All Forum Posts by: Arthur Garcia

@Travis Nance - I was in the same boat as you a few years ago. I had to invest out of my area to find the deals. I too am in an expensive part of CA, Los Angeles. However, after several months of learning various markets and sub markets, I found a place 2+ hours from my house that made sense. I'm very active in the market and there are still deals (not as good as they were), keep looking, you'll much happy with the return vs the 500K duplex - lol!

Let me know if I can help.

Best,

AG

@Pete Tam - I'm not sure what your goals and objectives are, but I can tell you that you will not likely find any type of cash flowing rental property near you (bar area).

I was in a similar position as you when I first started buying rentals. I couldn't find any rentals that penciled in the market I lived in (Los Angeles). I had to move my search over toward central part of California. After a few months of studying the various markets I was able to cut my teeth on a few deals and finally after several years, we have made strong connections with contractors, property mangment, realtors, and most importantly learning the sub-markets.

So, all that to say, you will likely have to work a few hours away from your home to make the rentals numbers work. If you are open to jumping in your car there are still deals to be had, especially this time of year.

I hope this helps.

Best,

AG

@Rav Ram - Another issue to consider is that it is very difficult to continue pulling money out via "cash out refi" once you obtain more than 4 fannie mae loans. Also as @Johnson H. pointed out, most lenders overlays will require 12 months of seasoning before you can use the ARV as the new value of the home.

However all is not lost, a few additional options, which you probably already thought out, but for other folks reading:

1. Protfolio Loans - Talk to community banks and see if they will allow you to put your older fannie properties (ones you've already stripped the equity out of) in a protfolio loan. These are loans where the bank actually KEEPS the note and does not sell them to another investor. Usually the rate on these loans is higher and the terms will be shorter, but this will free you up to borrow more Fannie Mae Loans.

2. Blanket loans - this is more of a commerical loan product where the community bank will attach ONE mortgage to multiple assets (4-5 houses on one mortgage). Same deal here, pull the equity first, then roll them into a blanket loan and continue to borrow more fannie mae loans.

3. 1031 - Exchange the equity to another investment property and defer the taxes.

4. Partners - this can be tricky, but is "doable" if you are working if someone you trust (family or business partner). In examples you've listed above, instead of you pulling the money out, you put your partner on title and have them take out the cash via a loan in their name (after the property has seasoned).

Just a few thoughts...

AG

@Jag Sekhon - As everyone has already stated in the forum, there are pros and cons to both. However, if you were working with me as a client or if you were a friend looking for advice - I would reccomend you stay in state (at least for your first property).

I'm not advocating you stay in your local market, but there are plenty of markets within 3-5 hours of your home you could find cash flowing deals. I can't speak to investing out of state, as I never did that, I bought my entire portfolio here is CA. All of my rentals cash flow, all my rentals have property managers and there are still opportunities in my local to buy - not as good as they were 4 years ago thought :(

The key to your success is going to be: learning a new market, building partners in your target market, and of course building systems to minimize the day-to-day operations. This will take time, but the more you understand your target market (in or out of state), the more confident and secure you will feel about your investment.

The main advantage I've found with investing IN STATE is the proximity. My market is roughly 2+ hours away from my house, which is close enough to handle urgent matters and retain a large amount of control. I don't manage my own portfolio, but I do keep a close handle on my property management team and I am very active in the market.

Before you buy anything, make sure you learn the various aspects of the business mainly, flipping, landlording, lending, etc. and see which avenue(s) line up best for your lifestyle. Owning rentals is not "passive", just less "active", they still require work and they should be viewed in the same light as starting a small business. They require significantly less amount of day-to-day work, but if your intention is to own multiple properties, you'll need to invest time in building systems so you don't get bogged down with the day to day operations. Many newbies make the mistake of trying to do everything themself (repairs, property management, etc.) this doesn't work once you start to scale, or if you just don't have interest in being a handyman/property manager.

Depending on your goals, trust deed investing (LENDING) may also be a viable option (depending on your working capital). I know many investors who would much rather take a 8-11% annual return without having to deal with all the headaches/risks associated with owning rentals.

Lastly, start at your REIA club, talk to other investors, learn about the various aspects of RE investing and connect with other folks here on BP.

I hope that help shed a little light on your inital question.

Best,

AG

@Justin Joseph - I hope you didn't take my comments offensively. I was merely trying to point out that CA is a very valid option for cash flow. When I mentioned the competition has heated up for "deals" that, as you know, is all relative. Since I can no longer qualify for financing, I have to find property significantly under market value, which isn't possible on the MLS (at least at this time).

However, if I was in your shoes (assuming you can qualify for a fannie mae loan). The number of deals would be much higher, especially if you are measureing a "deal" by the Cash on cash percentage or the internal rate of return. There are numerous properties between 90-120K that will rent for 1050-1150 a month. Interest rates are still super low so your yeild will still preform quite well until you decide to liquidate or exchange the property for larger units (which is the strategy I would reccomend in CA).

I TOO work a full time gig in corporate america. So when I first got started I spend a few months learning various markets that could meet my cash flow needs and after I found a market I liked, I pulled the trigger and built my team over time.

Anyway, let me know if I can be of any additional help.

Best,

@Justin Joseph - As a California investor myself (mostly buy and hold - some flips). I buy ALL my properties in this wonderful state. Contrary to popular belief, there are great rental markets in California! The competition has gotten tougher, but there are still deals to be had.

What I WILL say is you probably won't find what you are looking for in your back yard, unless you consider condos or mobile units. That being said, buying cash flowing rentals will require you to jump in your car for a few hours to learn a new market.

This means you'll likely have to build a team to help you manage the process - property manager, realtors, contractors, etc. However, if you want to build a rental portfolio you would have to do this anyway, so why not take the time and learn about markets 1.5-2.5 hours from your door?

Is it conventient? No. BUT, it is much more convenient than flying across the country and cheaper too.

I hope that was helpful.

Best,

AG

@Nick Latta - welcome to BP. I Bako is a strong market. Spend a little time learning the sub-markets and pull the trigger. It may take a while given the current inventory available in the market.

let me know if I can help!

AG

When I first started I had about 8 months of mortgage payments, per property. Once I started to gain scale, I decided to keep a lump sum in the bank at all times.

Hi Tom,

Bakersfield is a GREAT market. I have the majority of m y portfolio in that market. Since 2008 the market has already appreciated 40-50% and still has room to grow IMO. I still think it is a good time to get in, but I would move quickly. Mutli family pencils nicely on paper, but as you know, not all zip codes are created equal. Make sure you to time to learn the market overall and sub markets, figure out the areas you are comfortable investing in and start working toward your overall goal of passive income.

Anyway, let me know if I can help.

AG

My two cents - get a deal. The easiest way to find one when you are starting out is marketing to your sphere of influence.

Send mailers to family, friends, co-workers, etc. Let them know you are an active RE investor, you are looking for deals (describe what deals look like) and mention your referral fee ($500-1500).

The nice thing about this type of marketing is that your credibility and trust is typically already established. Before sending out mailers, build a website about your company and make some business cards.

Getting a deal is the toughest part - once you have that, money, contacts, etc. will start to fall into place.

I hope that helps.

AG