First Time Buyer Living in an Expensive Market

33 Replies

Hi All,

I got interested in real estate about 2-3 months ago and have been listening to the podcast nonstop and have read about 4-5 books already.

I’m eager to get my first property but am having a little trouble finding the right deal.

I live in the Bay Area and thought that I would invest out of state because California is so expensive. But now I’m running into the issue where it just seems very difficult going through with my first property and it being OOS.

Ideally I would want to be close to the first property I invest in because I think that would make for a better first experience and I think it’s safer but the properties in the Bay Area are just too expensive.

Just as some more background I have ~90K to invest.

Does anyone have any advise on what I should do? Should I just continue to look in the Bay Area and hope I find a deal or should I just go to OOS investing.

@Moaaz Malik

We moved from California last December, but before we moved, we purchased the home that we currently live in, intending to turn the house into a rental after moving. I'm active duty military and move often, but this was the first home I purchased OOS and sight unseen other than Zoom. My first recommendation is to identify the primary and secondary markets you want to invest in. Learn the area, jump on google earth, start rating the high schools, find where the hospitals are, and where the large employers are located. 

Secondly, I recommend you start building a Team. I found that the most critical Team member is the agent. If you can find an agent that is also an investor, you typically can use their Team. For example, I used my REA's GC, PM, and preferred lender on the OOS home, and my REA was willing to be the boots on the ground because I continued to add value to him. I eventually found a new GC, but his recommendations for lenders and PMs were spot on after my due diligence period. 

Third, you have to have boots on the ground if you are doing value add plays. A GC will typically have a google folder with photos to update you on progress but nothing beats physical quality control inspections. I was fortunate to be moving during the OOS home REHAB and was shocked by how behind schedule they were and some of the corners they cut. Find someone willing to be a project manager and have then manage the cost/schedule/performance. 

I hope that helped! 

Sincerely, 

@Moaaz Malik @Joshua McMillion has some great advice for you, I learned several of the same lessons investing in Kansas City from CA. I’m a fan of going out of state, even to start. I talk about in on Bp 373 in depth. Think about if you want to find a way to buy a house in the Bay Area or if you want to be a real estate investor. If you want to be an investor then pick a market and get going buying properties. 

It sounds like you understand the pros and cons of investing out of state andjust need to make that decision for yourself. Do you want to save more to invest in the Bay Area, or take on the added (but not insurmountable) difficulty of investing out of state? If you go the OOS route then building a strong team with folks you trust is even more critical - especially your Realtor and Property Manager. Good luck! 

Originally posted by @Joshua McMillion :

@Moaaz Malik

We moved from California last December, but before we moved, we purchased the home that we currently live in, intending to turn the house into a rental after moving. I'm active duty military and move often, but this was the first home I purchased OOS and sight unseen other than Zoom. My first recommendation is to identify the primary and secondary markets you want to invest in. Learn the area, jump on google earth, start rating the high schools, find where the hospitals are, and where the large employers are located. 

Secondly, I recommend you start building a Team. I found that the most critical Team member is the agent. If you can find an agent that is also an investor, you typically can use their Team. For example, I used my REA's GC, PM, and preferred lender on the OOS home, and my REA was willing to be the boots on the ground because I continued to add value to him. I eventually found a new GC, but his recommendations for lenders and PMs were spot on after my due diligence period. 

Third, you have to have boots on the ground if you are doing value add plays. A GC will typically have a google folder with photos to update you on progress but nothing beats physical quality control inspections. I was fortunate to be moving during the OOS home REHAB and was shocked by how behind schedule they were and some of the corners they cut. Find someone willing to be a project manager and have then manage the cost/schedule/performance. 

I hope that helped! 

Sincerely, 

 Thank you that was extremely helpful. That's what my scare is, going OOS and the property being worse than I expected. Do you think networking on BP is the best way to find OOS investors?

Originally posted by @Lee Ripma :

@Moaaz Malik @Joshua McMillion has some great advice for you, I learned several of the same lessons investing in Kansas City from CA. I’m a fan of going out of state, even to start. I talk about in on Bp 373 in depth. Think about if you want to find a way to buy a house in the Bay Area or if you want to be a real estate investor. If you want to be an investor then pick a market and get going buying properties. 

 Hey Lee - I just read the description on that episode and am definitely looking forward to listening to it later today! I definitely want to be a real estate investor. I'm hoping the podcast helps answer a ton of the questions and concerns I have! 

Originally posted by @Joe Norman :

It sounds like you understand the pros and cons of investing out of state andjust need to make that decision for yourself. Do you want to save more to invest in the Bay Area, or take on the added (but not insurmountable) difficulty of investing out of state? If you go the OOS route then building a strong team with folks you trust is even more critical - especially your Realtor and Property Manager. Good luck! 

 Thanks Joe! Yeah I think finding a reliable and trusty worthy team is probably going to be the hardest part. I guess one of my fears is getting taken advantage of as a first time investor.

Originally posted by @Brandon Goldsmith :

It is always better to start investing locally because you understand the market, but that amount of capital will not go as far in that area. It's good that you understand your situation but if you can't make that amount of money work then I would look OOS. @Moaaz Malik

 Thanks Brandon! I've been looking OOS and my capital will definitely allow me to purchase more properties OOS. I just need to build an OOS team like many others have already mentioned. I just want to be stuck here for another 6 month's and having missed on some good properties.

@Moaaz Malik I'll echo everything @Joshua McMillion said. I live in California and have put together a team to invest OOS. I think thats the strategy that would work best for you right now in your situation. (Side note: have you considered house hacking in the Bay area? David Greene could help you out with that). 

Step 1 is to determine your long term "why" for yourself and your family. Then create your long term goals (10-20 years away) and create the smaller goals that will allow you to hit those long term ones. Back it all the way up to "what can I do today to achieve those goals?" It sounds like you need to identify an market, then put together a team in that market. 

Bigger Pockets can help with both of those. I put together my team almost exclusively from networking and information I learned on these forums. There are lots of blog posts and articles out there that will help you determine the right market for you. Let me know if you want to chat more in depth about it. 

Congrats on taking steps to start your journey and keep us updated!

Not sure where you are in the Bay Area but are there any areas an hour of an hour and half drive away from you that are more in line with your price point? Close enough that you can be there if you need but far enough to build out the skill set to manage from a far. 

Originally posted by @Douglas Spence :

@Moaaz Malik I'll echo everything @Joshua McMillion said. I live in California and have put together a team to invest OOS. I think thats the strategy that would work best for you right now in your situation. (Side note: have you considered house hacking in the Bay area? David Greene could help you out with that). 

Step 1 is to determine your long term "why" for yourself and your family. Then create your long term goals (10-20 years away) and create the smaller goals that will allow you to hit those long term ones. Back it all the way up to "what can I do today to achieve those goals?" It sounds like you need to identify an market, then put together a team in that market. 

Bigger Pockets can help with both of those. I put together my team almost exclusively from networking and information I learned on these forums. There are lots of blog posts and articles out there that will help you determine the right market for you. Let me know if you want to chat more in depth about it. 

Congrats on taking steps to start your journey and keep us updated!

Thanks Doug! I think I definitely have my why. Another thing is that I truly have been enjoying learning about real estate so much. Listening to the podcasts and reading the books has been as interesting to me as being a big time sports fan. That's one of the reasons I want to continue with this. 

Ideally I would love to invest nearby, but OOS seems more realistic. I need to put in the work and target a market like you suggested. I think learning more about markets and where things are headed is one of the things I need to really improve on. 

Originally posted by @David Arsene :

Not sure where you are in the Bay Area but are there any areas an hour of an hour and half drive away from you that are more in line with your price point? Close enough that you can be there if you need but far enough to build out the skill set to manage from a far. 

Hey David. I live pretty much in the San Jose/ Santa Clara area of the bay area. I've been trying to look in areas like Sacramento, Stockton and etc, but with 90K it seems to be in the rougher parts of town and I would be spending all of my capital on one house. My goal is to build my rental portfolio. 

Originally posted by @Moaaz Malik :
Originally posted by @David Arsene:

Not sure where you are in the Bay Area but are there any areas an hour of an hour and half drive away from you that are more in line with your price point? Close enough that you can be there if you need but far enough to build out the skill set to manage from a far. 

Hey David. I live pretty much in the San Jose/ Santa Clara area of the bay area. I've been trying to look in areas like Sacramento, Stockton and etc, but with 90K it seems to be in the rougher parts of town and I would be spending all of my capital on one house. My goal is to build my rental portfolio. 

I'm in SoCal and know the prices challenges you are up against, however, you are worrying about building a portfolio before you even have a single investment property. When I was in your shoes I asked myself “What's the one thing I can do, such that by doing it everything else is easier or unnecessary?” and the answer was get more capital, which is obviously easier said than done. Irregardless of whether you decide to invest locally or out of state, more capital can only make things easier. I'd begin by really exhausting all your options of how you can increase your capital - can you get a raise, work more hours, cut back on your spending, borrow funds, take funds from other assets. In the beginning it took a combination of all these things but now I have more capital than investment opportunities.  

@Moaaz Malik

Networking on BiggerPockets is how I found my real estate agent. The reason I love this platform is everyone is already an investor or is getting ready to start. It shortens the learning curve and helps you find qualified personnel to build out your Team rapidly! 

Sincerely, 

Originally posted by @David Arsene :
Originally posted by @Moaaz Malik:
Originally posted by @David Arsene:

Not sure where you are in the Bay Area but are there any areas an hour of an hour and half drive away from you that are more in line with your price point? Close enough that you can be there if you need but far enough to build out the skill set to manage from a far. 

Hey David. I live pretty much in the San Jose/ Santa Clara area of the bay area. I've been trying to look in areas like Sacramento, Stockton and etc, but with 90K it seems to be in the rougher parts of town and I would be spending all of my capital on one house. My goal is to build my rental portfolio. 

I'm in SoCal and know the prices challenges you are up against, however, you are worrying about building a portfolio before you even have a single investment property. When I was in your shoes I asked myself “What's the one thing I can do, such that by doing it everything else is easier or unnecessary?” and the answer was get more capital, which is obviously easier said than done. Irregardless of whether you decide to invest locally or out of state, more capital can only make things easier. I'd begin by really exhausting all your options of how you can increase your capital - can you get a raise, work more hours, cut back on your spending, borrow funds, take funds from other assets. In the beginning it took a combination of all these things but now I have more capital than investment opportunities.  

Luckily for me the capital is one of the things that I see myself getting more of in the coming months. I have stock options from my company which will be vesting each month and giving me a size-able increase on top of the salary i already have. It's a big step at first but then a smaller gradual amount each month. So just as a number my capital will double from 90K in the coming month's if i decide to sell the equity i receive. Now that would put me in a position to purchase a nice expensive rental property in the bay area.

So i'm wondering if i should just wait for that and get one nice property nearby with 20% down or get a couple of properties OOS. I know long term the properties will appreciate way more in California than they likely would else where.

Originally posted by @Joshua McMillion :

@Moaaz Malik

Networking on BiggerPockets is how I found my real estate agent. The reason I love this platform is everyone is already an investor or is getting ready to start. It shortens the learning curve and helps you find qualified personnel to build out your Team rapidly! 

Sincerely, 

Got it! Yeah i've definitely learned a lot by just being on here!  

Originally posted by @Moaaz Malik :
Originally posted by @David Arsene:
Originally posted by @Moaaz Malik:
Originally posted by @David Arsene:

Not sure where you are in the Bay Area but are there any areas an hour of an hour and half drive away from you that are more in line with your price point? Close enough that you can be there if you need but far enough to build out the skill set to manage from a far. 

Hey David. I live pretty much in the San Jose/ Santa Clara area of the bay area. I've been trying to look in areas like Sacramento, Stockton and etc, but with 90K it seems to be in the rougher parts of town and I would be spending all of my capital on one house. My goal is to build my rental portfolio. 

I'm in SoCal and know the prices challenges you are up against, however, you are worrying about building a portfolio before you even have a single investment property. When I was in your shoes I asked myself “What's the one thing I can do, such that by doing it everything else is easier or unnecessary?” and the answer was get more capital, which is obviously easier said than done. Irregardless of whether you decide to invest locally or out of state, more capital can only make things easier. I'd begin by really exhausting all your options of how you can increase your capital - can you get a raise, work more hours, cut back on your spending, borrow funds, take funds from other assets. In the beginning it took a combination of all these things but now I have more capital than investment opportunities.  

Luckily for me the capital is one of the things that I see myself getting more of in the coming months. I have stock options from my company which will be vesting each month and giving me a size-able increase on top of the salary i already have. It's a big step at first but then a smaller gradual amount each month. So just as a number my capital will double from 90K in the coming month's if i decide to sell the equity i receive. Now that would put me in a position to purchase a nice expensive rental property in the bay area.

So i'm wondering if i should just wait for that and get one nice property nearby with 20% down or get a couple of properties OOS. I know long term the properties will appreciate way more in California than they likely would else where.

I personally invest locally in CA, but I also do value add development to get both cashflow and appreciation close by. I'd rather cover my needs with few larger cost properties than 20 lower cost ones.   

I just helped a FAANG employee get under contract on a nice 3 bed /2 bath home in LA with only 10% down. The floor plan was perfect where he could split the home in half, convert the laundry room into a small kitchenette (there's already a drain line for the sink and gas line for a small range) and he can significantly offset his mortgage. There's also a detached oversized 2 car garage that he could convert using the California ADU laws. His all in investment will be right around the amount you have. Expensive markets take creative strategies to make work but once you figure them out there's endless possibilities.

Hi @Moaaz Malik ,

I am in a very similar situation myself. We do have one rental property, here in Southern California, which was our previous residence.  We want to obtain another in the very near future. Have you read David Greene's "Long‑Distance Real Estate Investing" book? That is next on my list, and I am hoping it will help me feel more confident and ready to take the leap out of state. It seems like it might be more difficult with some lack of control, but in the long run I feel that it would be more beneficial and easier to scale. 

Lots of good insight here.  There is more than one way to skin a cat and I think its clear.  Everyone's needs and perspectives are different and so are their goals and tolerance levels.

I live in SoCal and I invest in SoCal.  Like David, I invest in the area and find value add opportunities to make the most of my capital.  I am not against OOS investing, in fact I am very interested and intend to do soon.  However, for me, I felt that staying local is a great idea, especially for beginners so that the its more can get the most of personal sweat equity and you have more of a safety network since its local to you and your family/friends.

Originally posted by @Moaaz Malik :

Hi All,

I got interested in real estate about 2-3 months ago and have been listening to the podcast nonstop and have read about 4-5 books already.

I’m eager to get my first property but am having a little trouble finding the right deal.

I live in the Bay Area and thought that I would invest out of state because California is so expensive. But now I’m running into the issue where it just seems very difficult going through with my first property and it being OOS.

Ideally I would want to be close to the first property I invest in because I think that would make for a better first experience and I think it’s safer but the properties in the Bay Area are just too expensive.

Just as some more background I have ~90K to invest.

Does anyone have any advise on what I should do? Should I just continue to look in the Bay Area and hope I find a deal or should I just go to OOS investing.

The Bay Area is a fantastic place to invest if you have the capital. Now is not the time to buy here, however. And whenever you invest here, you must be prepared for your investment being entirely correlated to the tech industry. I would wait for the next major downturn if you are wedded to investing here. 

As a real estate broker, I would take the money to a different market. There plenty of other opportunities elsewhere, my clients are involved in institutional grade properties across the country. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country. There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.

A very good source of local analysis is rereport.com

@Moaaz Malik I was in your shoes 2 years ago, except I didn’t have that much capital. I’m in Sacramento and only had about $15k to get started, plus my wife was really skeptical about all of this.

I wanted to go OOS and BRRRR everything, just as it is promoted on BP, but in the end I had a really tough time finding an agent I was comfortable on using in the market that I was looking at and couldn't overcome the fear of getting taken advantage of, so I decided that I will start locally, even though it would be really tough for me financially.

What I ended up doing is finding a duplex to house hack and borrowing the rest of the money for down payment. I did 5% down as I lived in it. It also needed about 20k in rehab. Due to appreciation, I was able to refinance it this year as an investment property and pull some cash out, pay off my debts, and keep some for next deal. One side now completely covers my PITI and my total CF for that duplex is $300 per door, but I do self manage.

Going forward, I'm looking to live in BRRRR, get a SFH and add ADU. Rinse and repeat. Maybe one day I will muster up the courage to go OOS.

I understand my process is slow, but it’s better than not doing anything. As much as I would love to get a 100 doors in 5 years, my realistic goal is to retire from my job in 15 or sooner.

Originally posted by @Moaaz Malik :
Originally posted by @David Arsene:
Originally posted by @Moaaz Malik:
Originally posted by @David Arsene:

Not sure where you are in the Bay Area but are there any areas an hour of an hour and half drive away from you that are more in line with your price point? Close enough that you can be there if you need but far enough to build out the skill set to manage from a far. 

Hey David. I live pretty much in the San Jose/ Santa Clara area of the bay area. I've been trying to look in areas like Sacramento, Stockton and etc, but with 90K it seems to be in the rougher parts of town and I would be spending all of my capital on one house. My goal is to build my rental portfolio. 

I'm in SoCal and know the prices challenges you are up against, however, you are worrying about building a portfolio before you even have a single investment property. When I was in your shoes I asked myself “What's the one thing I can do, such that by doing it everything else is easier or unnecessary?” and the answer was get more capital, which is obviously easier said than done. Irregardless of whether you decide to invest locally or out of state, more capital can only make things easier. I'd begin by really exhausting all your options of how you can increase your capital - can you get a raise, work more hours, cut back on your spending, borrow funds, take funds from other assets. In the beginning it took a combination of all these things but now I have more capital than investment opportunities.  

Luckily for me the capital is one of the things that I see myself getting more of in the coming months. I have stock options from my company which will be vesting each month and giving me a size-able increase on top of the salary i already have. It's a big step at first but then a smaller gradual amount each month. So just as a number my capital will double from 90K in the coming month's if i decide to sell the equity i receive. Now that would put me in a position to purchase a nice expensive rental property in the bay area.

So i'm wondering if i should just wait for that and get one nice property nearby with 20% down or get a couple of properties OOS. I know long term the properties will appreciate way more in California than they likely would else where. 

You have plenty of capital to house hack a duplex using a high LTV FHA loan (96.5% LTV). On a duplex the rent from the other unit counts as part of the income requirement.

Local allows you to use your local knowledge, allows you to house hack get the highest LTV loan with good OO terms, perform heroics if required, and benefit from outstanding historical appreciation. The historical monthly appreciation in your area would likely be at least 5x the expected cash flow in the low cost areas.

I would start looking immediately.  It will take time to find the right agent for you.  Competition is high for good investment properties.  You start the process now it will likely be months before you get your offer accepted on a good investment property   

Good luck




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