How to strategize and buy my first rental property

Starting Out
9yFollow

How to strategize and buy my first rental property

Jenn Orio
Real Estate Agent · Palos Verdes Peninsula, CA · Member since 2016 · 3 posts · 2 votes

Hi Bigger Pockets members,

I'm a newbie investor looking to purchase my first income property this year.  I live in SoCal and as everyone knows home prices are high.  I have about $140k to invest and am debating if I should buy out of state in a lower priced market where I can have more cash flow or buy a 3-4 unit property using my 140k as my 20% down.  (It's hard to find a 3-4 unit in a decent area in the 700k price range)  If you were in my shoes, what would you do?  Open to different strategies, methods, and suggestions.  Thanks!

1Reply
51 views

Most Popular Reply

Account Closed
Costa Mesa, CA · Member since 2016 · 17 posts · 10 votes
9y
Jenn Orio first I want to congratulate you on your decision to buy an investment property either in California or elsewhere. I'm rather new but I'd like to take the opportunity to drum up some conversation and get your question answered by as many people as possible. I grew up in the Midwest St. Paul Minneapolis suburbs. I can tell you that the cost of living in Minnesota is pretty expensive and the rents reflect this. So this could be a great area to use as an example for potential income property. You mentioned 140K and it sounded to me like it was rather liquid. With 140K you could easily find some very high cash flowing properties in many good parts of Minneapolis as well as some Saint Paul locations. In my opinion Minnesota has a great amount of multiunit properties. From an investor standpoint the upside is a lot of these properties are distressed so buying right making your money going in is very feasible. But ultimately the decision is up to you the possibilities are endless I would suggest writing a list of your top 10 favorite people that don't live in California and checking out their markets. This gives you a great opportunity to catch up with one or many of your friends and check on your place. But the best part of this idea is you always have boots on the ground to do the drive-by of your house or even the "smoke detector inspection" to ensure tenants are properly maintaining your asset. In addition to the property management company you hire for other services.
1Reply
See this reply in the discussion

8 Replies

Jump to latestLatest
  • Account Closed
    Costa Mesa, CA · Member since 2016 · 17 posts · 10 votes
    9y
    Jenn Orio first I want to congratulate you on your decision to buy an investment property either in California or elsewhere. I'm rather new but I'd like to take the opportunity to drum up some conversation and get your question answered by as many people as possible. I grew up in the Midwest St. Paul Minneapolis suburbs. I can tell you that the cost of living in Minnesota is pretty expensive and the rents reflect this. So this could be a great area to use as an example for potential income property. You mentioned 140K and it sounded to me like it was rather liquid. With 140K you could easily find some very high cash flowing properties in many good parts of Minneapolis as well as some Saint Paul locations. In my opinion Minnesota has a great amount of multiunit properties. From an investor standpoint the upside is a lot of these properties are distressed so buying right making your money going in is very feasible. But ultimately the decision is up to you the possibilities are endless I would suggest writing a list of your top 10 favorite people that don't live in California and checking out their markets. This gives you a great opportunity to catch up with one or many of your friends and check on your place. But the best part of this idea is you always have boots on the ground to do the drive-by of your house or even the "smoke detector inspection" to ensure tenants are properly maintaining your asset. In addition to the property management company you hire for other services.
    1Reply
  • Joseph Tramonte
    Investor · Saint Paul, MN · Member since 2014 · 30 posts · 6 votes
    9y

    Derek, I'm also from Minneapolis , Jenn makes some good points. The biggest item I feel to consider is when you own property out of state is you do not have the luxuary of driving by and doing even the small prevantitive maintenance items that will turn into costly repairs . Your management company is not going to do this. They are only going to send out a repairman after the item is broke . Good Luck

    0Reply
  • Preston Schmidt
    Lender · Minneapolis, MN · Member since 2016 · 61 posts · 20 votes
    9y

    I'm a 50 state lender living in Minneapolis and I would have to agree with Derek. Buying an non owner occupied investment property in Minnesota is great Rental Revenue. Home values are going up too. Let me know if you have any financing related questions I can help answer.

    0Reply
  • Michael Boyer
    Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
    9y

    I like positive cash flow rentals, so I would first run the numbers on the pricey (700K) 4 plex in your area with the large down..... 

    You know the real estate there better than anyone and can look after it, owner occupy (even self manage).... 

    But it may or may not get close to penciling out (guessing not). But not sure the rents there. And with still decent rates, long am period, big down and top notch units in the right area could help.

    I would check out the book Buy and Hold by Schumacher, a clever appraiser that became a big SoCal real estate investor (and best selling author), catching the post war run up in SoCal home prices. His philosophy for your market in his time was more "buy (the right location) and just hang on"..

    But what do you do in the meantime (if you are cash flow negative) is always my question. 

    Appreciation worked it out for him, but who knows the real estate cycle.

    Out of state? If I invested remotely and never saw my property (or rarely), I would probably go with a really good manager or probably more likely look at a more liquid alternative investment (e.g., index fund, REIT, ETF, etc)....

    Best of luck

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    Hey Jenn! I'm also in SoCal. I would say that the most important thing is that you don't sacrifice where you live just to buy an investment property in SoCal--if wherever you buy here is a sacrifice. For instance, I live in Venice and absolutely love it. If I were to move somewhere where I could buy a MFR for $700k (you're right about where those places would be...no where fantastic...), I would be sacrificing living somewhere I love just to buy a property, and not even one that cash-flows. Appreciation later, maybe, but you certainly won't be pocketing anything each month even when rented at full capacity. Sooo...

    I rent my apartment in Venice because that way I can live exactly where I want and I use my funds to buy out-of-state. One could argue I'm throwing away money on rent each month, but in actuality what I pay in rent is less than I would be losing each month if I were to buy an MFR--whether here in Venice which I would definitely lose more than that each month (and be paying more than that in interest alone), or somewhere in a cheaper MFR.

    Just my opinion for myself on it, food for thought!

    0Reply
  • Jenn Orio
    OP
    Real Estate Agent · Palos Verdes Peninsula, CA · Member since 2016 · 3 posts · 2 votes
    9y

    @derek boykin Thanks so much for your input.  Your suggestion of making a list of my 10 favorite people outside of California is a great idea because my biggest hesitation of buying out of state is "what the heck I'm going to do if something happens to my house".  

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    9y
    I'd like to help
    0Reply
  • Len Grosso
    Investor · Santa Rosa, CA · Member since 2015 · 18 posts · 8 votes
    9y

    Hi Jenn.   I'd like to offer some thoughts.

    If you buy locally:  Chances are you would be investing for future gain since cash flow is (I believe) rare to near impossible.  Future gain via appreciation can work but at this stage of the Real Estate cycle it's probably very risky.  

    If you allow for out of state investment:  You have the luxury of choosing positive cash flow or better appreciation prospects if the area (MSA) is at an earlier stage of the cycle.  It's also completely possible to get both given research and discipline.  

    Naturally an out of state Property Manager takes up a lot of your cash flow but for me it's essential.  Find the very best couple of PMs there are in your target area.  

    I Live in NorCal and owned houses in Tucson and Portland.  I was very lucky to have bought at the right stage in the cycles esp. since I knew little about it at the time.  

    If you want more info about cycles in areas let me know but that's important to get.  

    LG

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free