Northern California Strategy

19 Replies

Hello Everyone,

I live in Sonoma County California and I am currently planning on pursuing long term rentals with flips in between.

The more I research the market, the more I feel that out of state rentals are a wiser choice due to prices. My questions to you are as follows:

If I go out of state, how do you recommend pursuing properties? I'd rather buy a home before it hits the mls.

Should I fly out of state to personally inspect every possible deal? This seems costly...

Any advice on how to wisely purchase out of state properties.

Should I use a PM?

The out of states areas I am considering are Austin, Tx and Lynchburg, Va. Does anyone know these markets and whether or not the are suitable for a long term rental strategy?do you have any trusted contacts in these areas that you would not mind sharing (PMs, agents, handymen... Etc)

Thank you for your time and advice.

David

I think there are a lot of advantages of starting local- learning the market, having time to view properties, being able to learn and manage properties close by, develop relations quicker... You would most likely need a manager out of state to find/screen tenants, deal w/ situations etc.

Originally posted by @David McCready:

Hello Everyone,

  

Should I fly out of state to personally inspect every possible deal? This seems costly...

Thank you for your time and advice.

David

 It's a shame you can't afford the more profitable investment properties in CA.  Have you considered partnering with someone?  I think that would be a lot less risky than hiring, managing, and firing a team from a distance.

Now if you bought locally would you just had some one your check book and say go pick something out for me, you know what I like?  I don't think so.  Why would you be willing to do that because the trip is more expensive?

Hello David,

Welcome, nice to see another local investor (i'm down here in Richmond).  I think out of state is one option for you, but you do have some legitimate concerns about it.  You might find it to be a lot more work than you want to put in.

You could always fix and flip cheap properties right here in the golden state for the time being, make money from that for a while and put a nice down payment into an apartment house somewhere down the line either in state or out of state.  It's hard to cash flow right now in California but there are other ways of making money in real estate.

By doing flips for now, you aren't spending a lot of time traveling back and forth buying single family houses out of state.  You probably will be more comfortable too being able to see the properties in person and oversee the construction.  If you do go out of state, you also have to get a good team on the ground if you are going to invest out of state, which would include a broker, property manager, contractor, etc.   These things take time and money.  I can't see it being easy trying to manage a property yourself being thousands of miles away.

If you go off the MLS and try to find owners in your area who are desperate to sell for quick cash you can find a good deal. Go "driving for dollars" around your area (Lake county is still an affordable region) and find houses that look like they need work, find the owners number online and call and try to scoop it up for a deal.

Hi @David McCready , I'm just up the road in Ukiah. I too have been going over the same analysis, and having conversations with various folks in the area about the pros and cons of going out of state versus hunting for options in the north bay. As per @Andrew Fingado 's point, I've been spending a lot of time in Lake County recently. I do think the two hour rule still applies here (there are decent markets within a two hour drive of just about anywhere) but I'm also planning to get my feet wet going out of state. I'll PM you and I'd be down to meet up in person and chat.

Hey David,

Welcome to the site, I live in Sonoma County also, and the market here has recovered so well, it is tough to find anything that will even cover the PITI let alone cash flow. I have purchased a couple out of state in markets that have better cash flow, but it isnt without its trouble as well. I have also began like Orion looking at markets near by that have not yet recoved as much as the surrounding bay area, I have been looking into Modesto for homes that can cover the holding costs and possibly turn a small cash flow and hold for appreciation.

Hey David,

I'm in Lynchburg, VA. The area would be a hard market to flip right now; it's pretty saturated. Rentals are a different story since there is a growing university in the area. Let me know if you decide to do any investing in the area. I can give you some contacts and we may even be able to do some deals together. Best of luck and happy hunting!

Hi David, out-of-state definitely has it's perks. As far as the two areas you mention, I can't speak for Lynchburg but VA in general tends to not have as advantageous of price-to-rent ratios and Austin is definitely hard in that department. Those ratios relate directly with how much cash flow you will see each month based on price of the property. Then of course expenses play into it too which are tough in Austin with higher property taxes and insurance in Texas. Both markets probably have some properties that would be fine, but they may be tough ones to find. Depends on your strategy too.

I live in LA and have always bought out-of-state. As far as the travel goes, I rarely travel to see mine (actually I never do) and I bought some of them without even seeing them and it was fine.

David,

Like Ali said, in Austin it's getting more challenging (though not impossible) to find rental properties that cash-flow.  However, there are many surrounding areas 15 to 30 minutes away that still work - Kyle, Buda, San Marcos in the south, and Cedar Park and Leander in the north.  Cedar Park and Leander are in the growth corridor.  San Marcos has a state university that results in a consistently strong rental market.   There are also areas in the east - Manor and Elgin, but appreciation rate is very low.

As for the expense of flying to see properties, looking for and locating a property can be done mostly via email and internet, with the final selection taking place in one trip over a weekend, if it's planned well.  I did this for a buyer from England who was here for SXSW.  He stayed for two days after the event ended, and we found him 3 properties.  

I don't do property management, but I recommend my extra-local buyers factor that cost in, because it saves a lot of headache and problems in the long run.  However, I have heard of some investors who have the comfort level and experience to manage properties from a distance.  So, it really depends on you.

Best wishes,

Michelle Ellis, TruBlue Properties

@David McCready  

  The reality of going out of state and finding properties before they hit the market is a tough one.. there is intense competition for wholesale deals in the markets that are popular with TK providers... If you go to smaller less known markets it becomes do able. Austin is red hot the chance of someone coming form Sonoma and scooping an off market deal out from under the locals is pretty remote in my mind.

Having lived in Lake county,  one child born there the other in Ukiah.. I like that option for you. However limit your focus in my mind to Lakeport , The Riverias and Kelsyville area if your going to check it out.. Along with Hidden valley lake.. Also Upper lake could find a little gem.. do not go anywhere near the city of Clearlake lower lake Nice Lucerne the Oaks lots of lower end tenants there.. It can be done but your better tenants are in the areas I described. My family started investing in Lake co. in the early 60's... STill have fond memories

Right now you have a big heard mentality going on in a lot of the markets that west coast promoters work and get paid to refer clients to the TK operators in those states. So if you go that route just know you will be paying top dollar and a CA buy is probably a much better purchase for you..

Especially if your going to fix and flip to try and do that from out of state is pretty tough and very dangerous in my mind.. The risk reward scenario is intense.

If your dead set to go out of state.. You may want to check in with @?BrianBurke at Praxis he is located right there in Santa Rosa and has some nice funds that he professionally manage's and he has ton's of experience and success  I will wager his fund will be much safer and more profitable than you trying to do it yourself out of state.

Also look at investing with a local HML on Quality first trust deeds as opposed to trying to buy out of state.. Remember out of state in most TK markets is only about cash flow there is no real appreciation in most or any of the markets unless you buy up scale quality which is not what TK cash flow is.

After selling my San Francisco properties and Santa Rosa properties I started buying long term rentals In Coeur d'Alene, ID.   I have had property managers there for more than 10 years and am very pleased with their abilities.

You can purchase equivalent properties there for from 25-40% of the cost of Santa Rosa, Windsor or Rohnert Park properties.  The rents are of course less but I have always been cash positive from day one of their purchases in CdA.  I couldn't come close to that in Santa Rosa.  Of course values do not jump like they do here nor do they drop like they did in Sonoma County.

I wouldn't try flipping long distance on a bet and I am a general contractor.  Not being on site frequently leads to interpretation problems even with the most honest and reliable contractor.

As for Lake county I agree with the earlier poster.  Areas and tenants are more iffy. I personally wouldn't invest there and right now it is tempting.  No real professional management company available and I refuse to manage my own property.  For 8% of collected rents and professional services like I get in CdA it's worth every penny.

Oh one other thing if you do find a professional company and I am definitely talking about a professional manager that that is all they do you can rely on their expertise when purchasing a new property. No realtors who manage a couple of properties fro clients need apply. Before I write any offer she is the first person I call.  She knows the city, she knows the rents and she know the type of tenant I want.  She has steered me away from bad purchases. She gives me the real facts about max rents for that unit in that area could bring not some bs guess from someone who wants me to buy and earn a commission.  She also charges me nothing to inspect before purchase so I pay for professional services she provides on my rentals without regret.

I have absolutely nothing against agents I use one for purchases but I don't want her guessing about rents.  On my first purchase my long time agent guessed 33% over what I was ultimately able to get for rent.  Fortunately I knew better and didn't use her numbers.

For California investors looking to invest out of state, I always recommend the Central Valley as an alternative because the fact is, the grass isn't always greener on the other side.

I know from experience, having done dozens of deals out of state- buy and hold, flip, hard money, lease option, etc. The numbers look great on paper, but this idea of passive income as an out of state landlord is flawed. Vacancy problems are an issue repairs can be an issue property management can be an issue... It all adds up.

I always recommend starting with investments in Sac, Bakersfield and Fresno. Price point is much more realistic compared to the greater Bay Area where you are located. Management can be a headache but if you have a solid property manager and check on the properties every now and then you should be fine. Returns out there in the central valley are similar to that of out-of-state markets you probably are potentially looking at investing in.

There ain't no place like California ;)

@Martin Scherer  

couer d' Alene is not in any way compared to what most think of out of state investing. IE the big cities of the mid west and east. there is no comparison in socio demographics' amount of HUD amount of Ghetto 's etc.

And you did well to find that area.. I love it there we fly up there often in our plane and visit friends that own properties there.. then on to Kalispell the next day. Our rental experinces are just not what an investor is going to experience in the mid west  or out east. where half the population rents as a life style.

@David McCready  

  Front page of Press Democrat today

Sonoma county has the highest % of rent increase in the US... and housing is in short supply... this equals some nice opportunities right in your back yard in my mind.

Hey all, thanks for the replies! I want to get back to you all unfortunately I am out fly fees in Nor Cal at the moment and reception is spotty at best.  I'll get back to you as soon as possible. Thanks again for the advice.

David

 @Joey Budka  That's pretty good advice for all the California investors. Thanks for posting that. 

I would heed the advice of @Joey Budka  and @Jay Hinrichs  , but I'm a bit biased investing locally. And don't ever plan on selling! (7 Bay Area doors so far).

I closed my best deal so far about 2 months ago, and in contract on another one that I am just as excited about, in a different way. Last deal was all-in after rehab at $430K, and rents above $5K/mo, with another $700/mo in upside. Plus lots of built-in equity. That was in Oakland.

http://www.biggerpockets.com/forums/223/topics/132989-deal-success-story-in-process-cash-flow-in-the-sf-bay-area

There are very few deals that make tons of cash flow from day 1, but if you're willing to buy a vacant REO and roll up your sleeves (or have a good team, like I do), screen to find good tenants, especially w/ vacant units, you can do fine. They are out there. This particular one was on the MLS. Next was not..

Either way, good luck! Just wanted to provide a little inspiration that there is still money in metro CA if you're willing to pound the pavement to find them, then make 'em your own!

Lake county,  is a great place to start your investments. I have been investing in Lake county for the last 6 years. Great entry point to getting started. Good cash flow plus you get the appreciation value where you don't get with out of state cheap turn key properties.

As for Lake county PM, I have been operating a great property management company for last 5 years along with being a general contractor for the last 12. Majority of our business is investor properties along with my own. As majority of tenants are low income producers or state paid employees so as others have stated above a good renter is hard to find. We help with all that.

Contact me anytime for some insight

@Anthony Contento I'd be interested in chatting about your experience in Lake County. I am looking at a couple counties up in that area. As you look at Lake County and the type of tenants up there, are there certain neighborhoods you'd recommend taking a look at or staying away from?

Hi @anthony, I'd love to find out more as well. I'll message you privately!

Originally posted by @Anthony Contento :

Lake county,  is a great place to start your investments. I have been investing in Lake county for the last 6 years. Great entry point to getting started. Good cash flow plus you get the appreciation value where you don't get with out of state cheap turn key properties.

As for Lake county PM, I have been operating a great property management company for last 5 years along with being a general contractor for the last 12. Majority of our business is investor properties along with my own. As majority of tenants are low income producers or state paid employees so as others have stated above a good renter is hard to find. We help with all that.

Contact me anytime for some insight

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