All Forum Posts by: Dan H.

The OOS I referenced we sold quite a few years ago (after rehabbing it from the second hurricane that hit it). We own one OOS SFR on a lake in Alabama. Not nearly the destination of Gulf Shores AL but it has not been hit by any hurricanes either :=). We would sell it but it has not had a tenant turnover and takes no effort.

We own 19 units (9 properties) in San Diego county which does not have rent control but 2 of the units are short term rentals (STR) and San Diego has been working to restrict them so it would be risky to invest in San Diego relying on STR. SFRs purchased at retail are cash flow negative so we have not purchased an SFR in many years. Duplex to quad in working class areas can cash flow at close to retail upon purchase. We rehab on initial tenant turnover so our rent increase has been ~$100/unit per year (helped significantly by the units that have been rehabbed). In addition we BRRRR the rehabbed units. We have not been able to get out full purchase and rehab expense, unless helped by market appreciation, but we typically get out the initial purchase expense and part of the rehab expense. So BRRRR does not work for us quite as well as it does for Brandon Turner. The rent increase helps the cash flow significantly a few years after purchase but would not be available in an area with rent control. I also would not rehab a unit where I could not raise the rent appropriately.

I do not know much about LA rent control but I would not purchase where there is rent control.  With rent control the cash flow is difficult.  Property appreciation is great but it is not as easy to access as cash flow and accessing it reduces your cash flow (i.e. payments rise because you owe more on the property).  Also if interest rises then there is a built in penalty to access the appreciation.

>even if I house hack its more than my rent.

How have you determined this? The reason I ask is in my market SFR on the MLS versus SFR that have sold are close to the same price. However for duplex to quad, which are typically purchased by investors, there is a huge difference between prices you see listed and the price of units sold. For duplex to quad in my market you must only looked at sold units. Looking at anything else will provide a false impression. I do not know if your market is the same.

If you could purchase a detached duplex that does not have rent control that has some forced appreciation available via a rehab you could use the BRRRR method to ideally get out much of your initial expense. Seeing that you would be living on-site you could do a lot of the work yourself saving money making it more likely that you could get out your full expense rather than that we can pull out (we typically hire out almost all of the work).

Good luck

Birddogging does not pay that well in my market and typically is only paid upon completion of sale.  I suspect this is something that varies by market.  It does not have any risk though.  It should be easy to find people that would be interested in a good lead; you can probably get quite a few by visiting a local RE group.  I tell people all the time that we pay for leads resulting in a closed deal.  The problem of course is so few close.  However if I had someone provide me a couple of good leads that for whatever reason could not close I would get them some token item of appreciation (maybe an Amazon gift card) but so far no one person has given me more than one lead.

Wholesaling is more difficult and if you do it ethically (willing to close even if you do not obtain a buyer prior to closing) then more risk. It definitely has more potential reward. However, in my market I see wholesalers that either do not know how to analyze cash flow or are being deceitful and wholesalers that cannot accurately calculate ARV or are deceitful. Most wholesalers I look at a couple of their "deals" and never look at them again because either they are incompetent or deceitful and either case I do not want to deal with them. So if you go the wholesale route make sure you know how to run the numbers and that the deal offered really is a decent discount otherwise your buyer list will dry up.

There are many people who have built significant wealth in RE.  It is still occurring.  You can do it if you work hard and find the right area to complement your strengths.

Good luck and hang in there.

Your question is how to start and it indicates you have already decided on OOS 2-4 units.

My question is have you considered house hacking local a detached duplex. Here are a list of advantages (not in my order of importance) 1) FHA (lower down = reduced entry cost). 2) self managed (saves ~12% annually in PM fees and provides the best opportunity to learn). 3) Expertise in the market (you live in LA and know the areas of LA). 4) Does not require the trust of a team that OOS investing requires. 5) Historical appreciation (both rent and market: There are few locations in the country that has historically produced the ROI for buy n hold of LA. You live in one of the top ROI locations anywhere and you are looking to invest OOS. Do you realize international investors who literally can invest anywhere in the world they desire often choose to invest in LA? Do you think they are stupid? I suspect and history has shown that they are smart to invest in LA). 6) Prop 13 (We invested OOS a couple of times. Our bigger OOS investment had a few issues but the first issue to hit our cash flow was property taxes that were increasing faster then the STR rents). 7) Owner occupied in addition to the lower down typically has lower rates that help increase cash flow 8) High rent units (The disadvantage of low rent units is the percentage of the rent consumed by maintenance, cap expense, and miscellaneous charges). 9) house detached duplex starts you small (one rental basically right next door: Is there an easier way to start?).

How many reasons do you need to reevaluate and give a good long look at house hacking a detached duplex?

If you do decide to go OOS I agree with Andrew Johnson to pick a location that you like.  We did that very right on our OOS investment I reference above.  It was at Gulf Shore Alabama which is a nice area (when not getting hit by hurricanes: Our biggest issue).  It is drivable to New Orleans which is a fun city.  We got hit by two hurricanes and had to go there both times for fairly long stays to get work performed by our contractors after the hurricanes (everyone needed work performed yesterday - the one most on top of it typically got their work done first).  I do not advocate buying OOS and not visiting it unless you have a large RE portfolio and can afford to have some go into disrepair.

Good luck

 I realize you use the word “feel ...” but you realize every reputable study shows that Ca historically whoops Memphis in return on buy n hold.  Refer to Case Shiller for returns of coastal So Cal compared to Memphis.  All 3 top cities for buy n hold return this century are Ca cities.  

To suggest Detroit has out produced Ca for any moderately lengthy duration is ignorant of reality that can be shown with a few minutes of research.  

Are you aware of the appreciation in coastal So Cal or San Fran over the last 3, 5, 7, 20, 30, 40, 50 years? Research appreciation for Los Angeles, OC, San Diego, San Fran. Research historical ROI on buy n hold for those same cities.

I realize BP is full of opinions and many are incorrect but this one is so extreme I felt obligated to point it out.  

@Nathaniel Donnelly If you are cash flow negative that is a terrible return on $200K of equity.  Even if you could finance to fixed rate I doubt it would be less payment than your adjustable.  I think selling is an easy decision but how to minimize your taxes is difficult. 

You indicate you have $200K in equity.  Paying the taxes would come out of this equity but who wants to pay taxes on RE?  I never plan on paying taxes on my RE gains.  You can look into a 1031 exchange.  has 1031 exchanged some San Diego RE properties into Ohio Multi Family and seems to be successful with a few learning moments on the way.  I would think the difference between Memphis and Ohio would be minimal.

I do want to say I am a big proponent of San Diego RE but SFR is real difficult to find cash flow in this market. I would also not advocate an investment that is bleeding cash in a market where cash flow is possible. Your investment has a couple of things hindering it from being the type of purchase that I am a big proponent of (the issues are related) 1) It was bought to be a home and not a good RE investment 2) it is a SFR which in San Diego has to purchased significantly below market to have cash flow.

To summarize: 1) selling is a no-brainer 2) you have ~$200K of equity that I assume is largely from appreciation 3) you should look into ways to minimize your taxes and the $250K/$500K exemption is not available to you 4) You are still looking to invest in RE 5) Possibly the best way to minimize your taxes considering item 1 to 4 is via a 1031 exchange.

I have never done a 1031 exchange.  Swanny has done at least a few.  There are many others who also have done them or been fiduciaries on the 1031 exchanges that are more capable of providing the details.

Good luck

 My view is you will only know in hindsight.  Few people predicted the Great Recession and associated housing depreciation.  In 2012 I was hearing reasons why to stay away from RE investing.  In 2018 I am hearing reasons to stay away from RE investing.

I think timing the RE market is as difficult or more difficult than timing the stock market and that most people cannot do it reliably.

I purchase properties that make financial sense but because of the market I am in the COC is not good upon purchase. It would not take much of a downturn to cause my recent RE investments to be negative cash flow. Fortunately I have been doing this a while and I have investments that cash flow very strongly and would need to take a huge cash flow hit to not cash flow (the type of hit that has not occurred in my lifetime).

Have I always timed my purchases at ideal times.  Heck No.  I have made 2 separate purchases that lost nearly 20% of value.  One of those purchases today looks like an outstanding purchase.  The other is up over $150k and looks to be a pretty good purchase.  The point is that if the market goes down but you are not over leveraged and therefore do not need to sell it has always come back up.  Sure I could have made more if I could have timed the purchase so that they did not depreciate 20% but timing this is difficult and being wrong could cause you to miss a lot of appreciation.

To answer the OP question: I do not believe we are a peak but if the prices fall I will be purchasing and if prices do not fall I will be purchasing.  In both cases I plan to purchase properties that look to be good investments.

I believe what @Jake Thompson was referring to is a detached duplex. It looks just like two SFR but has a single water meter (who notices water meters). It accomplishes your goals as most have private yards. Many have garages. I own one that has a 4/2 unit but most are 2 or 3 BR.

Stability check.  Private yard check.  At least 3 BR check.  Will it satisfy wife/family while still getting me an RE investment asset: depends on wife.

And all of the advantages of house hacking: owner financing with smaller down being a large one.

Good luck

In So Cal I would not purchase where there is rent control because the COC is already typically not good upon purchase. The appreciation is where the investment that has marginal COC upon purchase typically is increased over time. Without the rent appreciation you are restricted to property appreciation which is harder to obtain (requires a refinance, Equity line of credit, or selling) than cash flow achieved via increased rents. The appreciation is going to be handicapped because the property is rent controlled.

So to summarize in rent controlled areas you often purchase with little or no cash flow and no reasonable way to significantly increase the cash flow.  If the market appreciates you still do not fully realize the appreciation because the value of the property is hindered by being rent controlled.

So better off to look elsewhere.

BTW I think rent control does no one any favors.  The units are typically neglected.  The properties have less value and are often neglected driving down the entire area.  It discourages providing more housing in that area so the lucky few who are in rent controlled units may be fine (with old run down units) but the surrounding areas now have increased demand and higher rents.  Mostly it is anti free market.  In a free market with short supply and profit to be made more units would be created. 

The only reason purchasing RE in So Cal makes long term sense is due to appreciation (rent and market). My last purchase has rent $840 more than PITI. When I subtract out for vacancy, maintenance, Cap ex estimate, miscellaneous I am projecting ~$250/month cash flow. The COC at this cash flow is not worth it; better to be invested in the S&P 500, Wilshire, etc. S&P 500 requires less effort and will produce a better return if the Cash flow cannot be significantly increased.

I agree the markets you listed have high cost of entry but Case-Stiller listed Los Vegas #2 and San Diego #3 for appreciation in the last year.  Case-Stiller lists San Diego as #3 for total buy and hold profit for this century.  So San Diego has long history of good buy n hold return and Las Vegas has a good short term record (Los Vegas also had good appreciation in 2016 in addition to #2 for 2017).  

In my view there is primarily one challenge to investing buy n hold in San Diego and that is the cost of entry. Note if you chose to house hack with VA loan (I would recommend a detached duplex) your price of entry is likely less than investing in many OOS markets (probably all OOS RE that has historical appreciation far in excess of inflation). You have earned the VA loan benefit, you should use it.

Just some things for you to ponder before investing OOS.  If you want me to make a more extensive persuasive argument for investing in San Diego PM me.  

Thanks for your service and good luck.  

you can initiate a connection with me if you desire.   I invest buy n hold mostly in inland north county San Diego.