Outside of California?

18 Replies | San Diego, California

Hi. We are fairly new investors (house hacking in San Diego and single family in Palm Desert) and are interested in investing outside San Diego and California. Does anyone else invest in multifamily real estate outside California? If so, how did you choose your market? Any tips on where to start? -Danielle

@Danielle Friberg - I am not into multi-family yet but I started investing in KCMO area when I bought my 1st cash-flowingn rental property (out of state as we're in WA state) through a turnkey provider. It has performed very well so far. 

I was busy with another business I have in 2016 so didn't have any real estate acquisitions last yr but from this year I will be back in real estate. I closed on two more properties in KCMO area and one in TX. 

I am hoping to buy at least a few more (if I can find deals) before the end of the year in KCMO/TX

As for researching the market you want to educate yourself as much as you can through podcasts (I listen to about 8 or 9 and the list is growing on a regular basis to keep myself updated), blogs. 

bls.gov is an excellent resource (which I found out about through one of the podcasts) for demographics and researching population growth, job growth etc. in various MSAs across the US.

Similar. Live in SD. First houston property was a turnkey SFH. Got the re bug bad. Now have serval large mf in houston and a good sized company to run things

@Danielle Friberg Lots of Southern CA investors are going out of state which is great for cash flow. Looking back from 2008, California has proven to be a good appreciation state but since we're arguably towards the top of the market, out of state investing makes sense. I've also heard great things about the Charleston, SC area. Let me know if you have questions. 

There are still markets in California that cash flow.  Central Valley, small college towns, etc if you really value the fact that the property will be within a reasonable driving distance.

Other than that, I've heard good things about Texas and the major midwest cities like Kansas City and St Louis.  Make sure to get good management.

@Danielle Friberg Pick some place where you have some kind of non-spreadsheet advantage. A town you went to college in, where a distant aunt lives, etc. Just some place where someone with no commission go earn can give you a bad vs. good opinion. Otherwise, you just end up like everyone else that crunches the same numbers from California looking to find our version of golden cash-flow in the Midwest :)

What size multi are you looking to invest in? If is larger units, syndications may be your best route. I have been investing OOS since 2012. I have invested in commercial multi starting this year via a CF syndication, where I have also invested in portfolios of 10 SFR, which is kind of like a multi. I have written extensively about these investments with quarterly updates in my BP blog series:

Have I Found the Holy Grail of Passive Real Estate Investing?

All best in your REI!

Hey Danielle! I have always invested outside CA but all SFRs so far. As far as how to choose a market, once you narrow it down to the ones that will cash flow (not all the markets people mention on here will cash flow), then you can start narrowing it based on 1) budget and 2) preferences. Like MFRs, for example, is a preference and they don't cash flow well in all markets (like a lot people mention on here). 

The MFRs are getting fewer and farther between, versus how many were available a few years ago. Of course a lot of it depends on how you're buying (MLS vs turnkey vs larger or smaller MFRs, etc.). Right now for residential MFRs (2-4s), Chicago Philly and Baltimore have had some. Most of the other cash flow markets I know are more SFR-oriented.

Happy to chat anytime if I can help!

Originally posted by @Danielle Friberg :

Hi. We are fairly new investors (house hacking in San Diego and single family in Palm Desert) and are interested in investing outside San Diego and California. Does anyone else invest in multifamily real estate outside California? If so, how did you choose your market? Any tips on where to start? -Danielle

 Hi Danielle, 

I am assuming that you're looking outside of San Diego markets because of high purchase price and low cash flow that you've been seeing in San Diego.  Is there another reason that you want to look outside your local market when you're starting out? If so, DM me and let me know. But, if that's the case, you can still get the returns that you're looking for while buying locally.  That starts with buying a property that already has equity.  

If you're used to "paying retail" when you buy a property, it can seem impossible to get cash flow locally. When I say retail, I mean that the property that you're buying is listed publicly on the MLS, you're competing with other other buyers and paying full fair market/appraised value. To get the best return on your investment, whether here or in another state, it's best to pay a "wholesale" price and start off with equity. Is that easy to do? No. Is it possible? Absolutely!

There are two ways to find a deal that has equity going into it:

1. Find it yourself: You can identity physically or financially distressed properties and start a marketing campaign to reach those sellers and make an offer to buy it directly to the owner.  

2. Network with someone that can find you the deal. This could be wholesaler, a bird dog, or proactive agent (like myself) that find deals for investors. Agents have access to resources that the general public doesn't. For example, I can go to the title company to a get a list of owners that are behind on their mortgage, have at least 30% equity and have lived there for at least 5 years. We then start a direct mail/door knocking/social media campaign specifically to those sellers until you find one that is interested in selling. It benefits me as an agent to do that for an investor because there may also be other sellers that want to list their turn-key house on the MLS. If it's not right for the investor, I can still help them as agent.

The other way to maximize your local investment is to add value after you buy it.  That could mean improving the operations of an apartment building to reduce overhead, adding a second story to a single family home if the comps support it or building new construction onto an existing structure (like adding a granny flat/creating a duplex from a single family). 

Between buying below fair market value and adding value after you buy, you can often cash flow enough to keep building your portfolio in your local market.  Feel free to DM me if you ever want to meet for coffee to talk about how to find an off market property or have a question. 

Happy Investing! 

Lynette Braun

hey @Kevin Dehesa yeah I think so.  Lemoore is great because of the navy base, there are always military personal looking for good, clean affordable rental housing.  and they will be some of your best tenants ever.  Visalia is growing city and was recently ranked as one of the best cities to live in the US.  See the article here: http://www.visaliatimesdelta.com/story/news/local/...  

Coalinga is a bit of a toss up for me, it's far out in the middle of nowhere, their economy has suffered over the last few years due to oil prices going down, but will probably pick up again.  The west side of the valley is also caught in the middle of water wars with the state, so places out there can be risky depending on the outcome of that debate.  You can buy properties for lower prices per door there and probably do fine, there are a lot of nice, small town people there.  But if you were trying to choose between these three cities, i would stick to lemoore and visalia, especially being from out of town. 

Let me know when you want to come up and take a drive around, I'd be happy to show you anything you want to see.  if you have any other questions, don't hesitate to reach out again.

@Jeff Zimmerman thanks for the response! i am somewhat familiar with lemoore, hanford, and visalia.  Im interested in a duplex or triplex it would be a joint tenancy.  Would me and my partner be able to obtain a hard cash loan? what are other options if i dont have much capital?

by joint tenancy do you mean that you and someone else will by buying together? if so i don't think that would matter for the purchase or loan. as far as a hard money loan, I haven't ever tried to get one so I'm not sure. I think their general rule of thumb is that you can borrow up to 70% LTV of the after repair cost, assuming it's a flip, or 70% LTV of a turn key property. so yes, I think you can but trying to find a place that fits that criteria can be hard work as you will be competing against a lot of other people. I really like scott at westpark loans for hard money. He's not local in the valley but does a good job. https://westparkloans.com/

I see you are from long beach, you would probably have more luck with a FHA loan at 3.5% down and moving into an MFH yourself. just a thought. any thoughts on moving to the valley for a few years and getting a few MFH's?