All Forum Posts by: Pete Barrow

There's a reason...actually there are a bunch of reasons...why so many Californians are investing their money in "flyover country" or other OOS RE. Although that has its own set of hazards that require a pretty savvy investor to navigate.  

I had a friend who liked to play the stock market. His refrain was always, "Look, this one has been going up and up and up and now it's really high." So he'd buy it. 

I never really understood that logic. Now and then I would jokingly point out to him, "Hey, it says here, 'Past performance is not indicative of future results.' What does that mean?" Anyway, he had a good time and lost a lot of money. 

I don't think many investors are just sitting idle, "waiting for the market to crash." But if you have numbers you want to hit on rental properties, and you are in a rising market, those targets will get harder to hit. We are buying, even now. But we're looking at a few hundred houses to find one that works for us. "Waiting for the market to crash" doesn't necessarily mean doing nothing in the meantime. It means, if you're systematic and disciplined, you will have to buy very selectively in a market like this. 

My favorite was the time someone broke into one of our places, and stole 4 security doors I hadn't gotten around to putting up yet. 

Seriously though, not sure we could be in business if it weren't for Simpli-Safe alarm systems, AC cages, etc. Good relations with neighbors also helps, but there's not much you can do about that from OOS. 

==>The problem with turning it around and selling too quickly is that, without enough appreciation you will potentially lose more money from the realtor fees.

I'm not sure there's good reason to think that a new-build townhouse in Statesville NC can be counted on to appreciate any time soon, especially considering that it was probably bought near the market peak. 

Rohit, 

I think my son sent you a couple of things. Really nothing is as cheap as it should be, right now, and a lot of people are holding onto their money and waiting. If you do decide to go OOS, just be cautious and skeptical,. There is a whole industry now in selling C and D stuff to out of staters who commonly lose their money. 

Hi Rohit, 

I'm in a real crunch with work right now, but give me a day or so and I'll see if I can find some examples. 

==>more people can't afford the high house prices here.

And that in a nutshell is why they are very likely to come back down. 

I wanted to clarify that the investment from me for this rental is roughly $50k. Rest is all appreciation over last 6 years. 

==> So, you've done really well on appreciation, and that's great. 

So, to get $750/month is roughly a 18% return on $50k investment. I don't think I can find a better return on a rental today. 

==> The key word is "today". Today, you aren't making an 18% return. You have a $350,000 asset earning a return of about 2.5%. The fact that you only spent 50k to get there means that you have done really well on appreciation. But that is not relevant to any discussion of how well your money is performing today. What's relevant to that discussion is, "What could I sell the property for now, and what return am I getting now."

What you are thinking is sort of like the sunk-cost fallacy in reverse: You spent so little on the place, that you feel you must hang on to it.  

==> But, I do agree with you that I can cash out and re-invest the $350k (possibly get 3 rental units with 20% down) to get a much higher return. 

Wouldn't that be the thing to do then? In fact, I never advise people to invest out of state, but with that kind of money, you might find A or B-grade stuff outside of CA that would return a lot more, and that would be of such quality that you would not have the usual C or D-grade OOS problems with it. 

If nothing else, there will always be students, young people unsettled in their careers, people who don't want to have to maintain a house, and sadly, people who can't or won't save up a down payment. 

Then there are the millenials. There seem to be thousands of them in my town who have spent the last two decades drinking craft beer and listening to indie music, and watching while house prices went right through the roof. Now there's nothing cheap left for them to buy. 

As far as OOS investing goes, I know exactly one OOS guy who invests here (he's from Denver too, btw) and has been pretty successful. That's because he spends a lot of time here. He's been able to buy cheap and smart, mostly, because he knows the city and the people better than a lot of locals. 

As to crime rates across neighborhoods: call some better PM companies and ask if there are neighborhoods where they refuse to manage. Likely, they will all tell you the same thing.