Invest in Southern California or Out of state?

36 Replies

Looking to buy my next deal but prices here in Southern California is outrageous. I have been researching in other markets out of state, particularly in the MidWest. Would it be reasonable to just and stay put and invest in my local area in California or look for a deal out of state?  

Thank you for your time. 

@Ricardo Cristobal

Hi Ricardo, It depends on your risk tolerance and your ability to manage from afar. When I say manage I don't necessarily mean managing the property yourself, but you could hire a management company, you could put a team of people together to assist you with investing (agent, contractor etc). Alternatively, you could work with other investors who are looking for funding (ie Memphis invest), they don't require you to put 100k+ down to invest, or JV with someone who has more experience and knowledge than you.

The options are pretty endless as I am sure you have been exposed to just reading through the numerous forums. The concept of reasonable is really on the individual, because your reasonable may be $500,000 vs someone in the midwest reasonable may be $100,000, so you have to find whats comfortable for you, do your hw and take action. 

Good Luck

@Ricardo Cristobal I was living in seattle a similar primary market where the rent to value ratio a don’t make sense. I would say go out of state but beware things barely cashflow these days. Make sure you buy things that rent for at least 900 a month.

@Ricardo Cristobal

Maybe depends how long term you are thinking your hold is going to be. Historically the longer term would favor Cali generally ( major cities). You also may have some advantages for Vegas being in Apple Valley as far as out of state goes. Good luck with your search! 

@Ricardo Cristobal  SoCal can be a tough nut to crack for newbies.

A couple years ago I mailed out lots of letters to homeowners in LA County with no luck.

Then I tried rural Kern County and got a deal from a distressed homeowner in California City.

The margins were not as large as they would've been in LA or OC, but I was able to rent it out for 2 years before fixing it up and selling it for a decent gain.

Also, have you considered an owner-occupied small multifamily for your first deal?

You only need to put 3.5% down, so cashwise it won't get in the way of other real estate goals you may have.

My first deal was a 4-unit up I bought with FHA 3.5% in Santa Clarita.

I lived for free (as opposed to paying rent) + enjoyed cash flow + built equity. It was a great investment (and still is).

Good luck!

Originally posted by @Nabil Suleiman :

@Ricardo Cristobal

Hi Ricardo, It depends on your risk tolerance and your ability to manage from afar. When I say manage I don't necessarily mean managing the property yourself, but you could hire a management company, you could put a team of people together to assist you with investing (agent, contractor etc). Alternatively, you could work with other investors who are looking for funding (ie Memphis invest), they don't require you to put 100k+ down to invest, or JV with someone who has more experience and knowledge than you.

The options are pretty endless as I am sure you have been exposed to just reading through the numerous forums. The concept of reasonable is really on the individual, because your reasonable may be $500,000 vs someone in the midwest reasonable may be $100,000, so you have to find whats comfortable for you, do your hw and take action. 

Good Luck

 Thank you for the great advice! As exactly as you said, I need a team if I do go out of state and I'm 100% sure of doing that. It is also true that the prices in the midwest is much lower compared here in Cali. Anyway again thank you for the reply. 

Originally posted by @Lane Kawaoka :

Ricardo Cristobal I was living in seattle a similar primary market where the rent to value ratio a don’t make sense. I would say go out of state but beware things barely cashflow these days. Make sure you buy things that rent for at least 900 a month.

 Very true, do you have any suggestions on how to look at rental prices in a particular area? thank you for the reply!

Originally posted by @Matt R. :

@Ricardo Cristobal

Maybe depends how long term you are thinking your hold is going to be. Historically the longer term would favor Cali generally ( major cities). You also may have some advantages for Vegas being in Apple Valley as far as out of state goes. Good luck with your search! 

 I'm here to buy and hold, It's true that here in California we may have great appreciation over time but the prices is just ridiculous. In the end I'd rather have great cashflow than appreciation. Thank you very much for the advice and quick reply! 

Originally posted by @Logan Allec :

@Ricardo Cristobal SoCal can be a tough nut to crack for newbies.

A couple years ago I mailed out lots of letters to homeowners in LA County with no luck.

Then I tried rural Kern County and got a deal from a distressed homeowner in California City.

The margins were not as large as they would've been in LA or OC, but I was able to rent it out for 2 years before fixing it up and selling it for a decent gain.

Also, have you considered an owner-occupied small multifamily for your first deal?

You only need to put 3.5% down, so cashwise it won't get in the way of other real estate goals you may have.

My first deal was a 4-unit up I bought with FHA 3.5% in Santa Clarita.

I lived for free (as opposed to paying rent) + enjoyed cash flow + built equity. It was a great investment (and still is).

Good luck!

 That's awesome that you were able to flip a property and make a great profit!!! So far I'm actually looking for my second deal, I'm currently "house hacking", I pay nothing out of pocket so I am currently able to save a large capital. Also like you mentioned, If I were to look at the SoCal market I would have to do the strategy that you mentioned, the problem is is that the prices are way to high even if I were to live in 1 unit and rent out the rest. Anyway thank you for the great Advice. 

Originally posted by @Ricardo Cristobal :

Looking to buy my next deal but prices here in Southern California is outrageous. I have been researching in other markets out of state, particularly in the MidWest. Would it be reasonable to just and stay put and invest in my local area in California or look for a deal out of state?  

Thank you for your time. 

Investing OOS can be a great idea if you live in a market like CA. You can find a much better ROI in the Midwest.

If you make the plunge to OOS investing, be sure to look for "recession proof" markets. The markets that have good job diversity, growing economies, affordable rent to income ratios and have not seen a massive run up over the past several years. You may also consider a more passive approach or partnering if you have others in different areas that you can trust. 

Originally posted by @Tom Ott :
Originally posted by @Ricardo Cristobal:

Looking to buy my next deal but prices here in Southern California is outrageous. I have been researching in other markets out of state, particularly in the MidWest. Would it be reasonable to just and stay put and invest in my local area in California or look for a deal out of state?  

Thank you for your time. 

Investing OOS can be a great idea if you live in a market like CA. You can find a much better ROI in the Midwest.

> You can find a much better ROI in the Midwest.

You are a professional. You know that historically your statement is not true. If you do not know it is untrue then simply pick a coastal city in CA and compare the ROI to the best city in the midwest for 5 years, 15 years, 20 years, 30 years, 40 years, 50 years and reply indicating which Midwest city beats the worst coastal Cal city for ROI (i.e. list both cities and the time frame). I am confident that you cannot find one especially if the purchase is financed.

If you indicated cost of entry is less in the Midwest, cost of purchase is less in the Midwest, initial cash flow (at purchase) is often better in the Midwest, that much of the Midwest has more friendly landlord rules, or that there are places in the Midwest with lower property tax rates then I would not be taking exception to your statement.

However, I know that you know that your statement is historically not accurate. I challenge you to find the Midwest city that has produced a better ROI than the worst coastal Cal city for any of durations listed. You provide one and I will retract my statement indicating that you know your statement to not be true.

Good luck with that challenge

I live in LA. I like to rehab in LA or do more of appreciation plays if I can get a smaller bar to entry for holding. For cash flow I generally look out of state. 

Originally posted by @Brett Goldsmith :

I live in LA. I like to rehab in LA or do more of appreciation plays if I can get a smaller bar to entry for holding. For cash flow I generally look out of state. 

 I see, so from what you said if you do find a reasonable deal here in Cali then you would go by its appreciation, especially if you can add more value to it. For the out of state investing, what crucial strategies would you recommend? Anyway thank you for the advice, hope al is well with your investment ventures!!

Originally posted by @Todd Dexheimer :

If you make the plunge to OOS investing, be sure to look for "recession proof" markets. The markets that have good job diversity, growing economies, affordable rent to income ratios and have not seen a massive run up over the past several years. You may also consider a more passive approach or partnering if you have others in different areas that you can trust. 

 That's a great piece of advice, That's something to really look into when it comes to looking for out of state deals. I've looked at the general sense of income in certain areas around the midwest but are there specifics on how to exactly to analyze the particular cities job growth, base salaries, and rent to income ratios? Anyway thank you for sharing that golden advice!!

@Ricardo Cristobal Definitely get in touch with @Ali Boone if you're thinking about investing out of state. She's a fellow Californian and buys out of the area specializing in turn-key property. Also, she's written extensively on this topic for the BP blog. Hope that helps. Good luck with your decision! 

Originally posted by @Rachel H.:

@Ricardo Cristobal Definitely get in touch with @Ali Boone if you're thinking about investing out of state. She's a fellow Californian and buys out of the area specializing in turn-key property. Also, she's written extensively on this topic for the BP blog. Hope that helps. Good luck with your decision! 

 Thank you rachel! I'll check it out and see. I've read about the pros and cons of Turnkey real estate but I'll never know until I try. Again thank you for the great tip!!! 

Thanks for mention @Rachel H.!

Ricardo, happy to help anytime! Don't hesitate to reach out.

Originally posted by @Lane Kawaoka :

Ricardo Cristobal I was living in seattle a similar primary market where the rent to value ratio a don’t make sense. I would say go out of state but beware things barely cashflow these days. Make sure you buy things that rent for at least 900 a month.

 Ditto, even higher rent in some areas is best.  And be sure you visit the area and the team you are considering investing with.

Originally posted by @Ricardo Cristobal :

Looking to buy my next deal but prices here in Southern California is outrageous. I have been researching in other markets out of state, particularly in the MidWest. Would it be reasonable to just and stay put and invest in my local area in California or look for a deal out of state?  

Thank you for your time. 

Many who invest out of state do so because they are in a high priced market. So Cal being one of them. Investing out of state can be very complicated if you let it get complicated. No need to do that. Don't try to reinvent the wheel here. 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.
Originally posted by @James Wise :
Originally posted by @Ricardo Cristobal:

Looking to buy my next deal but prices here in Southern California is outrageous. I have been researching in other markets out of state, particularly in the MidWest. Would it be reasonable to just and stay put and invest in my local area in California or look for a deal out of state?  

Thank you for your time. 

Many who invest out of state do so because they are in a high priced market. So Cal being one of them. Investing out of state can be very complicated if you let it get complicated. No need to do that. Don't try to reinvent the wheel here. 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.

 Wow, what a great piece of advice!! thank you so much for breaking it down in detail. I will make sure to apply all that you have said into my next investment. Anyway thank you again for your time!!!!

@Ricardo Cristobal I always caution people about out of state investments especially when youre just getting started @Brandon Turner always says try and look for a deal an 1-2 hours outside of the area that you live in when looking to invest in an expensive area, that device is sound and has worked for me and clients of mine who live in NYC. If you are going to invest in out of state property make sure its a GREAT deal and that you take into account the cost of property management (shop around to find one before inking the deal).

Good Luck

@Ricardo Cristobal You're right, southern California is an expensive market. We built some spec houses thereand loved it. It was hard finding land, and permitting was lengthly, but it was a great market. However; due to the passing of my husband unexpectedly, my business partner/son and I decided to move to Oregon. However; if not for that, I would be in the so cal market. There's always a high demand for homes, qualified buyers, perfect weather, and so many other great things. California does however; have a lot of negatives happening now, and there's more people leaving than moving in. However; those moving in have money. 

I have no experience investing out of state, but always caution people on going out of state. If you're struggling with getting in to the local market, what will happen when you invest back east and have issues with tenants, the house, or? Can you afford to go back there?

EVERYTHING you need to know to invest you will need to trust to another persons opinion. Do you want to trust a complete stranger with your money?  Does their opinion of a safe neighborhood meet the same standard as yours? 

When you invest close to home, you have a better understanding of the markets. What neighborhoods are like, crime, schools, proximity to various things. 

I know there are people that have invested out of state with turn key providers, and people that have been ripped off by people that put fake tenants in, etc. It's a bigger gamble in my opinion, UNLESS you KNOW the person putting the deal together and trust them. 

@Ricardo Cristobal What's your objective? If it's cash flow it doesn't make sense. Nothing in CA is going to cash flow and for what your down payment on a CA property would be, you could nearly pay cash for something in markets like Indianapolis and Kansas City. Out of state investing has some challenges that you don't have in your local market but they can be overcome. One of the challenges that out of state investors have is not being familiar with the neighborhoods and what class of property they are buying. The biggest mistake they make is buying in bad neighborhoods thinking they are getting a deal. If you buy cheap properties in low end neighborhoods the only thing you're going to get is a lot of headaches and nightmares. If you're considering the Indy or KC markets, I'd be happy to help you. We've been active in both for several years and know the areas well. 

@Ricardo Cristobal I help many out of state investors with their investment purchases. I'm most experience in the Kansas City and Dayton markets. Let me know if you have any questions, happy to help!

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