Out of State Investor Ready for First Purchase - Forest for the Trees… help?

[Sarah Lacy]

Hello,

I currently live in California and am looking to buy my first rental and trying to decide which state and strategy I should pursue to start.

A little about me:

-W2 (remote) - not sure how long will last, so trying to purchase as many props with this stability loan officers like to see

-up to 100k cash to invest without touching retirement accounts

-currently saving $3k/ mo to go towards RE, can push higher

-I would like to be work optional ( build a real estate portfolio) in the next few years so decided to rent to stay more flexible and keep expenses low, well as low as you can for California. I currently bring in 60% of the household income but after my nearly 30% tax bill my partner (1099) brings in just about the same. Ideally would like to live off of my partner's income plus some passive income from real estate investments. But this will affect our savings rate for sure, and I don't see us being able to get conventional loans with my partner's reported SE income right away.

Moreover, I would like to start a family in the next year or two and be fully present.

Areas considering:

Texas - I was born and raised here, lived in all areas along I 35, and experienced the growth firsthand before moving from DFW to California in 2019. I thought as a way to help lower my tax bill I could buy a ‘primary residence’ here … and then rent it out…

Feel like something that I know these areas, they are no longer in my backyard per se but if I were to ever move back in the future I'd have some property there…

I'm not sure if my sentiments are clouding my judgment here, but I'm seeing props with 1% LTR and in areas that will be/are booming (hello new Universal Theme Park), duplexes in other/less desirable areas, etc. The SFR are a little higher 400-500k and I'm seeing duplexes I can get for less than that… I've canceled out lower-income areas but some are in okay/urban/potential MTR areas.

Tennesse - recommended by a tax strategist (as a STR play put 50k in renovations open under LLC to relieve some of my tax burden). Knoxville area, no state tax, lower prop tax, I've cross-referenced the props I was presented with furnished finder Airbnb and pulled some rental comps in the area to see from all angles MTR, STR, and potential LTR. Maybe a little less than the Texas homes but know nothing firsthand of the state/area beyond the internet and what the agent tells me.

California - feels like a joke for this new investor. After reading David’s book I thought I wanted to househack in California but just couldn’t seem to make the numbers work here in South Orange County, I even got my RE license when I first moved here in hopes of finding a good mentor/broker and eventually use commissions towards a purchase. Was approved for a loan (800+ cr score), just didn’t want to feel “house-poor” and could not make the lack of space make sense after coming from a place like Texas.

After getting prequalified again and changing my strategy to out-of-state, I was out on a trip to Texas this spring visiting a lot of the new builds in the Rockwall area; I flew back through Ontario and saw some of the same builders here advertising homes starting in the 300s here. I grabbed my checkbook and headed to Riverside County that weekend, all to be told I had to get on a list, none were available at the time and they didn’t know when they’d be releasing more. Also taking into consideration CA being a tenant-friendlier state, I’d hate for my first experience to be a bad one. California seems like a distant dream or I’d need to lower my standards considerably.

Initial Goals before becoming disheartened/burned out this spring:

1. 1) LT buy & hold out of state (Newer build/low maintenance, 3-4 bed, good school district)
2. 2) Break into CA market. Prop w ADU or casita, the dream would be a cash-flowing multifamily

I'm now getting hung up on SFR v Duplex, LTR v MTR I'd even be willing to dip my toe into the STR for some of these that I've come across that are already set up on Airbnb

If you’re still here thanks for reading what’s basically my life story, but where I’m trying to seek clarity/mentorship is where to start…

area, buy one prop under the first strategy, buy two, don't buy an SFR go straight to duplex, buy out of state conventionally, then use an FHA for a CA prop, most important figures: cap rate, 1% rule, cashflow, etc etc…

I know I will learn a lot along the way and I’m afraid my analysis paralysis is getting the better of me, but for those seasoned investors, I’m pretty sure you have some wisdom/perspective on what I shared above.

Any thoughts would be most helpful. Thank you