First time investor needing some confidence!

[Benjamin Ying]

Hey all! First time poster here so let me try and lay down the situation.

My wife and I are just beginning our real estate investing journey. We live in California so I think the opportunities are better when it's OOS. Some areas I've been looking at are Provo/Vineyard, Colorado Springs, Indianapolis and Raleigh/Durham. Current timeline to purchase is probably 6-12 months as I start narrowing down and visiting some of the places to get a better idea over the next few months. Our downpayment budget is probably $60-$100k.

Questions:

1. Does focusing on macro trends (Population growth, rental and appreciation growth, good jobs) offset the 1% rule?

2. My friend is a big investor in Provo and has connections there. Would it make sense to reduce risk and use his connections first and invest it that area? Curious what experience others have had done.

3. Should I expand my target metros? These areas are relatively easy as a direct flight from SFO and one of the BP videos mentioned how it's a good idea to be able to fly direct if you have a OOS investment. For example, Columbus or Huntsville, AL has come up a bunch of times but I’d have to transfer.

4. Do you definitely need a property manager for OOS investing, especially as a first time investor? It seems like that would eat into the returns and you can't get positive cash flow for a while

5. Is it just a bad rule of thumb for an investment if you can't get positive cash flow for the first year or two? Or is this normal?

[Don Konipol]

Quote from @Travis Timmons:

@Nicholas L. You already know the answer to that. Bunch of realtors come on a spout off that their clients cash flow from day 1 all the time. It's always crickets when you ask for an example. And a pro forma vs. end of year actuals are very, very different.

@Benjamin Ying The only way to cash flow in the current market is to employ a higher effort strategy like STR, MTR, rent by the room, etc.

The "cash flow on paper" properties in stagnant markets or C-D class neighborhoods are probably not the type of places that you want to own long term. My advice would be to find a great asset and match that with a strategy that is a bit more work to break even or eek out a little cash flow. Leverage + appreciation is what makes real estate outperform other asset classes. If you don't see real appreciation upside (both price and rent), it's just not worth the hassle. We overthink real estate...Just find a place that people with options want to live. 

“And a pro forma vs. end of year actuals are very, very different.”

45 years investing in real estate.  I have NEVER seen a pro forma statement put together by a seller or broker that 

1. Had any basis in reality

2. Was in any way reflective of past experience

3. That had even a passing resemblance to tax returns or financial statements

4. That could be achieved without spending an inordinate additional amount in cap ex; 

In fact all I have seen had these items in common

1. Were based on dubious and unproven speculation, assumptions and best case scenarios

2. Were obviously “reverse engineered” to find a way to “back into” an attractive or at least acceptable cap rate

3. Often contained mathematical mistakes

4. Tended to leave off some categories of expenses completely

5. Assumed nothing could possibly go wrong in the next 5 years 

what you want when you look at an investment property is to know the current rental amounts, specific expense items, and conditions of the building, grounds, and mechanical systems.  The rest of the numbers the investor needs to “fill in” themselves based on a thorough due diligence.  If you’re not willing to do this, then you may be best off investing in some kind of real estate fund concept.  Prices in relation to rent are too high to have the cushion that was available before.