New to Real Estate Investing...what should I do with $300K?

Question

Like the title states, I've got $300K (or will in a few weeks when we close escrow on our current home).  I've been studying real estate investment books for the last several months and am a little overloaded by all the options.  Honestly, I'm afraid of making a mistake starting out.

I currently live in Southern California and don't like the Real Estate market out here.  Seems like the prices are near the top and from what I observed (I honestly haven't researched it in depth), it seems like the renter's rights outweigh the owner's rights (just had a friend in San Diego take 6 months to evict a tenant who wouldn't pay the rent).  I think I'm leaning toward investing across the border in AZ or NV which are within a 4-hour driving distance if I need to go over and check on my properties once a month.

I feel like I'm a bit at a crossroads at the moment starting out.  Again, it feels like there's an infinite amount of options.  I'm looking for somewhere to park my cash and get a return.  Not sure if I should go for a standard SFR, multi-family setup, or go for something bigger, like buying an apartment complex.  Reading through some of the books and postings here, some people start small and work up to a cash flow that allows them to get bigger options like an apartment.  I'm not sure if it's wise to start small, get a feel for real estate investments with a single small, $100K SFR and then work up over time to something bigger after I get a feel for what I'm doing.

Would love to get the insight of the community.  Trying to navigate a course, but not sure what direction I should point in.

Steve K. · Answer

#1- don't post I have $300k on a public forum

#2- ignore all the DMs you are getting with "deals" "offers" and people "wanting to connect"

Tom Wilson · Answer

I did an initial review of Vegas and came to the same conclusion.  I have family back in TX, so I might go back to that area to invest so I'll have eyes on my properties if I invest in their area.

Nathan Williams · Answer

Ive been in the same boat as a SoCal resident.  I'd love to invest locally but the price/returns are not what Im looking for.  Personally for me, even Vegas and Phoenix failed to meet the cash flow rates I was after.  So I took a leap and started buying properties out of state in Texas and the Midwest.

Pamela Sandberg · Answer

There have definitely been a LOT of investors buying rental properties here! But there is a lot of job and population growth projected over the next few years, too. These are people who will need places to live. Many will buy, but many will rent, and this will keep the demand high. Because of this, I don't think we are at a point of being OVER saturated with rentals. But definitely a good point and an important metric to keep an eye on!

Dan H. · Answer

IMO:

The no appreciation market of the Midwest works for locals, large unit count, or turkey providers only.  Texas has both appreciation markets and no appreciation markets and I hold a similar view on Texas no appreciation markets as I do about the Midwest.

The cash flow in these markets, that do not appreciate faster than inflation, will never go up in inflation adjusted dollars.  It may go down in inflation adjusted dollars.  The unit will never be worth more in inflation adjusted dollars without doing a value add.  The value adds do not provide the same return as value adds in higher value markets.

Mostly these zero appreciation markets sell on poor pro forma that under represents the cost.  I have seen pro forma that totally ignored cap expense.  I have seen pro forma that uses actual cap expense for turnkey providers that have not been in existent long enough to have the larger items fail and therefore be included in the actuals (at least they include something for cap ex).  The 50% rule is aggressive in low rent areas.  To be safe, I would use 60% rent goes to expenses other than mortgage.

The low appreciation markets and their cash flow is typically a trap for OOS investors (mostly newbies).  Leave the markets to the locals or those able to acquire 100+ units.

OOS already has challenges.  Do not start with a challenge of knowing on day 1, that the day 1 return (in inflation adjusted dollars) is the best you can do.

Good luck

Tom Wilson · Answer

Something within driving distance would definitely be nice.  My concern is that it's a saturated market for purchasing rental properties, but I'll definitely look into it more.

Pamela Sandberg · Answer

Check out the Phoenix market. Cash flow is a little tight, but appreciation has been healthy and sustainable. Our job growth projection indicate this will continue over the next several years. Phoenix is a popular location for SoCal investors as it is quick drive away. This makes it easier to come out occasionally without breaking your cash flow on plane tickets across the country.

New to Real Estate Investing...what should I do with $300K?

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