My name is tommy mckeown im 19 years old and i live in southern California i want to start investing in a couple years but don't know if California is the right place to invest in. If anyone has any tips on rental property let me know if its to hard to find here or if i should just long distance investing and if its easier to brrrr or traditional rentals. Bear with me im new and been reading books the last couple months
@Tommy Mckeown welcome to BP! Making cash flow with rentals in Ca is tough! We had a rental in San Mateo that lost money every year for 30 years. We sold it in 2015 and won the lottery. We also invested OOS at the same time and made cash flow from day one. Look at your objectives and then make a decision. If you have a big pile of money to start with California rentals could be the way to go. If not, then invest OOS. All the best!
I know people that have invested in California for 30 - 40 years and they are selling off and moving their money to another state. I just spoke to a couple yesterday that are looking to move to Wyoming after living in the same house in California for 45 years. They'll be selling their house and five rentals and moving their money to Wyoming where they'll enjoy a 13% tax savings. Their tax savings alone should be enough to pay for a new home here. The prices are astronomical, you have to be really clever to cash flow, and the government / legal system is not in your favor 99% of the time.
A lot of investors like the cash flow from day one and can scale faster in midwestern markets. I'd recommend that you identify how much money you have to work with, how much you have in reserves and see if you can reasonably scale quickly in California.
I personally think CA and specifically SoCal is a great place to invest if you look at the right submarkets. I work for a so cal brokerage, so I might be a bit biased, but as I've been working there and talked to other CA investors, there is definitely some strong delayed gratification built in despite the challenge to cashflow.
I think if you just want to get your foot in the door, low money down house hacking is the way to go. We usually tell clients it still takes about $50k of todays dollars to get started that way. However, kind of piggybacking off of @Bjorn Ahlblad 's comment, if you know what your goals are and what your comfortable with financially, it might help shed light on what area is right for you.
Also, regardless of what market you are trying to get into the best thing you can do is to start building a strong history of income or find a willing cosigner, because you are going to have to qualify for a loan. I'm sure there is a lender on BP that would be happy to show you what steps you need to take to get where you need to be.
Wow thank you guys for being kind and responding to me means a lot! @Joseph P Finkelstein when you talk about $50,000 to start and house hacking do u recommend using a traditional loan with a 20 precent down payment and i live in one room and rent the other out or use a FHA loan with 3.5 or 5 precent down and do the same thing and rent the rooms out ?
For here, that $50K is definitely utilizing a 3.5% to 5% loan. That's just looking at it from a getting started stand point though. Whatever you do renting the rooms out will be beneficial, but the way you structure balance of down payment and loan is going to depend a lot more on you personally, and how comfortable you are with your finances and personal balance sheet.
The larger the down payment, the closer you will be to breaking even/cash flowing, so if you need to put down 10-20% to feel more comfortable with the monthly payments and hold on to the property, then that is probably the best option.
The caveat is that there is a concept called leveraged appreciation. A lot of times, what gives real estate the astronomical returns everyone talks about is the leveraged appreciation piece.
The extremely oversimplified explanation of leveraged appreciation, is looking at the case of a $100 widget that you theoretically know will go up in value at 10% every year and asking yourself how much of your money vs other peoples money you should use to purchase it?
If you bought it cash, year 2 you would make $10. $100*(1.1)-$100=$10, so you made 10% on your investment.
If you put 20% down, the math for year 2 would be the same, but of the money you put up, you would now have made $10 to your $20, so a 50% return. In this case we know that you will make $10 year 2, you should in theory put $0 down and make infinite returns.
I know that is a bit of tangent, but its just supposed to illustrate that hypothetically since RE is an appreciating asset, the lower your down payment, the harder your money is working for you.
The reality is finding the right balance of down payment that utilizes the cash flow and leverage appreciation necessary for you to hit your target goals.
@Joseph P Finkelstein ok thank you for the information that gives me a way better idea of how to do things i appreciate it have a great night !!!!