to cover the negative cash flow when rent starts to trend down (which is what is happening in san francisco right now) as well as lose equity. Yes you will get it all back in 10-15 years but in terms of return, would it not be better to invest out of state where you cash flow and and bring that return back to california when the market has bottomed out. Just a thought, as this is the route I am planning taking. Building a cashflow portfolio out of state, and bringing it back to home once things cool down a little more.
@Julie L.- Yes I would love to hear your experience! Please post here or feel free to PM me! Thanks!
@Matt R. - AV and South LA are very rough areas! I do not want to invest in a buy and hold in an area where I would be chasing down rents. And when the market drops in LA, so will those areas. And those areas will drop further and recover slower.
@Zach Quick- You are right about the benefits of staying local. But out of state investing I see the benefits of out of state investing vs than staying local here with minimal starting capital.
@Jay Hinrichs - Where is PDX? And no, I didn't go to Cuertino High...DiNapoli is my married name! I grew up in the South Bay and went to Torrance High! :)
Understood. There are some pockets that are not so rough in both of those. You just might be surprised just how much some less rough areas in the AV are as compared to many nationally. There are also some less rough areas all over socal that might be solid. Keep in mind some pretty rough areas in LA 10 years ago are now pushing $700 a square foot. If you can find better out of state that's awesome too.
I live in Los Angeles and completely priced of this market. I'm having a hard time finding a good out of state location. My friend lives in AZ and suggested Downtown Phoenix. She said there are several districts there that are being revamped. Any thoughts on that area?
Over-priced. You missed the boat there by like 7 years! It's unlikely you'll be able to locate deals now in Phoenix that will cash flow. Conduct a price-to-rent ratio analysis. That will give you some markets you might consider focusing on...
Here is Vegas for example. Palm Springs ain't no picnic either but if one asked 9 out 10 they would have thought AV was worse. There are some underlining reasons why, mostly revolving around jobs to which Palmdale just added 6500 aerospace on a 10 year 60 billion dollar contract. That is like adding 10 NFL teams overnight.
Phoenix isn't the only place I'm looking at. My friend that lives in AZ suggested it to me. I also looked in TX and WI but those 2 states have the highest property taxes in the US! I tried analyzing a duplex in WI and the property tax killed my ROI. :(
Karen,
Analyze things on a spreadsheet is just garbage in, garbage out. You have to know the market you invest in regardless if it's in or out of state. Others will not take care of your money like you do. Before you buy anything, know your exit strategy. If there's no exit strategy, you'll be left holding the bag.
Real estate is a high stake poker game. Those, who know what they're doing, make a lot of money. Those, who don't, get taken to the cleaner. If it were that easy, all of us would be rich.
Let's ask yourself this question. If someone owns a property that is cash-flowing, why would they want to sell it to you? If it costs less to own than to rent, what is your renter's pool? If they're hand to mouth, they're only one lay-off or a car problem from an eviction.
If you take $45k and invest out of state, how many years is that going to set you back from buying your first home? When an opportunity arises, where are you going to get the money to buy that sweet first home? Think it through and set your priority before making a move.
Best of luck.
"You just need to realize that typically if you are getting a "deal" as an out of state investor that probably every local person who could close on it is passing on it because they could find a better deal. The cash flow isn't as stable and the tenant isn't as stable as you could likely find in San Fran. And count appreciation into your total return too, not just the "cash flow" because if you are buying turnkey out of state your only equity is your down payment(if that)."
@Zach Quick Hi Zach, I understand the point you are trying to make, but also understand that the entry points are way different. In the Bay area I would need about 200k for a down payment as oppose to 20k in the mid west, thats 10x the difference. For someone new to real estate investing that has a limited network and funding, 200k will take a while to save up or obtain. So yes even though you are paying a premium through turnkey, you are still cash flowing, compared to just saving money for a down payment, which could possibly take years.
Thanks for this thread! I am brand new to BP, live in San Francisco and am in the same boat as the original poster with regards to being priced out of my local area. I'd have to drive several hours (likely in traffic!) to get to where it's affordable. I'm definitely at the analysis/paralysis stage where I'm overwhelmed with evaluating markets and individual properties despite having a couple of books and podcasts addressing the topic. Fortunately, I'm inching forward in other ways (found a CPA, for example). Where can I get the basics, again, of how to crunch the numbers when looking at a property?
@Account Closed - You made a lot of assumptions, although probably well intentioned, but completely wrong. I already own a home (made a 30% down payment so no PMI). That 45k is extra savings that I have. I also have 3 retirement accounts, one is a roth IRA I've been saving since I was 24 years old (12 years ago). I also have a traditional IRA, 403b through work, and a stock account. Even my 8 year old daughter has a Roth IRA (she did a commercial when she was 18months old), a stock account AND a 529 account...all amounting to probably more than most young adults have in their savings account. None of this is family money (except my mother in law does help with my daughters 529 account)... but the rest is all that I have done through the years through hard work, saving, and investing smart. I think I know my priorities. Real estate investing is just a dream I've had since my young 20's. I've always been to afraid to jump into it. Especially when I was young and not making much. But I am now well established in my career, making well over 6 figures (only working 3 days a week). I'm here trying to learn how to invest in RE like everyone else. :)
I also want to mention that I am willing to spend a little extra cash to do cosmetic work on a place to gain a bit of equity. I just don't want to buy a place that needs a complete gut job. :)
@Account Closed Welcome to BP! I've been on this website for about 2 weeks and love it!! They offer free podcasts and webinars. I highly recommend starting there. Everyone here is so willing to share their knowledge, I wish I found this out years ago!! Especially when I wanted to invest about 6 years ago...but was too nervous and backed out! At that time I could have afforded a place in CA. But I missed that boat!! Now I totally regret it!
@Matt R. - that crime data seems very useful in finding a good neighborhood. Thanks for turning me on to this website! I love all the data it provides. And you do make some interesting points. However, Trulia mentions that 73% of the Palmdale residents are homeowners. My strategy is to buy and hold. Seems like the rental market isn't too big out there.
Has anyone here looked at the Memphis TN area for rentals? There are a lot of turn key brokers there. I am debating between purchasing through turn key or a local realtor. I am also from Southern California. Rents are low here.
@Clayton Mobley - you mentioned that I should focus on a team rather than location. However, how can I build a team without finding the location? If I need a property manager, RE agent, contractor, etc...they need to be in the same county/state that the property is in, right? I can't use a Texas agent and buy a house in Wisconsin. I feel like I need to pick my market first, and then build a team. What's your input? Look forward to your response! :)
@Julie L.- Yes I would love to hear your experience! Please post here or feel free to PM me! Thanks!
@Matt R. - AV and South LA are very rough areas! I do not want to invest in a buy and hold in an area where I would be chasing down rents. And when the market drops in LA, so will those areas. And those areas will drop further and recover slower.
@Zach Quick- You are right about the benefits of staying local. But out of state investing I see the benefits of out of state investing vs than staying local here with minimal starting capital.
@Jay Hinrichs - Where is PDX? And no, I didn't go to Cuertino High...DiNapoli is my married name! I grew up in the South Bay and went to Torrance High! :)
Understood. There are some pockets that are not so rough in both of those. You just might be surprised just how much some less rough areas in the AV are as compared to many nationally. There are also some less rough areas all over socal that might be solid. Keep in mind some pretty rough areas in LA 10 years ago are now pushing $700 a square foot. If you can find better out of state that's awesome too.
I agree ... Palmdale is about 20 minutes up the road from the OP and seems to meet her investment criteria ... no need to go out of state. I have SFR rentals in Palmdale and Lancaster. The West side is nice (West of 14), but probably too expensive to get decent cash flow unless you get into multis (4-plex for example). Central (just East of 14 around Division/Sierra Hwy) is older stuff and fairly Ghetto ... good cash flow on paper, but management intensive and I'd avoid as a newbie. The exception there may be a path of progress play in downtown Lancaster (near the metro station & Lancaster blvd) ... that metro goes straight into LA and they've redeveloped downtown to where it is nice, but still some transitional stuff adjacent that may turn around (or not). My stuff is far East side (20th St East - 40th St East) ... if you cherry pick a nice neighborhood, not the brand new stuff with HOAs, not the 1950s crap homes, but 1980s-90s and fairly nice, you can get nice B class family neighborhood stuff at reasonable prices. As a bonus, this is near all those Aerospace jobs. There is an international airport there too that has been held back by dirty politics for decades so basically unused for commercial purposes, but if that ever picks up, then there will be HUGE upside. Pick up a distressed home and put some work into it to get an equity bump. Palmdale is marginally nicer than Lancaster and closer to LA, but I find Lancaster to be more business friendly ... go wherever you find the best deal. One warning, though, historically the AV has been boom or bust, which means that it has gotten hit hard every downturn price wise. Historically market appreciation has not been great unless you buy at the bottom, but cash flow is decent and there are always forced appreciation plays. We are definitely not at the bottom there (that was around 2010 when I bought) but if Aerospace keeps cranking there, though, and I'm betting it will, I still see some market upside in this cycle, just be prepared to hold through a downturn in case I'm wrong on that. Good luck ... happy to chat further upon request.
@Matt R. - that crime data seems very useful in finding a good neighborhood. Thanks for turning me on to this website! I love all the data it provides. And you do make some interesting points. However, Trulia mentions that 73% of the Palmdale residents are homeowners. My strategy is to buy and hold. Seems like the rental market isn't too big out there.
Many investors would welcome to be in a higher home ownership area. These are the areas that are usually better for schools, crimes, easier to exit at retail and generally those hoods are in better shape vs high SFR rental areas. It also can create an extra tight market for available rentals. I have never heard the negatives for higher home ownership areas unless someone is trying to justify selling something in a hood loaded with beat up rentals.
@Matt R.- you make a good point about a higher home ownership area. The way I look at it is that home prices are low enough there that people would rather own than buy. Higher prices neighborhoods, such as studio city, people are priced out, therefore would have to rent vs buy in order to live in those neighborhoods. I could be wrong...I am a newbie and still learning. I appreciate your input and advice!
I am a newbie exploring areas to invest in SFH 100 miles radius around Dublin California.I am planning to invest 100K. What are the areas I could look for positive cash flow ?
@Matt R.- you make a good point about a higher home ownership area. The way I look at it is that home prices are low enough there that people would rather own than buy. Higher prices neighborhoods, such as studio city, people are priced out, therefore would have to rent vs buy in order to live in those neighborhoods. I could be wrong...I am a newbie and still learning. I appreciate your input and advice!
I am not aware of the first part of that investing logic when homes are $100,000s and up. I agree on the second part in regards to Studio City example and those homes are 1,000,000+ so much different animal. If homes are sub 100,000 and it has more rentals vs owners there is likely something fundamentally askew with that location and tenant pool as in not stable for both.
@Matt R.- you make a good point about a higher home ownership area. The way I look at it is that home prices are low enough there that people would rather own than buy. Higher prices neighborhoods, such as studio city, people are priced out, therefore would have to rent vs buy in order to live in those neighborhoods. I could be wrong...I am a newbie and still learning. I appreciate your input and advice!
This logic is a bit backwards IMO. The prices are high in those neighborhoods precisely because it is a desirable neighborhood, the demand is high, and the supply is limited. These are the neighborhoods where vacancy is lowest, quality of tenants is highest, and appreciation is highest (that is how they got to be expensive in the first place). These are desirable qualities for an investment. That in no way, shape, or form means that people do not want or can't afford to live there, just the opposite ... when people want buy, they want the best neighborhood they can get in and will pay a premium for it. If you look at the data, in fact, you will see that the percentage of owner occupants vs renters in these neighborhoods is MUCH higher than in the lower end neighborhoods.
When people rent, they tend to be willing to sacrifice a bit more on neighborhood to save money because it is more temporary, or they're forced to live somewhere because they've been priced out of the nice area as you've mentioned and they aren't financially stable enough to buy no matter how much cheaper it is than renting in those hoods, and these will be your tenants in those hoods. Show me a cheap market with "good" price to rent ratios and mostly renters, and I will show you a neighborhood that is going nowhere fast appreciation wise (or backwards after inflation), where CapEx and inflation will erode away your profits over time, turn overs will be more frequent and more difficult to fill, and the class of tenant will be more management intensive, and if that market is out of state you will be 100% reliant on others to acquire and manage it all for you without ripping you off. These are NOT the qualities that make for a sound long term investment IMO.
I started investing out of state in 2011 and for the first 2 years all I was thinking about was how can I buy more. Then the problems started: evictions , 5+ months of vacancies during the winter with very high utility bills, ... and other issues.
Whenever is a post about out of state investment there is someone that just started investing talking about their positive experience.
If you are going to buy a lot of properties out of state to have some leverage over the property manager you might have positive experience. With just a few properties is more about luck.
You need a good team and you bild it over time with your portfolio. If you decide to go out of state you have to commit to buying a lot of properties in an area and become an expert for that area.
I for sure won't buy other out of state properties in the near future. I prefer quality over quantity. It's hard to find good deals localy but not impossible.
Good luck!