Newbie from Torrance, California

[Kaitlyn Masai]

Hi BP community! 

My name is Kaitlyn and I'm a newbie from the Torrance, South Bay area of Los Angeles. I have been listening to the podcast for a couple months now. Josh and Brandon are awesome so I had to check out the site. I more recently started reading real estate books and BP blogs. I find myself most interested in buy and hold investing for retirement. I am in my final year of a Ph.D. program, so I'm waiting to finish and save up some money before buying property. In the meantime, my goal is to learn as much as possible about REI. If there are any experienced investors in my area, I would love to meet you for lunch or coffee sometime (my treat, of course!). I also want to say a big thank you to all of you who have spoken on the podcast; your knowledge and experience is invaluable.

A question for real estate investors in California: I have realized the many cons of buy and hold investing in this county and state. Are any of you holding property in California? If so, do you recommend it for new investors? I wanted to house hack with a multi-family property but now I'm thinking buying out of state may be a smarter move.     

[Matt Mason]

Kaitlyn,

At this point in the cycle, I'd take my time and look for a deal locally as you may want to wait until you obtain your PhD and start your career.  House hacking is a great way to start in CA as you will learn a lot quickly.  You may not want to live next to your tenants long term, but you don't have to live there forever.  I know a lot more people who are successful now that started house hacking over going out of state.

As far as buying a few small properties out of state, I think there are a lot of problems.  One is you are immediately at a disadvantage compared to local investors who know local neighborhoods, can better monitor their properties, can network with local investors and on and on.  You still have to manage your manager or asset manage your properties.  That is much tougher from afar and you better subtract occasional travel costs from your returns.  A property manager is going to pay more attention to someone who can meet with them in person or who is going by their properties i.e. very so often rather than someone 2,000 miles away in CA that only sends an email or an occasional phone call.

You have to think of your exit strategies too.  Who are you going to sell to?  Another out of state investor?  If you are buying retail in a low growth market it can take many years just to get to break even proceeds as you have to budget 10% for selling costs.  If you plan to hold for a long time, how are you going to renovate the property down the line as it becomes dated?  Not easy from long distance.

Locally, initial cash on cash returns are weak at first, but cash flow does come especially if you implement a value add plan effectively.  I bought a 4 plex 4.5 years ago and I have been able to push rents close to 30%, while the property taxes have gone up less than 5% due to Prop. 13.  Back then most people on BP would have said I was crazy to buy in CA, when out of state returns were so much better.  However, now my cash flow equals those out of state deals with a huge amount of price appreciation to boot.  The next 4.5 years won't be so generous, but if you are in for the long haul you will be okay.  

Sometimes when I read these posts, I feel like many on BP put their hands together and say look a Californian with a good income, let's see if I can make some money off them.  I'd always ask myself on these out state deals why isn't someone locally buying this.  Just my 2 cents.