Bay area or out-of-state investing?

21 Replies

Hello fellow investors!

I recently just joined the BP family and have been researching and educating myself on REI a couple months now. The biggest question I have now is - should I invest somewhere local (2~3hr drive) or out-of-state?

The market in the bay area is tough, and I don't seem to find deals locally that give me the right numbers. Of course I would prefer local for a sense of security and I can deal with issues if anything goes south. However, I would mostly have PM handle the property for me since I'm working full time and travel internationally often. So may be it doesn't make a difference local or out-of-state.

I'm currently house-hacking San Jose. My strategy is generating cash flow by buy-and-hold and I got about $150k to invest. I don't want to put it down on a single property (unless the deal is amazing) as I would like have the additional cash on hand to expand and diversify my portfolio quickly. 

Where would you guys recommend to invest in Northern CA and where for out-of-state?

one option that you may consider is the UBER hot Portland market.. vacancy is like the bay area non existent tenant pool respectful in the right settings.. so with 150k down you could buy a nice smaller multi unit.. kind of a tweaner

Thanks @Jay Hinrichs ! I'll definitely look into Portland and do more research on it as I've heard that's a good investment location as well!

Hi @Ian Lee , 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. 

If you decide to invest out of state choose cities in safe and economically diversified areas with above-average income and population growth. It's can also safer to diversify your investment properties across the country.

Originally posted by @Ian Lee :

Hello fellow investors!

I recently just joined the BP family and have been researching and educating myself on REI a couple months now. The biggest question I have now is - should I invest somewhere local (2~3hr drive) or out-of-state?

The market in the bay area is tough, and I don't seem to find deals locally that give me the right numbers. Of course I would prefer local for a sense of security and I can deal with issues if anything goes south. However, I would mostly have PM handle the property for me since I'm working full time and travel internationally often. So may be it doesn't make a difference local or out-of-state.

I'm currently house-hacking San Jose. My strategy is generating cash flow by buy-and-hold and I got about $150k to invest. I don't want to put it down on a single property (unless the deal is amazing) as I would like have the additional cash on hand to expand and diversify my portfolio quickly. 

Where would you guys recommend to invest in Northern CA and where for out-of-state?

 I'm investing out of state. You haven't stated what's you're goal here but I can share my experience with you to give you some sense of what it means and the ramifications of it. It's definitely not for everyone. 

@Assaf Furman I would love to hear more about your experience and  thought process!

@Ian Lee You can find affordable cities to invest in within California, but you should aim towards the central valley.  The bay area is too expensive to invest in.  But there are plenty of places where you can find single and multi-family properties in some parts of California in the sub-$150k price range. I've also had clients that have done flips spending less than $90k for purchase and remodeling costs and flipping them in the $100k+ price range in central CA.  It's still possible without going out of state.

Max Gradowitz, Attorney

Hi Ian,

I would definitely suggest investing out of state ?

I've all my properties SFR homes and several apartment complexes all in TX.

 There are many reasons behind choosing TX - economy strength , price to rent ratio , land lords friendly laws and regulations .. etc

If you are interested in educating yourself we (me and my partner ) have regular meetups in Los Gatos .

Just look it up on the meetup website if you like '

Multi Family / Single Family Out of State Investing

'

Can't speak for anywhere in CA as I only do out-of-state, but for the out-of-state stuff, a lot of it depends on preferences. With $150k you can split that into a nice chunk of properties with leveraging (3-5 properties ballpark). Some good cash-flowing markets right now are Chicago, Indy, KC, and Philly. You can get cash-flowing MFRs in Chicago and Philly whereas Indy and KC would only be SFRs. Chicago and Philly would give you more of the urban row house feel versus suburban feel in Indy and KC. Chicago would be on the higher price end, the others are all lower. They are all solid growth markets. You'll see lots of deals in Memphis and Cleveland, for example, but I'm not a fan of their market fundamentals.

My point is- there are several options out there. I live in LA and have only invested out-of-state. Happy to talk markets anytime if you want!

Ian,

I'd guess thru income being in CA you probably qualify as accredited.  Going from one hot market to another doesn't seem that wise to me at this stage.  I would be a value oriented buyer and going out of state to build a team and find that for you when you are only bringing $150K, do you think you will see the best values?  Really?  

Now, let's say you team w/a buyer who has purchased over $100M worth of large apartments in a given city in the last 12 months, do you think this buyer gets more attention than you? Do you think this buyer has built up a reputation of doing deals, big deals and incredible relationships w/brokers who know apartment sellers very well and say hey, I know a buyer who is looking for just what you are offering and I bet you could offer him an attractive opportunity w/o taking this to the market? Does off market, value add sound good in this market? Can you get 10% CoC and 20% IRR in Portland and Bay Area, really? Absolutely, I'm not sure why we think as DIY investors at this stage in the cycle that we can compete or get the deals that the big fish get.

Keep your eyes open but this is where I'd be thinking, who has an advantage?  Can I ride w/these guys and be part of the action.  Absolutely, its called syndication and you, as a limited partner can put up say $50K, $100K or even $150K and w/n 30 days w/some education, be participating in these types of deals.  Think big, get bigger !!

@Ali Boone what Parts of KC are you finding to be good SFR investments right now?

@David Thompson   although I like your enthusiasm for your syndications.. its not appropriate for all investors... when those deals tank  ( and they do)  its usually a total wipe out for the investor.

and we are at the top of the multi market for sure.

I think what a lot of folks like about buying their rental houses or little MFR's is they own them themselves they are not relying on someone else to make it work past the PM or if they self manage and there is greater liquidity.. they can sell when they want not when the syndicator decides to exit.

I see syndication being appropriate for those that want to move a very small portion of their cash ..

Not someone who sold and gets 150k and is looking to spend 100% of his liquidity at the time.. that would not be wise in my mind.

Hi Ian,
It's tough starting out in the Bay Area. I would vote for somewhere within driving distance. Connect with me and I am happy to chat with you. Good luck.

@ian Lee

I think there is an argument to be made that the Bay Area will continue to appreciate, and if you want to invest for capital appreciation it may make sense.  As far as generating cash flow, you clearly have to go outside the Bay Area, and most likely out of state.

Thanks for creating this great thread.

I too am in the Bay Area and am weighing options.

My wife and I are debating about using our capital to purchase a home here to live in, versus investing the capital elsewhere.  Most likely, we'd look to a buy and hold situation.

I've been interested in Jacksonville, since I'm already in a unit there, but the cross country flight is painful.

I'd @Account Closed I'll seek out the Meet up you mentioned.

Another podcast I listen too mentioned San Antonio as a city with good metrics...at this point, I'm really filled with analysis paralysis.

I'd love to connect with like minded people and hopefully use our shared motivation to take action.

Looking forward to replies.

Jason

San Antonio is a great place to invest.  A few more fun bits of very relevant information.

  • Realtor.com named San Antonio among the Top 20 Hottest Real Estate Markets for 2016
  • Forbes listed San Antonio as No. 3 on their list of 2016’s “Best Buy Cities”—the top 20 housing markets to invest in this year
  • Auction.com named San Antonio one of the Top 5 Single-Family Housing Markets for 2016
  • WalletHub listed San Antonio as the 3rd “Overall Healthiest” housing market in the country
  • Job Growth – San Antonio experienced record job growth in 2015. A total of 20 companies located or expanded in San Antonio during 2015 with an annual impact of over $1.1 billion and nearly 8,000 jobs. Job growth impacts real estate; substantial increases in home sales are estimated over the next 5 years.
  • Population Growth – San Antonio’s population increased by over 8% between 2010 and 2014! As the population continues to increase, property values continue to rise…meaning your investment is continually worth more. Recent data from the National Association of Realtors reflects a 5.8% increase in median home prices from 2015 to 2016.
  • Rent Growth – National Real Estate Investor Online recently listed San Antonio as 1 of 10 Cities in the Nation with the Fastest Growing Single-Family Home Rents.

Ian Lee, Like other members above stated, it's challenging to find a traditional buy/hold property that cash flows in the Bay Area currently. 

I know you're mostly indifferent for in-state vs. out-of-state investing, but if you're still considering the Bay Area here is what I would do:

- consider areas like Oakland, Richmond, Vallejo where you can find cheaper (not cheap, but cheaper by comparison) properties. There are also more 'distressed' properties in those areas, which will help with price and availability. Since cashflow is rare here, I'd look for a value-add type place. Not sure if you're into flipping, but maybe by adding an extra room or bathroom you could boost the value, and then either rent out for higher rent then resell later on. Overall unit sales have decreased in the Bay Area because of lack of inventory but price per sq ft is still on the rise!

Best of luck, excited to see what the future has in store for you !!

@Ian Lee  I am a believer in keeping your assets in CA as everything is relatively high but the reward will be also be high.   Your time spent away from your base is money.  Sounds like you have other properties also? Do any of them have equity that you can use as collateral?  If so, a private lender would extend you a business line of credit to increase your purchasing power and cross collateralize between residential and/ or commercial properties in CA.   Crunch the numbers, it may make sense!   

I invested in Merced in a SFR in 2005. Though the rental market is strong in Merced, my investment
has depreciated a third (it was down 2/3rd and has since recouped).

My main reason for investing in Merced is the UC school that was coming up there.

With the med school being planned in Merced, we can expect higher rents in a few years from now.

Suggest you consider Hollister and better part of Salinas. May be two SFH or a duplex in same town. Never become a slumlord because you will regret having to deal with tardy rent or a winter burn down from faulty wiring....

Watsonville home prices are out of control-up up and way.  The drawback it is occupied by service workers. If there are no work you may not be able to collect rent.

You look online and can contact me.  Any place farther is too far when things go out of control you really need to be there.

Sam Shueh Realtor

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