in town or out of state

[Jason Phu]

Hello BP fam,

I'm having a hard time deciding where to build my portfolio. I'm from southern California with approx. 300k cash to start my investment in real estate, can be pre-approved up to 900K loan. I'm interested in SFH and MFH with some cash flow and appreciation combination (will be buy and hold). Recently I'm looking in near by areas around my town (Diamond Bar, CA), it's very difficult to find anything that works. I'm also interested in San Antonio, Dallas, TX and Florida. However, I'm new to this so OOS investment would post more challenges for me (I guess). I'm looking for opinions/suggestions/ideas from anyone who has experience in investing in CA and other States to help me make the decision. Thank you all in advance!

[Darius Ogloza]

I have invested locally (San Francisco-Marin County) and out of area (Davis CA, Las Vegas NV, Rochester NY, Tampa-St. Pete FL) and have studied numerous other markets (principally Chicago IL and Toledo OH) over the past 20 years.  I continue to have investments in all of these places.  By a long mile, SF/Marin has outpaced all of the others exponentially in terms in wealth-building, which was my primary goal.  By and large SF/Marin properties did not cash flow for many years after we bought them, but we did not need the cash as I was working in the SF financial district and making good money.  Now, that we have a couple of our properties paid off (mostly through tenant rent payments over the years), they are gushing cash.  So no, you do not have to own 100 "doors" to receive $100,000+/year in cash.       

All of this said, I am not against out of area investing, and I personally continue to look for opportunities. The mistake that I have seen people make repeatedly is buying properties because they are cheap. Like a stock, buying a property because it is cheap is a losing strategy. You buy for two reasons: either you expect significant growth that you expect to outpace growth in other areas or you believe the stock is undervalued based on its fundamentals. If you do not have a clear growth or value thesis/strategy as to the market you are exploring, far better to put your money in a public REIT if you believe in real estate as an asset class "generally." In most places, the real estate will seem cheap but it will not appreciate materially, your tenants and/or property managers will drive you crazy and accruing capital expenditures will eat up all of your cash flow.