”Beginner” - What areas in SoCal should I look at?

Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes

@Peter Pettersson you've said you've been looking and nothing meets your requirements, but you never said specifically what your requirements are, so it is hard to recommend cities, and you also mention potentially going OOS you need to begin to focus on what you really want and narrow it down a bit.

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Peter Pettersson

OP

New to Real Estate · Laguna Niguel · Member since 2021 · 10 posts · 4 votes

5y

Good point! Not sure this covers all, please let me know if I am missing something >>>Primary been looking at single family, 2-3 room with 1-1.5 baths. I have primary been looking at the first property to be closer to a turnkey or with sub 10k make ready costs and secondary property as a fixer upper (30k-40k make ready cost). I been using Mashvisor to get some quick numbers as well as tweaking the numbers in my own excel sheets. Maybe I am too conservative. If anyone else have experience with Mashvisor, do you believe their numbers are optimistic or conservative? I am not following a 1% or 2% rule that many subscribe to, because I think it narrows the initial scope too much or the learning for a beginner like me. I might be wrong on this? I do plan to validate with these models before buying. Other than Mashvisor, primary been using MLS, and looking at San Bernadino county - especially between 15 and 215: as well as some quick searches in OC. Have not started to contact wholesalers yet or flippers. Maybe that's my mistake? Forgot to, for the first one, trying to find something with 600-900 in cash flow - but might be too high (assuming 30%-35% in cash down - rest mortgage at roughly 2.8. Price of course very dependent on area.

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Kevin Purvis

Developer · Orange County, CA · Member since 2020 · 42 posts · 23 votes

5y

I think it really depends on your assumptions im your excel sheet. Cash flow, is that after everything including repair reserves?

I think a more easily comparable way to price out properties is ROI, assuming selling in 10 years (for buy and hold). That way, cash flow may or may not be relevant, its just about return. Return is also more easily comparable against other investment options.

I like Corona and Temecula myself. I also live in OC. Out of state is higher returns generally speaking but you cant easily see the places. Google Reination and RPCinvest.

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Peter Pettersson

OP

New to Real Estate · Laguna Niguel · Member since 2021 · 10 posts · 4 votes

5y

Thank you for the answer! On cash flow: Ignore the one time costs ROI. Roughly the negatives include: 1. Insurance 2. Property management & Maintenance (work a busy job, so expect to contract for most). 3. Property Tax. 4. Potential HOA. 5. Vacant rate (assumed 1.5 month, year on average) 6. Mortgage (principal & interest). I do not add principal back in, since its building equity, but negative on monthly cash flow. Am I missing something? Again, these numbers differ a lot dependent on property.

Will check out Corona and Temecula.

I will check out Reination and RCPinvest - great tips!

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Aaron K.

Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes

5y

@Peter Pettersson my best advice is don't be conservative, be correct. If you are conservative in all your numbers and others aren't you won't get anywhere. 1.5 months per year in SoCal is super excessive in terms of vacancy rate, make sure your insurance, property management, and maintenance costs aren't conservative either, SoCal insurance is cheap relative to other parts of the country, and you can find good inexpensive management here as well.

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Kevin Purvis

Developer · Orange County, CA · Member since 2020 · 42 posts · 23 votes

5y

Peter,

Most places in Socal are slightly cash flow negative, unless:

You can make changes, add ADUs or something to bump up monthly return.
You develop from land
You buy very low (distressed, from Bank, etc).

Anyway, it doesnt surprise me that a lot of homes you are seeing are cash negative. Most simply are, if bought and rented essentially as-is.

1 Reply

Elise Hazzard

Property Manager · Saint Petersburg, FL · Member since 2016 · 183 posts · 51 votes

5y

This scenerio is common in recent low interest years; desired area analysis = negative cashflow.

TIme for creativity. David Green is a fan of house hacking in low/no cashflow areas.Seeking owner finance may be of some help, but the condition is generally not turn key. To buy smallest piece of good dirt and build a tiny home?

Patience may be needed with boots on the ground hustle... start door knocking!

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Brandon GoldsmithBusiness Member

Real Estate Agent · Columbus, OH · Member since 2020 · 1k+ posts · 1k+ votes

5y

I'm not too familiar with the SoCal market but haven't heard of too many people looking there for cash flow, especially in SFH. You might want to look out of state for some markets that might match your number a little better. @Peter Pettersson

[email protected]614-963-3340

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Tyler Hungerford

Real Estate Agent · Riverside, CA · Member since 2017 · 204 posts · 105 votes

5y

If you're just going with a standard SFR, you should consider just buying a property from a wholesaler or a property that needs a lot of work. I'm quite bullish on Riverside and the Inland Empire and have suggested to multiple people to purchase properties with a detached garage so that they can convert that to an ADU. You're looking at long term cash flow and that strategy would provide it. In Riverside, a typical 3/2 bath house is about 400k to 500k and would rent for about 2k to 2200 depending on the area. The Adu (1/1) on top of that would rent for over 1k. That's a nice bit of monthly income, especially if you're coming in with a 20 to 25% down payment. Something to think about.

1 Reply

Peter Pettersson

OP

New to Real Estate · Laguna Niguel · Member since 2021 · 10 posts · 4 votes

5y

Thank you all for the help and guidance! I will absolutely explore all suggestions! Keep the ideas coming.

1. Will check out all the house hacking resources mentioned, be less conservative, and explore more hands on properties with expansion of cash flow alternatives.

2. What out of states do you think I should start analyzing? Would defiantly seek turn key / ready package style in other states

@Tyler Hungerford: Will send you a PM to hear more about Riverside pros and cons if that ok?

Again, thank you all!

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Tyler Hungerford

Real Estate Agent · Riverside, CA · Member since 2017 · 204 posts · 105 votes

5y

That sounds good Peter! Happy to help and chat about the area with you.

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Zachary Beach

Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes

5y

@Peter Pettersson Big Bear Short term rentals have amazing returns if managed well and you buy a good place. I own a few and also manage for others in big bear. At that price range you could get something that grosses over 100k and would have massive cashflow to reinvest.

1 Reply

Remington LymanBusiness Member

Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes

5y

Originally posted by @Peter Pettersson:

Hi, I am new at BiggerPockets & realistate investing in US.

I have been researching several SoCal cities for our second and third realistate investment property (first investment property in US - long story). However struggle to make something look attractive from a numbers perspective (decent positive cash flow, not too focused on value increase or decrease). What cities or areas should I be looking at? Preferably not more than 3 hours drive from OC (Laguna Niguel).

Can put about 100k-250k cash into it one or several properties dependent on area. Will not have a problem to get approved for mortgage(s). This is a retirement investment (have 20 years to go) and do not need any additional monthly cashflows short or mid term, so all will go to into more and more investments. Please note, I am not in a rush and will be ok to wait until Covid and/or the market correct itself, should I not find something. Spending a lot of time reading books, following YouTube, listening to podcasts as well (what sources do you recommend for a beginner to the US market).

What’s my best strategy? What areas should I be looking at? Should I look at other states? Any other general recommendation appreciated!

Thank you in advance!

You should look at Columbus, Ohio

[email protected]614-541-8475 Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals

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Brendan M Hornung

New to Real Estate · Santa Monica, CA · Member since 2021 · 27 posts · 13 votes

5y

@Zachary Beach I have heard a lot of good things about Big Bear. How is the cash flow in the non-winter months? Also, would this be a good place for a first-time buyer/investor such as myself?

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Zachary Beach

Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes

5y

@Brendan M Hornung our properties bring in more rent after management in the worst month than the same house LTR’s bring in. I would think it would be an amazing first investment double digit cashflow and an appreciating market.

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Ivan Lu

Walnut, CA · Member since 2014 · 4 posts · 0 votes

5y

Originally posted by @Tyler Hungerford:

If you're just going with a standard SFR, you should consider just buying a property from a wholesaler or a property that needs a lot of work. I'm quite bullish on Riverside and the Inland Empire and have suggested to multiple people to purchase properties with a detached garage so that they can convert that to an ADU. You're looking at long term cash flow and that strategy would provide it. In Riverside, a typical 3/2 bath house is about 400k to 500k and would rent for about 2k to 2200 depending on the area. The Adu (1/1) on top of that would rent for over 1k. That's a nice bit of monthly income, especially if you're coming in with a 20 to 25% down payment. Something to think about.

@Tyler, do you mind if I PM you to talk about investments in Riverside?

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Tyler Hungerford

Real Estate Agent · Riverside, CA · Member since 2017 · 204 posts · 105 votes

5y

Hey Ivan, send me a message, happy to chat with you.

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Nathan Mellor

Moreno Valley, CA · Member since 2017 · 17 posts · 7 votes

5y

I bought my first Triplex in San Jacinto which is ~1.5 hours from where you live. It cash flows decently and I have experienced great appreciation. You may want to look around Hemet / San Jacinto to see if you can pick something up. It is expensive around there too now days to be honest.

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LUIS GARCIA

Rental Property Investor · California, CA · Member since 2021 · 3 posts · 0 votes

5y

@Peter Pettersson

I have single homes in California, if u want to chat give me a buzz 8584286519 @jarcia.luis

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Peter MckernanBusiness Member

Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes

5y

Hello @Peter Pettersson You have a lot of options, and you looking to stay in OC/SoCal is my sights as well.

@Tyler Hungerford hit on a big strategy that is really something to pick up anywhere in California, the cash flow on a normal SFR is out; however, the ADU model is massive. Get your numbers right, look for a detached garage, or a big lot to do a ground up 2/2 for 800 sf and you will be getting almost double the $1,000. We are working on an ADU right now in the IE, detached garage with extending that from 400sf to 800sf 2/1 and the rent will be around $1750.00.

You need to make sure you take into account your structural engineer, architect drawings, city fees, contractor costs, and material costs as well. Construction costs for a conversion will be $140-$200 per SF on the property depending on what they need to do. You can also BRRRR that property after it is done and get some money back out, just make sure you are working with the right lender and appraiser due to some appraisals coming in lower that your construction costs on a purchase price.

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Eric HuangPro Member

Member since 2020 · 4 posts · 1 vote

5y

@Tyler Hungerford

Hi all,

I'm new to BiggerPockets too and I agree with Tyler. I am looking for properties in Riverside. I have been seeing more and more properties come on MLS being listed as SFR that then say they have an ADU (probably no permits) for about the $400-$500k range.

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

5y

Originally posted by @Tyler Hungerford:

If you're just going with a standard SFR, you should consider just buying a property from a wholesaler or a property that needs a lot of work. I'm quite bullish on Riverside and the Inland Empire and have suggested to multiple people to purchase properties with a detached garage so that they can convert that to an ADU. You're looking at long term cash flow and that strategy would provide it. In Riverside, a typical 3/2 bath house is about 400k to 500k and would rent for about 2k to 2200 depending on the area. The Adu (1/1) on top of that would rent for over 1k. That's a nice bit of monthly income, especially if you're coming in with a 20 to 25% down payment. Something to think about.

>In Riverside, a typical 3/2 bath house is about 400k to 500k and would rent for about 2k to 2200 depending on the area. The Adu (1/1) on top of that would rent for over 1k. That's a nice bit of monthly income, especially if you're coming in with a 20 to 25% down payment. Something to think about.

Quite a bit of negative monthly income when allocating for all expenses. $500k purchase for $2.2k rent is a 0.044% rent percentage. By the 50% rule, the rent is below expenses not including the mortgage. At that rent percentage why not start in San Diego, OC, or L.A.? I can find better percentage than 0.44% all the time and San Diego, OC, LA have better historical appreciation (both property and rent).

Hopefully investors in Riverside are finding better ratios that the one referenced.

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

5y

Originally posted by @Peter Mckernan:

Hello @Peter Pettersson You have a lot of options, and you looking to stay in OC/SoCal is my sights as well.

@Tyler Hungerford hit on a big strategy that is really something to pick up anywhere in California, the cash flow on a normal SFR is out; however, the ADU model is massive. Get your numbers right, look for a detached garage, or a big lot to do a ground up 2/2 for 800 sf and you will be getting almost double the $1,000. We are working on an ADU right now in the IE, detached garage with extending that from 400sf to 800sf 2/1 and the rent will be around $1750.00.

You need to make sure you take into account your structural engineer, architect drawings, city fees, contractor costs, and material costs as well. Construction costs for a conversion will be $140-$200 per SF on the property depending on what they need to do. You can also BRRRR that property after it is done and get some money back out, just make sure you are working with the right lender and appraiser due to some appraisals coming in lower that your construction costs on a purchase price.

> You can also BRRRR that property after it is done and get some money back out, just make sure you are working with the right lender and appraiser due to some appraisals coming in lower that your construction costs on a purchase price.

I have yet seen or heard about an appraisal in So Cal coming in significantly higher than hands off ADU addition costs. Getting an appraisal at 133% of hands off costs to get some money out (at 80% LTV) would be almost as hard as finding a unicorn.

To the OP, Prior to building an ADU make sure you understand how it will appraise. It typically appraises for far below the hands off construction costs. This implies that most (virtually all) ADUs start in a negative position. This implies that the initial cash flow goes towards recovering this initial negative position. Depending on value as set by the appraisal, it could take years to recover the initial negative position.

Good luck

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Peter MckernanBusiness Member

Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes

5y

Originally posted by @Dan H.:

Originally posted by @Peter Mckernan:

Hello @Peter Pettersson You have a lot of options, and you looking to stay in OC/SoCal is my sights as well.

@Tyler Hungerford hit on a big strategy that is really something to pick up anywhere in California, the cash flow on a normal SFR is out; however, the ADU model is massive. Get your numbers right, look for a detached garage, or a big lot to do a ground up 2/2 for 800 sf and you will be getting almost double the $1,000. We are working on an ADU right now in the IE, detached garage with extending that from 400sf to 800sf 2/1 and the rent will be around $1750.00.

You need to make sure you take into account your structural engineer, architect drawings, city fees, contractor costs, and material costs as well. Construction costs for a conversion will be $140-$200 per SF on the property depending on what they need to do. You can also BRRRR that property after it is done and get some money back out, just make sure you are working with the right lender and appraiser due to some appraisals coming in lower that your construction costs on a purchase price.

> You can also BRRRR that property after it is done and get some money back out, just make sure you are working with the right lender and appraiser due to some appraisals coming in lower that your construction costs on a purchase price.

I have yet seen or heard about an appraisal in So Cal coming in significantly higher than hands off ADU addition costs. Getting an appraisal at 133% of hands off costs to get some money out (at 80% LTV) would be almost as hard as finding a unicorn.

To the OP, Prior to building an ADU make sure you understand how it will appraise. It typically appraises for far below the hands off construction costs. This implies that most (virtually all) ADUs start in a negative position. This implies that the initial cash flow goes towards recovering this initial negative position. Depending on value as set by the appraisal, it could take years to recover the initial negative position.

Good luck

Yes, correct, no unicorns here in the ADU arena. It's not a cut and dry process compared to get the comps just right on the ADU refi. They comp out good with multifamily ADU additions and there has not been any challenges there. The SFR ADUs are not equal to those appraisals, some have come in on a very high appraisal or a lot lower appraisal than expected.

The owner needs to pull comps to provide the appraiser on ADUs that have sold in the area (more ADUs done in LA County). I have had good values come back on purchases for properties with ADUs as well, way above the rehab and purchase price due to the appriser using local rental comps on a SFR as well.

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Jason Hsiao

Investor · Pasadena, CA · Member since 2015 · 269 posts · 189 votes

5y

You can absolutely cashflow in California @Peter Pettersson. The ADU laws make it a lot easier now. Granted, it's still gonna be hard/impossible in some markets like say Newport Beach. I'm big on Long Beach. Just walked a property in Baldwin Park that cashflows ~$1,000/mo. A friend of mine found an absolute gem and he's doing 5% down his CoC is like 24 or 26% something crazy like that.

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”Beginner” - What areas in SoCal should I look at?

”Beginner” - What areas in SoCal should I look at?

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