Starting out in rental property investing in California

21 Replies

Hi I’m 22 years old live in Orange County CA and I’m trying to figure out how to start out on Rental property investing in California. I have about 30k to invest but I’m just not sure how to start.

You start by figuring out if this is even possible in your area. There is a shortage of inventory nation-wide at the moment. This has caused a construction boom over the last 4 years in almost every state, except California. Why? Because state and local laws and  restrictions on new construction have made it very difficult to get approval for new construction. It also makes it 30% more expensive because of solar panel and other state requirements. The low inventory and lack of new construction have caused the prices of existing homes to skyrocket. Therefore, buying a home at retail price is very difficult, much less buying at a discount in order to make it cash flow. If I lived in Orange County and I wanted to become very rich, I would simply run for public office.

@Ernesto Uribe great seeing you on the site! Pick out an area, get that area setup on a zillow, redfin, MLS, realtor.com search and have that go to your email. You will start to get those trends of that area, know what is a deal and what is not a deal then you can feel comfortable getting ahold of an agent to make an offer (MLS search will have to be setup by a local agent).

For the price and downpayment, there are options 1-2 hours away from us that can provide you with good returns on $30K, or that would provide you the ability to buy the first investment and so on. The one advantage is 10% down on vacation rental/homes that are 50 miles or more away from where you live with the added ability to get prime interest rates. Something to look into, and also if the $30K is not going to go too far in an area you really love jump in with a partner after the agreement is figured out with you two of course. 

@Ernesto Uribe   Unfortunately, your timing is far from ideal. Housing is overpriced across most of the country and with about $30,000 to invest you might need to consider buying in the Midwest or some other less expensive area. As this would be your first property may I suggest considering a turnkey provider, perhaps out of Chicago, Memphis, Cincinnati or something like that? This way, you know exactly what you're going to get, a tenant will already be in place and the property will already be cash flowing.

Please remember that this is a process and in order to get to your final destination you're going to have to take a few steps forward. This might not mean investing in your backyard, which I think is overemphasized, especially here on Bigger Pockets.

@Ernesto Uribe

Also join your local chapter of Real Estate Investors Association or the chapter where you want to invest. Cincinnati and Columbus have very active chapters that have many meetings and education online with a 3 day nationally-attended conference (OREIA) in November each year. They also have local contractor recommendations, FB groups, etc for every strategy and every type of investor including new investors. Nashville, Atlanta, and Tampa also have very active chapters from what I gather.

Meetups are also a great way, but less formal.

Good luck!!

Ernesto welcome!! So happy to see you so young and ready to learn more about investing. One way I would start is to figure out what are you looking for (buy&hold, short term rentals, buy and flip, etc...) this way you can start to look for the market that allows you to get what you are looking for. Also, after that looking for a team to help you, it does take time and effort and lots of learning but it pays off If you are doing it correctly and are learning from your mistakes. 

Lots of luck on your journey! 

Totally fine if you want to figure out how to make it work in California, but sounds like you will likely need partners to get started. You're probably better off finding a more affordable market in the midwest or southeast and learning how to do long-distance. It's not as scary as you think!

Let me know if I can help.

@Ernesto Uribe - Firstly, congrats for saving up $30k, not easy to do for anyone...! 

Second, this is not the ideal time to buy....a big time seller's market. There are plenty of people who will tell you that anytime is a good time to buy (esp Realtors :-) and that can be true depending on the property, but there are certainly better times to buy than now.

And as nice as $30k sounds, it is only a 10% down on a $300k property. None of those where you are....so you're looking at either a) getting really creative, ie partners Etc.. or b) looking in another state.

If I were you, I'd move out of state and wait....

Good Luck!

@Ernesto Uribe Short term rental Airbnb on a few places is huge return on the investment if you want to try it first, get permission because some places have city ordinance against short term rentals BP has a link to for a site that tells you how much your looking at making once you enter the address.

Originally posted by @Ernesto Uribe :

Hi I’m 22 years old live in Orange County CA and I’m trying to figure out how to start out on Rental property investing in California. I have about 30k to invest but I’m just not sure how to start.

 This is a good start! Posting on BP is a great way to network and learn.

I recommend you read this article on OOS investing. It explains the importance of creating your core four. You will need to get a local, rockstar Realtor, contractor, lender, and property manager.

https://www.biggerpockets.com/blog/core-four-real-estate-team

I invest locally in Columbus, Ohio

Congrats on wanting to take action. Do your due diligence on the targeted area and weigh in all the pros and cons. Then, network with people to guide you through the process and avoid making the same mistakes they did.

@Ernesto Uribe

Its not hard to invest in entry level SFR or condos with 30k down in Southern Ca. You will have to align with a realtor in Riverside and San bernadino counties. You can find entry level SFR for 300k in Victorville, Hesperia. they should rent for $1700 plus monthly.

You can find condos in Colton, Rialto etc. for 300k and less.

Some other areas of interest are Beaumont and Banning. These two cities are doing great rental yield wise due to logistic warehouses.

Start doing your due diligence by first teaming up with a realtor. its not impossible.

Here is an entire novel for those who have nothing to do but read!

I was surprised a couple weeks ago when someone wrote a post saying they were looking at condos for $89,000 to $100k. I didn't believe there were condos that cheap. 

I also wrote the story several times about the Japanese girl (fairly cute and sexy) ran away from home in Japan and when she got to the U.S. she had only a few dollars in her pocket. She was 20 when she ran away and 27 when I met her. She never had a boyfriend (really strange) never had a driver license (always took a bus), and never had a job with the exception that she did babysitting and earned some fairly decent cash.

This Japanese girl purchase a co-op in downtown Los Angeles and partnered with another Japanese girl. Each partner invested $7,000. I don't even know what a co-op is nor do I know how the purchase is structured. A short time after purchasing the co-op, the run-away bought out the other girl who moved back to Japan. Somehow, the runaway was able to get $30,000 (same amount as you have) out of the co-op and she purchased a townhome in an upper middle-income area about 2 miles from a city college loaded with Japanese students (from Japan) who prefer cheap housing. So, this Japanese girl loaded the townhome with about 12 Japanese students paying $450 per month each. She had 2 or 3 students living in the living room, the garage, in the laundry room and even in bedroom closets. This Japanese girl was living in the bedroom while a male lived in her closet. 

End of the story is coming quick! When I met this girl who was in the U.S. for only 7 years I did the calculations with her several times. Just before the 2008 market crash she had 19 homes in California and 1 in Las Vegas. I figured that is she cashed out and went back to Japan her net worth was about $2.1 million (or $2.4 million. Can't remember) for 18 of the homes and I did not talk to her at all when she purchase one In Victorville California and 1 in LAs Vegas.

I stopped talking to this Japanese girl because she was a serious 'user' and I was giving her discounts for plumbing repairs. That got old quick I had better things to do with my time, but she trekked on and the last time I talked to he she wanted my to give her a ride to a new home she purchased in Victorville California (about 240 mile round trip) and if my wife asked where I was at I would be in big trouble. So, I told her I would not give her a ride. During that same conversation she said she had purchase 1 $550,000 house in Las Vegas. I always wonder how well she did with her real estate during the 2008 market crash and then I am wondering how well she did due to the schools closing for so long due to COVID-19.

I had a lot of cash on hand during the time I was dealing with this girl and I was using my cash to purchase properties. It sort of bothered me to see a young Japanese girl who never had a job purchasing 20 properties so easily. I saw her walking down the street one day as I was driving and her back was facing toward me. This girl is seriously cute and sexy and I immediately identified who she was as she was still in front of me. So, I pulled over and asked her if she wanted a ride. She said she was going to take a bus to pay an electric bill for one of her properties and she where she was going to pay was 12 miles away. I asker her why she didn't put a 49 cent stamp an an envelope and she said she had an annual bus pass, wanted to save the 49 cents and while on the bus it gave her a chance to read real estate books.

Here is my point. You asked about what you should do with $30,000. Don't be anxious to jump into the real estate business. The love for money (possibly greed) and anxiety are the biggest reasons people make bad decisions. Don't believe what any broker or agent tells you because nobody is on your side and nobody represents you. Every property they have for sale is great as long as you are dumb enough to purchase it.

Don't invest until you understand all the math for real estate investing called '50 Real Estate Investing Calculations'. I like to put all my books on Kindle so I never lose them and I have them with me everywhere I go in the world.

The book does not have some very simple, but critical math you have to master and if you don't understand and use this math then keep your money in your pocket because this math allows you understand the huge difference between investing in single family properties or multi-unit properties containing 4+ unites where the profits are many times more that single family properties, but don't totally discount single family properties because sometimes a gem pops up that should not be overlooked, but multi-units is usually the way to go and what you should be looking for. There are may 4-plexes that cost the same as one single family house and the 4-plexes almost always give you returns as much as 500% better than single family.

The math you need to learn is the calculator on BP for multi-unit properties and I suggest you fgo back through my posts and look as how to actually do the math yourself. Otherwise, if you rely on using calculators developed by other people you don't get a good grasp on how multi-unit properties are so much more profitable.

If you don't use a good business model then you be investing blindly and you will rely on advice from all the other investors who are blind. So, I have to always mention my saying, "The Blind Leading The Blind".

Don't be discouraged by the area that you live in.  California rentals are very much in demand.  The problem is the pricing to purchase them.   California has various regulations that has made it the most difficult state to build new housing stock.  For more than 30 years, the state has not been building enough homes.  This has led to an imbalance and skyrocketing prices.  Also, it is the root of the homeless crisis, which is the worst in the nation by far.  With 30K and decent credit, you might be able to buy a house and house hack it.  Most stand alone rentals for smaller properties - will probably lose money initially.  

Originally posted by @AJ Singh :

@Ernesto Uribe

Its not hard to invest in entry level SFR or condos with 30k down in Southern Ca. You will have to align with a realtor in Riverside and San bernadino counties. You can find entry level SFR for 300k in Victorville, Hesperia. they should rent for $1700 plus monthly.

You can find condos in Colton, Rialto etc. for 300k and less.

Some other areas of interest are Beaumont and Banning. These two cities are doing great rental yield wise due to logistic warehouses.

None of these cities qualify as 'Southern California'....at least not to me....Next you'll throw in El Centro.

No offense, I actually like El Centro, great Mexican food...

@Ernesto Uribe I had about that much when I started looking for deals last year. I bought something earlier this year that was below market price (b/c of my great real estate agent). I consumed as much as I could from BP and then bought a condo with FHA and house hacked something in Claremont, CA (1 hour east of LA). Learned Property Management from BP. I made sure the numbers worked so I wasn't losing money. It's not a lot of cash flow but this deal showed my family that I knew what I was doing and now I'm going to partner with my cousin to purchase the second property. Hope this helps. Good luck!

@Ernesto Uribe

Mobile homes in SB County. Buy cheap, reno cheap, offer seller financing and sell the notes. I've heard from a few people they are going through the whole process for less than 10 K and making a handful of cash and some residual income on the note sale.

Originally posted by @Ernesto Uribe :

Hi I’m 22 years old live in Orange County CA and I’m trying to figure out how to start out on Rental property investing in California. I have about 30k to invest but I’m just not sure how to start.

 Probably going to need to go out of state. Don't see anyway to get started with that budget in California. In the Midwest though you'll be well on your way to a nice portfolio of rentals.

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