I am looking to buy my first rental property. Located in the SF Bay area. Initially, my plan was to buy a property in the east bay, live in it but rent out the other rooms to help with my mortgage. This would allow me to borrow more money for a larger property (i.e. put down 10% instead of traditional 20%).
However, I plan to move to New York and rent in the next 2 years as part of my career. This would leave me in a situation where I would have to rent out the entire place and just can't find a way to cash flow positive in this scenario. Normally, I am ok with being negative but just don't see the crazy appreciation that we've seen in the Bay Area already (but please let me know if I am in the wrong here). I eventually plan to settle down in the Bay area so the downside would be paying a few hundred out of pocket every month for a period of 2 years and eventually coming to live here.
Then I started looking at the Austin area where home prices are a lot lower and there is opportunity for property values to rise. There also seems to be properties than can cash flow positive here. This would allow me to buy a property now, rent it out and hold. Essentially, would you recommend I start out by investing in my local area even if property prices are so high or just go ahead with an out of state investment like Austin.
Normally, I would say house-hack wherever you're planning to live the next 1+ year... but it definitely feels to me like NYC and the Bay Area are going to see downward pressure on prices, which would hurt - especially if you start off with negative cash flow. Meanwhile, Austin continues to see 150+ people per day moving to the area, double-digit price appreciation YoY from 2019 to 2020 in many neighborhoods. A lot of investors know this, so cash flow is hard to come by initially, but it can be done - mainly in the suburbs. So, of the three options you've presented, my recommendation would be Austin.
Why not do both?
It all depends what you're comfortable with. If you're just starting out and buying a duplex, it's usually safer to buy it in your local area. You may be able to find people who need to sell in the Bay Area or NY so you may find a great deal. I purchase 150 - 500 units and I was living in SF and buying in Texas and Florida. I recently moved to Austin from SF and am continuing to purchase in Texas.
No one has a crystal ball. If you intend to live in the Bay Area in the future, buying into the market earlier rather than later has been a good idea since at least the 1970's. I know of plenty of folks who priced themselves out of the market by waiting for the perfect moment to jump in. As to a couple hundred bucks of negative cash flow per month for two years, if $2,400 is going to make the difference to you as to where you want to live when you return from NY, then maybe you have bigger issues to resolve. $2,400 is 0.3% of, say, $800,000 - a typical Bay Area price. That's not even a rounding error.