Viable Returns in So Cal

35 Replies | Riverside, California

I'm formulating my family's personal investment strategy. 

I've been analyzing deals that would be considered good retail buys, and they are no where near numbers that would meet Brandon's Cash On Cash return criteria.  

I'd really prefer to keep our investments close to home, but am wondering if the reality of  the So Cal market combined with very pro tenant laws might make the smart move be to invest in another market. 

I know I can always dig deeper for off market cash buys, I'd like to hear your thoughts, and learn what strategies are working for investors in the IE.

@Tania Reuben I'm from SoCal - Orange County and it is very hard to hit the returns that I'm looking for and as such I started investing out of state almost 4 years ago. I think the first thing is to determine what rate of return you are looking for? Our market does appreciate fast which can build equity fast for SFR, however, cash flow is very minimal. Also, I'll focus on cash flow first and any appreciation is really the cherry on top. I do have 2 SFR in Ontario that I purchased during the last downturn ~2008. I think that's the only way numbers made sense but it is hard now since a 1970 1500sqft SFR is easily around $420K+ in Ontario and rents are probably hoovering $2K/mo

That's been my analysis as well... seems like you can find deals that will just cover costs, but not flow... which means they aren't hitting any of the metrics Brandon advises to target. I'm planning on funding this from a self directed IRA, so I do intent on staying conservative in my approach.

Where did you decide to look out of state?  I have some strong contacts in Idaho and Salt Lake, so considering those markets, or Nevada & AZ, because they are closer.

Thank you David.  My thoughts have been leaning towards finding creative deals... most who know me, know me as resourceful, may just need to take the creative route.  

Originally posted by @Tania Reuben :

Thank you David.  My thoughts have been leaning towards finding creative deals... most who know me, know me as resourceful, may just need to take the creative route.  

Ooh, you said my favorite word, 'creative ':

Here are some creative ways to do deals

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

@Simon Chan Hi there. I'm a newbie but I'm in Ontario and was hoping there would be some opportunity locally for rentals but doesn't seem like it. I only see flipping occasionally. I'm still learning but the first route I'm thinking is out of state. I'd love to network with you.

Sounds good.  I'm thinking of heading to a 500 Club meeting in Old Town Temecula Tomorrow, and the following Wednesday I'm hosting a social event at Peltzer Winery.  I'm also actively looking to network with other investors.

Thanks Elias, I did not have that marked on my list of areas to investigate.  My goal this week is to deep dive into 6 markets to determine where to focus my efforts and marketing.

From my initial research I'm leaning towards the Salt Lake area.  I haven't done run a bunch of deal numbers, I like the price point, and like Utah in general as a stable market. I  have family in that market, and it's easily accessible for any scouting trips.

Originally posted by @Tania Reuben :

That's been my analysis as well... seems like you can find deals that will just cover costs, but not flow... which means they aren't hitting any of the metrics Brandon advises to target. I'm planning on funding this from a self directed IRA, so I do intent on staying conservative in my approach.

Where did you decide to look out of state?  I have some strong contacts in Idaho and Salt Lake, so considering those markets, or Nevada & AZ, because they are closer.

If you do decide to go out of state some of the more popular markets are listed below in no particular order.

  • Cleveland, Ohio
  • Dayton, Ohio
  • Toledo, Ohio
  • Youngstown, Ohio
  • Cincinnati, Ohio
  • Memphis, Tennessee
  • Birmingham, Alabama
  • Kansas City, Missouri
  • Saint Louis, Missouri
  • Indianapolis, Indiana
  • Detroit, Michigan
  • Erie, Pennsylvania
  • Louisville, Kentucky
  • Milwaukee, Wisconsin
  • Jackson, Mississippi

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

@Tania Reuben

We went out of state for the same reasons you are considering and haven't looked back. We have family members who just made an offer of 450K on a 2/1 753 sq ft SFH built in the 50's in Norwalk. How many acres people from other markets are wondering to themselves? 1/8th.

F everything about that deal.

Oh, and they were beat out by one of the other 25 offers received in less than four days.

@Tania Reuben  @Elias Valdez III @Jazmin Galvez  @Simon Chan

I'm looking at starting a REI group for all but probably will end up leaning towards out of state investing, since that's what I know. PM me if you want me to keep you updated and include you on the invite once we get place and date scheduled.

Originally posted by @Simon Chan :

@Tania Reuben I'm from SoCal - Orange County and it is very hard to hit the returns that I'm looking for and as such I started investing out of state almost 4 years ago. I think the first thing is to determine what rate of return you are looking for? Our market does appreciate fast which can build equity fast for SFR, however, cash flow is very minimal. Also, I'll focus on cash flow first and any appreciation is really the cherry on top. I do have 2 SFR in Ontario that I purchased during the last downturn ~2008. I think that's the only way numbers made sense but it is hard now since a 1970 1500sqft SFR is easily around $420K+ in Ontario and rents are probably hoovering $2K/mo

Agree with what Simon said, just adding that our market's fast appreciation is accompanied by fast depreciation when times are bad for sellers, especially as you move farther out looking for affordability. That's why our money is out of state on a merry go round and not local on a roller coaster!

@Jazmin Galvez

Hi jazmin. I just saw your post here. As such, I apologize for not responding earlier. Yes I love to connect to talk about real estate investing. I see that you’re in Ontario California. I actually have two single family residence in that area. I can give you some of my inputs.

@Simon Chan : MF is tough in Phoenix right now. There is very little inventory in the 2-4 door market, so prices have been driven up, and rent hasn't quite kept up. It's hard to make them cash flow. That said, it can be done. A similar option that works well here is to get a property with a casita/in law suite/etc. If you rent them separately, this essentially functions as a duplex. You can also diversify your investment by getting a long term renter in the main house and STR in the guest house.

Happy to discuss the Phoenix market - let me know if you have questions!

Originally posted by @Karen Margrave :

@Tania Reuben As mentioned appreciation is great in many areas of so cal, especially coastal areas. For cash flow you can posdibly buy short term rentals in coastal cities.

With the current CA trend of shutting down AirBnB's, I personally don't feel comfortable building a model that uses that strategy.  If it worked out that way short term, that would be fine, but I would need to base CF on full time tenants vs short term.