Southern California Area Too Expensive For First Purchase?
Member since 2015 · 1 post · 2 votes
Hey everyone, I have lived in SoCal for nearly 30 years. I have always wanted to begin investing in real estate and believe that I am finally ready to begin, no matter the market cycle (no one knows what tomorrow will bring), no matter the knowledge (there is always more to learn). My biggest concern is that investing in my nesting grounds might not be the best place to start for the obvious reason...super high prices and honestly I remember after the 1994 earthquake how this market tanked. What would you recommend in terms of going just a little outside, and if so where (within driving distance of few hours)? Is that even necessary (should I just look for good deals here in SoCal and not waste my time)? Anyone has any earthquake recommendations, am I overthinking this aspect of SoCal? Thanks a million in advance, really appreciate any input.
Boris,
There are numerous people here on BP from Southern California that feel the same as you about how high the prices are and the concerns of investing in Southern California, however, in order to be successful in real estate investing you have to take action.
While you're concerns of investing here in Southern California is valid you have a few options. My recommendations are;
1. Take the money you do have an invest somewhere in the mid-west into cash flowing assets. There are SFR's that you can purchase under $100k that will cash flow and appreciate.
2. Buy a multi-unit or something that will sure appreciate quickly here in Southern California. By buying a multi-unit here you will be "house hacking" and with either the additional income or the forced appreciation you can start investing out of state for cash flow purposes.
If you don't take action whether it be here in Southern California or OOS you will have the same questions in another 10 years.
Michael – RE/MAX Estates – Real Estate Agent in Los Angeles, CA - License #02074535
Boris,
There are numerous people here on BP from Southern California that feel the same as you about how high the prices are and the concerns of investing in Southern California, however, in order to be successful in real estate investing you have to take action.
While you're concerns of investing here in Southern California is valid you have a few options. My recommendations are;
1. Take the money you do have an invest somewhere in the mid-west into cash flowing assets. There are SFR's that you can purchase under $100k that will cash flow and appreciate.
2. Buy a multi-unit or something that will sure appreciate quickly here in Southern California. By buying a multi-unit here you will be "house hacking" and with either the additional income or the forced appreciation you can start investing out of state for cash flow purposes.
If you don't take action whether it be here in Southern California or OOS you will have the same questions in another 10 years.
Michael – RE/MAX Estates – Real Estate Agent in Los Angeles, CA - License #02074535
Boris, we see a lot of people from all over California, but specifically Southern California, investing in my market, as well as other Midwest markets. What is important for OOS investors, is to ensure they have a trusted partner in the market. You'll want to vet project managers and property managers if you decide to go your own way, but this can be very time consuming. Another option is to try Turnkey. They will typically have a one stop shop approach for you that will already have houses rehabbed, and oftentimes, already tenanted for you as well. So when you buy your property it is already a performing asset and cashflowing. Another issue a lot of OOS investors run into is finding quality Property Managers. Most Turnkey companies will have an in house PM who will handle everything for you. It really is a passive approach and takes the headache away from you.
Hi @Boris Muchnik, we are in much the same boat in SoCal but my main issue is capital so I am taking my meager mite and researching the midwest. Earthquakes should not dissuade you. I would look at the main California fault line and stay away it. Otherwise, the US is blessed with a multitude of natural disasters that can hit you wherever you invest. Good luck.
Hello Boris,
As the Nike slogan goes "just do it." Being in the Bay Area I have the same concerns as you do regarding home prices being extremely high in this area. There has been a lot of good advice on here so I will not repeat it but one thing I want to throw out there is have you looked investing in Sacramento? You can definitely find some homes for "affordable prices" by California standard. It is a growing city and there is still room for growth! I don't know the numbers you are working with so that is up for you to decide whether Sacramento is worth exploring.
Another thing is to find a partner/mentor you can work with. Perhaps you can shadow someone on a flip or learn the best way to pick up rentals etc.. Just network and find someone that has success and is willing to mentor you.
Pay attention to the foundation for earthquake safety.
We had our residence foundation retrofitted to keep the house on the raised foundation if and when there is a shaker. We were rocked by the Northridge EQ 25 years ago tomorrow. We were 5-6 miles from the epicenter then. Now we are less than 1 mile. We keep supplies on hand. Earthquakes don't kill people, buildings kill people. ;>)
you can still find positive cash flow in riverside and san bernadino counties. you have to reach out to
local realtors in these counties to see whats available.
i like @Michael T. advise for you to house hack a multi family. you cant go wrong in that..
if you want to go OOS route, make sure to have capital to scale to 5 properties in a couple of years. Otherwise 200 to 300 bucks is not enough to reserve for capex and vacanies.
California is expensive but there are places you can invest within a few hours. Try looking at Perris, land/manufactured housing is really popular there
Boris, the best way to invest in Southern California is to partner up with a contractor or designer and build new construction. Contractors typically make about a 25% profit on the total construction cost, and the designers make up to 15% of the total construction cost (so that's potentially 40% just going to the contractor and design team). Small single family homes are pretty close to break-even to the construction price. Larger developments like multifamilies (10,000 SF plus) tend to be very profittable. If you can find a property that is zoned for multifamily and can find the financing to do the development, and especially partner up with a structural engineer or contractor, you will be able to get a much larger profit margin.
For existing homes and earthquakes in so-cal, and as a structural engineer, I can tell you that nothing is fool-proof or guaranteed. We typically design for a earthquake strength level that has a 10% chance of being exceeded every 50 years - called the "Design Basis Earthquake" level. In otherwords, there is no-such thing as an earthquake-proof building.
But we can greatly reduce the chances of damage, injury, or death in existing buildings by retrofitting them (we know a lot more about proper construction than we did even 30 years ago. The Northridge earthquake taught us a lot about how to build safer buildings). That's one reason why LA has the Soft Story Mandate and some cities give incentives/rebates for retrofitting the connections between the floor joists and the concrete foundation.
A simple retrofit could greatly increase the odds and help protect home owners / real-estate investors to preserve most of their investment versus having a greatly damaged structure that is too expensive to repair.
Hey Boris, my recommendation is to not focus so much on the prices as the deals themselves. Cheap or expensive doesn't matter if it's not a deal. So, does it have monthly cash flow or is there a notable appreciation potential, or...what does a particular property offer in terms of returns?
A lot of SoCal folks invest out-of-state, totally doable, so that's one option (for cash flow and lower entry prices). There are some people on here who swear there is cash flow in other parts of California- Fresno, central CA, etc.- but so far no one has been able to show me a cash-flowing property (still open to it being true, just haven't seen anything).
A lot of it will depend on: your budget, your goals, and what kind of property you want.
Hey everyone, I have lived in SoCal for nearly 30 years. I have always wanted to begin investing in real estate and believe that I am finally ready to begin, no matter the market cycle (no one knows what tomorrow will bring), no matter the knowledge (there is always more to learn). My biggest concern is that investing in my nesting grounds might not be the best place to start for the obvious reason...super high prices and honestly I remember after the 1994 earthquake how this market tanked. What would you recommend in terms of going just a little outside, and if so where (within driving distance of few hours)? Is that even necessary (should I just look for good deals here in SoCal and not waste my time)? Anyone has any earthquake recommendations, am I overthinking this aspect of SoCal? Thanks a million in advance, really appreciate any input.
Lots of people in your position come out to the Midwest to build their portfolios. Markets like Cleveland, Toledo, KC, Indy & others are filled with tons of west coast investor capital.
Hey Boris, welcome! You have a few options. One is to focus on outlying but quickly growing areas in Southern Caifornia - specifically Riverside, and possibly Bakersfield. Or, choose properties in LA which need work, buy under market, and rehab (BRRR strategy). Just make sure you build strong contractor relationships.
Another is to partner with friends, or investors you meet, who share your goals. A lot of people who succeed in SoCal, even in smaller deals, are using partnerships.
A third possibilty is to go out of state. I also invest locally, but recently moved into the Ohio market. There are many others. Feel free to DM me for any questions you may have.
I was living in a rental condo in Santa Monica when Northridge quake hit. The condo building was damaged badly (or so I thought). The owner offered to sell it at really low price - I didn't even consider seriously (I was young and didn't have money either) but if I remember correctly, it was under $200k, and I thought it was too expensive.
Fast forward 25 years, I recently checked Zillow and found that the building is still alive and well, and the condos are estimated at $1.5m to over $2M...! Ugghhhh, I wish I was smart enough to buy it then...
Luckily I got smarter :) and bought several properties since then. SoCal is really a special market. I'm not sure if there's any takeaway for you here, but if and when you are ready to take a plunge, I think you should, despite potential earthquakes and prices being so high. You never know what happens in the future.