Start In state or out of CA?

Question

Snapshot - Live in SFV/Southern California;  Married with 2 young kids, live in an apartment with rent control, have student loan debt (on plan for forgiveness), car loan and some cc debt, make decent income and in process of paying down debt. Hubby and I are trying to decide what makes most sense, buy a place further out such as Palmdale to live in where it’s cheaper and hopefully we can build equity and commute to San Fernando valley for work or buy a rental out of state. We feel that by renting with are just wasting money and want to start on the path of real estate investing. Our goal is in 10 years to have several units that we are renting out and are unsure wha makes more sense, moving ourselves, building equity and then having more to invest or just trying our luck out of state. Have about 5k saved and can pull about 10k from IRA. Ideally we’d love to get a duplex/guest house  but they are not in safe areas out there or are out of our price range so that and house hacking also wouldn’t work as we have small kids. What would you guys do??

Lynnette E. · Answer

When you look at property that is far from your jobs, include the cost for a lot of gas, oil changes, tires, and increased insurance, plus replacement cars into your monthly budget.  Also add in extra hours for child care.  Extra costs for grabbing a fast dinner of morning coffee instead of cooking because of the long commute.

When you add in the extra costs, often your house hold budget will remain the same whether you buy the expensive/close house or the far out cheap house, just instead of higher housing costs you have higher auto/child care/food costs.

Plus when you add in the part of your life you loose sitting on the freeway, instead of at your kid's T-Ball game, and your composure when coming home after battling traffic, stressed, etc. you are really giving up a lot of your life.

I have had life with a 3 hour commute each way, and the ten minute commute.  Until you spend 6 hours a day in traffic, you can not understand how badly it affects your attitude and life.  I'd rather live in a small cramped house with the ten minute commute than the mansion with the 3 hour commute any day!

Alvin Uy · Answer

Definitely dont waste your money renting.   As they say, the first one is always the hardest...especially in SoCal.   The barriers of entry is much higher....but its a very unique market for long holds.  You can both cashflow and enjoy appreciation in the years to come.  Whether you decide to buy in CA or OOS,  Im a strong believer that you got to know the market your investing in.

My wife and I were in the same boat over 16yrs ago.  We wanted our first property to be for ourselves instead of renting.  So we saved our asses off to buy our first house in a gentrifying area ( Eagle Rock, Los Angeles) because it was all we can afford and it was close to family.  Best decision ever since we knew the area was changing and recognized the future potential.  “House hacking” a 3 bedroom 2 bath house was daunting at first, but also very rewarding.   We learned a lot from first hand experiences and recommend that every investor should know how to rehab.   After months of rehabbing during nights and weekend... we were out of funds.   We didnt have any kids at the time, so we were able to rent out the 2 rooms to help pay for the mortgage.   It was our first taste of having tenants and really opened our eyes to REI.   We attended a couple of free RE seminars and caught the bug after reading Rich Dad Poor Dad.  My wife got her Real Estate License as we were saving up to buy our next investment.   In about 2 yrs, our house appreciated enough to where I was able to do a cash out refi and used the $$$ as down payment on our next one.  We house hacked again.

Fast forward 16years later.... we have since passively acquired 5 properties....4 SFRs and a 4plex.   All in Eagle Rock/ Glassel Park area... All Cash Flowing.... All built up huge amounts equity (some even tripled in value).    My best advise is... just get started the sooner the better.... but definitely know your market.

Matt K. · Answer

Rent control.... If you are happy with the quality of the unit..go for it. Not hard to make up the rent you pay with the rents you receive. Out of state is easy if you're close to LAX pick something Midwest and central time and...a direct flight.

With that said, nothing makes sense unless you got funds to do it. Don't buy something to buy something be it primary or investment. Figure out your debts and income first then figure out the greatest return on dollars you have.

Lynnette E. · Answer

If you really want to own your home, look into the many mobile homes around SF Valley.  Lots of them under $200k, just make sure the park will allow you to rent it out once you tire of it.

Ali Boone · Answer

I second @Lynnette E. AND I'll add in some numbers issues...

I completely disagree that you're necessarily throwing money away renting. Maybe, but probably not. At least not in SoCal.

Run the numbers on the actual expenses you would have buying a house in Palmdale. Expenses on the house- property tax, insurance, repairs, etc. plus mortgage interest. People seem to forget that one. When you add all that up, it's likely that it's going to total more than what you're paying in rent.

Buying a primary home vs. an investment property in general is rarely what it cracks up to be. Yes, it can be in certain markets if you're rehabbing and all that jazz, but this is SoCal and you've never rehabbed.

Here's details on this numbers-bit:

https://www.biggerpockets.com/blog/2014/01/18/buy-...

Househacking anywhere around here isn't much different (I have articles for that too, but same premise...the numbers aren't what people think they are).

Side note- you won't be able to combine that $5k with the IRA money. You either have to do it fully inside the IRA or fully outside of it. (pretty sure)

I also don't agree (from another poster) that Palmdale's price to rent ratios are good. They are better than LA, but they still don't cash flow.

(I used to live in Palmdale)

Alvin Uy · Answer

Wait...  Are you saying Palmdale/Lancaster is BRRRR friendly with positive cashflow?

Leenie Fo · Answer

@Walter Roby jr, your response was so timely. We found a house we LOVE but the commute daily would be brutal with us going to various parts of the Valley daily as a family. If we found a crazy deal we would possibly do it for a while but it would definitely take a toll. Thank you for the info about how your property increased in value over the last couple years; that is motivating. Is it true that to do a rental property we need 25% down if we finance through a bank/credit union?

Walter Roby jr · Answer

FYI the commute from Palmdale to LA starts at 4am. You can get great price to rent values in Palmdale/Lancaster. Properties don't appreciate that much albeit they have been in the past few years. I decided to buy a property back in 2017 at 209k and its probably worth 248k now.

Alvin Uy · Answer

In my opinion, just start where you can afford.  Don't over complicated it because I dont think you can go wrong if its your first home...  owning property beats renting.  Just the tax benefits alone is already a plus up.

Leenie Fo · Answer

@Alvin Uy Thank you!! what do you think about Palmdale? It’s very affordable but we’d have to commute to the Valley which is the major drawback. The other areas you mentioned, most places are about 500k and up and in Palmdale, places can be found for half. We’d love to get into Inglewood or one of the places you mentioned, but it’s so expensive. :/

Start In state or out of CA?

Most Popular Reply