New RE investor strategy - invest OOS for cash flow or house hack in HCOL area?

[James Hunt]

Hi Bigger Pockets!

I've been here for a while reading up and am excited to make my first post.

A bit about me, I am 30 currently making a great salary in a W2 contract role that I will likely remain at through this year, after which I expect to look for a more permanent role with a lower base salary, however likely similar overall once benefits are accounted for. I have about 50k liquid and plan to get closer to 80-90k by the end of this contract. Currently living with my girlfriend/no kids in San Diego. I was born and raised here, and have an elderly father who lives nearby, so I know I don't want to leave. However, this is a very difficult real estate market to get into due to the high price to buy.

I'm currently bouncing back and forth between the thought of investing out of state into a turnkey property that cash flows (still whittling down the markets, but have been researching a few), versus house hacking a duplex here in San Diego. I do really love my apartment/neighborhood and would certainly have to move to a less desirable part of town if I were to house hack, but I also know that if that's the best route, it's better to do it now, rather than when I may have kids to think about.

What are your thoughts?

[Rick Albert]

Here is what people don't think about when investing in high cost areas:

1. Appreciation is greater. Even if it is 3% appreciation, that is a higher dollar amount on a $1M property than a $200K property. 

2. Same as 1 but for rents.

3. Bigger loan buy down. This increases your net worth faster.

California has a building problem. It costs too much to build and part of the reason why supply is so low. My recommendation would be to house hack and use the house as a vessel to invest out of state. I used the HELOC on my current house hack and bought in Nashville for example. I house hacked my first place (a condo), used a HELOC to buy my second house hack, and then later sold it and did a 1031 to cover the difference in Nashville (so no money out of pocket) and in Birmingham. I never would have been able to do that if I had started out of state.