Los Angeles rental property. Worth it? Or do i look out of state?

[Account Closed]

Salutations!

Thanks in advance for any response I might receive to this question. I am a newbie. I am interested in maximizing monthly cashflow through acquiring rental properties. However, being in Los Angeles, there are not many nearby markets that cashflow without exposing you to high crime rates, undesirable tenant populations, etc. Additionally, even with a cashflowing property, the cost of entry (or initial investment) is much higher here than in other states. So ROI is not good either.

When I browse through properties, let us say in Ohio for example, I find numbers that work on SFR's or multiplexes between 50k and 100k, sometimes less.

Am I right to be looking at remote investing and avoiding CA? If, so I am sure there are many good markets to look into. Any suggestions on how I get started on this? I assume start developing a team, learning the neighborhoods in a target market, etc. I am not very interested in appreciation speculation in CA. Not to knock anyone who successfully does this. But my goal is cashflow. 

I am also considering jumping into one of these local low priced "problem area" homes in the greater LA county that cashflow moderately, as I am young and don't have a family yet. I think I can handle all the extra headaches for at least a few years :-)

Thanks for reading!

[Aaron Norris]

When you live in Los Angeles and invest in the Inland Empire, it's almost like investing out of state, right? (kidding)

All of my rentals are in the Inland Empire. I have been investing a little out of state via notes, but I am far more comfortable being close to home. I'm still relatively new to the land lording game and I wanted to do that myself, at least the first few years. 

I think a number of the comments here are spot on. 

We have several of our hard money clients that do very well in Lancaster, Palmdale, Bakersfield, etc. You don't necessarily need to come east. I'm a little more conservative. I like newer houses with decent cash flow in decent areas. The Inland Empire still has those capabilities. 

When you're talking about rough areas in Los Angeles, you're typically not talking new inventory. So you're getting the double whammy of bad area and older houses. If you're brand new to the scene, that would concern me. Doesn't mean you can't take it on, I'd just be careful. 

The IE and North LA County are not as good as a few years back, but the numbers can still work. And if you can qualify for cheap leverage and you're going long, who cares if prices come down a little? I have several houses where I just plan to pay off and hold. I like the thought of not having to chase the market every cycle.

I guess I'm uncomfortable out of state mainly because I'm so busy. If I had an issue (like 2013 which was my year of exploding water heaters), I know people and have a network I really trust. Out of state is definitely doable, but I'm glad I at least have some experience locally and now better questions to ask as well as the kind of tenants I'm looking for. 

If you've listened to my Dad (Bruce Norris) this year talk at the local clubs, he's been saying he doesn't see a huge bust on the horizon (yet). Key factors are not in place. So while this year has been...meh, the factors aren't in place for a big bust (overbuilding by the builders, no crazy loan programs, etc.) There's still room in many markets in affordability, especially considering our interest rates. Maybe not in San Jose and San Francisco, but many parts of Socal.

However, Dad is also not planning on taking on hugely speculative investments like high dollar flips along the coast, risky building projects, or inventory that's been run up by the hedge funds. Don't get me wrong, money can be made there. He's just not interested in inventory where fewer people will lend and where buyers come in smaller quantities. He talks a lot about speculation vs. investments and that's important. The last downturn, speculators gave investors a bad name. Investors add value. Speculators show up thinking everything they touch turns to gold. They buy expecting price appreciation while not adding any value. That's not what our community is doing.

It sounds like you're really wanting an investment and going a little longer. I love multiple exit strategies. But, again, if you're going long and the cash flow makes sense, I would just be careful about the rough area. If you feel like you have to long your door while driving the neighborhood, maybe that's not a good starting place. 

If you were able to catch the live feed of I Survived Real Estate this year (do a search on Youtube for it), I think the insight provided by all the panelists are really important. Much of the content was California specific so definitely check it out. 

We like California. We're just being cautious. There's room to go up, but we're certainly watching for government interference, the lending world, interest rates, the construction industry and jobs, and those darn Milliennials!

Favorite call about a month ago was a new investor that wanted to buy a rental before she owned her own home. She didn't want to get tied down. Millennial much? 

Happy Halloween all. I'm currently eating my weight in chocolate.