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!

[Jon Schwartz]

Originally posted by @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!

Jason,

LA investor here.

After going through the paces and researching OOS markets, I decided to keep my investments in LA. Here's my rationale:

I have a career I enjoy, so I'm investing for the future. I want to replace my income with cashflow from a portfolio, but I don't need to tap into that cashflow for another decade.

I mathed out a bunch of scenarios, and I realized that I was better off spending most the decade building a portfolio in LA, then trading those properties for cashflowing OOS assets toward the end of the decade. LA has incredibly opportunities to build equity; the smart play in my mind is to build equity in LA, then trade a massive pile of equity for cashflow down the road.

So my whole strategy is finding the best markets in Greater LA and investing in multis there. I do a lot of research to find neighborhoods that should appreciate the most over the next decade, and that's where I buy and hold.

If you have a career and income, and you're investing for at least five years down the road, I think the best bet is keeping your money in LA for now.

All the best,

Jon

[Alex Grosvenor]

Hey there! David Greene Co-host of the BiggerPockets Real Estate Podcast wrote a book called Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-Of-State Rental Properties. Crazy long title I know, but this should take a lot of the fear away from OOS investing.

Appreciation is huge in California but cash flow isn’t from what I understand.It’s hard to find a place that does both and does both extremely well. FL houses are appreciating and cash flowing depending on where you go. St. Pete, FL and Tampa, FL, cash flow well and appreciation isn’t bad. Dallas, TX is appreciating at over 12% since last year. Some studies show home prices have risen in 92% since 2015. Don’t quote me on those number I didn’t come up with those and they came from different studies done. Either way it goes Dallas,TX is appreciating insanely fast but still has a little room for cash flow left. But as housing prices go up so much it’s hard to cash flow. Which is why the mid west is great for cash flow but not appreciation. I hope whatever you decide to do that you will be successful doing so! 

[Brandon Goldsmith]

If the numbers simply don't work in an overpriced market it is hard to justify purchasing where there will be little to no return. Out of state investing can be a good option if you have the right team in place. As others mentioned, having your core 4 is critical to succeeding is oos investing. Good Luck! @Jason Phu

[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.

[Tsungchih (Kevin) Lin]

As many experts mentioned, you might not get both appreciation and cash flow at the same time so you need to be very clear on your objective.  For example, a house in Diamond Bar will appreciate much better than a house in Pomona just next to it.  However, you can buy two houses in Pomona and generate more cash flow while you can only afford one house in Diamond Bar with the same amount of money.

And due to AB-1482 (California Tenant Protection Act), you might not want to invest in multi-family units at this point.

[Jason Phu]

Originally posted by @Jon Schwartz:

Originally posted by @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!

Jason,

LA investor here.

After going through the paces and researching OOS markets, I decided to keep my investments in LA. Here's my rationale:

I have a career I enjoy, so I'm investing for the future. I want to replace my income with cashflow from a portfolio, but I don't need to tap into that cashflow for another decade.

I mathed out a bunch of scenarios, and I realized that I was better off spending most the decade building a portfolio in LA, then trading those properties for cashflowing OOS assets toward the end of the decade. LA has incredibly opportunities to build equity; the smart play in my mind is to build equity in LA, then trade a massive pile of equity for cashflow down the road.

So my whole strategy is finding the best markets in Greater LA and investing in multis there. I do a lot of research to find neighborhoods that should appreciate the most over the next decade, and that's where I buy and hold.

If you have a career and income, and you're investing for at least five years down the road, I think the best bet is keeping your money in LA for now.

All the best,

Jon

 thanks for sharing your strategy. It sounds make sense to your goal and time in life. When you set the decade for investment for appreciation, do you consider the up and down of the markets? 

[Jason Phu]

Originally posted by @Tsungchih (Kevin) Lin:

As many experts mentioned, you might not get both appreciation and cash flow at the same time so you need to be very clear on your objective.  For example, a house in Diamond Bar will appreciate much better than a house in Pomona just next to it.  However, you can buy two houses in Pomona and generate more cash flow while you can only afford one house in Diamond Bar with the same amount of money.

And due to AB-1482 (California Tenant Protection Act), you might not want to invest in multi-family units at this point.

Thanks for your input, Kevin. I didn't know much of the California Tenant Protection Act. I only know that CA is not landlord friendly, and that is one of the reasons that I consider oos investment beside cash flow. Can you give more info on AB-1482? You mentioned Pomona for cash flow, I think unless you purchase all cash, financing doesn't work with any area near by Diamond Bar from my research. I'm looking to leverage and build up portfolio instead of invest all in one property. Pomona's SFHs asking price are at least more than 300K at current market. 

[Jason Phu]

Originally posted by @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.

Thank you for your input and explanation. It's a solid point to consider with my own situation.

[Jason Phu]

Originally posted by @Alex Grosvenor:

Hey there! David Greene Co-host of the BiggerPockets Real Estate Podcast wrote a book called Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-Of-State Rental Properties. Crazy long title I know, but this should take a lot of the fear away from OOS investing.

Appreciation is huge in California but cash flow isn’t from what I understand.It’s hard to find a place that does both and does both extremely well. FL houses are appreciating and cash flowing depending on where you go. St. Pete, FL and Tampa, FL, cash flow well and appreciation isn’t bad. Dallas, TX is appreciating at over 12% since last year. Some studies show home prices have risen in 92% since 2015. Don’t quote me on those number I didn’t come up with those and they came from different studies done. Either way it goes Dallas,TX is appreciating insanely fast but still has a little room for cash flow left. But as housing prices go up so much it’s hard to cash flow. Which is why the mid west is great for cash flow but not appreciation. I hope whatever you decide to do that you will be successful doing so! 

@Alex Grosvenor

thank you for your suggestion. I'm reading that book to get a better view and understanding about oos investing. I notice Dallas is turning into appreciation market very quickly due to higher price. What do you think of San Antonio?

[Tsungchih (Kevin) Lin]

Hi Jason,

You can Google AB1482.  Here's one link: https://sfrb.org/article/summa...

As for the Pomona/Diamond Bar properties, I just used it as an example to show the appreciation and cash flow comparison. If you don't mind, you can always start with condos with low HOA fees.

[Alex Grosvenor]

@Jason Phu San Antonio by far cheaper than Dallas. It is where I first started looking into investing. Competition is still really tough there just as everywhere else. A lot of houses being flipped, but I don’t know much about their rental market.

[Stone Saathoff]

If you're serious about investing out of state, put some effort up front into building the right team. Talk to agents, talk to wholesalers, talk to lenders (local lenders), and property managers, also GC's and repairmen. The team is crucial to your success.

I would highly recommend the San Antonio market due to affordability and appreciation. Long term rental numbers are still great here as well in comparison to other large cities in TX.

[Jon Schwartz]

Originally posted by @Jason Phu:

Originally posted by @Jon Schwartz:

Originally posted by @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!

Jason,

LA investor here.

After going through the paces and researching OOS markets, I decided to keep my investments in LA. Here's my rationale:

I have a career I enjoy, so I'm investing for the future. I want to replace my income with cashflow from a portfolio, but I don't need to tap into that cashflow for another decade.

I mathed out a bunch of scenarios, and I realized that I was better off spending most the decade building a portfolio in LA, then trading those properties for cashflowing OOS assets toward the end of the decade. LA has incredibly opportunities to build equity; the smart play in my mind is to build equity in LA, then trade a massive pile of equity for cashflow down the road.

So my whole strategy is finding the best markets in Greater LA and investing in multis there. I do a lot of research to find neighborhoods that should appreciate the most over the next decade, and that's where I buy and hold.

If you have a career and income, and you're investing for at least five years down the road, I think the best bet is keeping your money in LA for now.

All the best,

Jon

 thanks for sharing your strategy. It sounds make sense to your goal and time in life. When you set the decade for investment for appreciation, do you consider the up and down of the markets? 

Yes, I did!

I analyze 45 years of FHFA home price index data for LA, and found that on a 10-year-old, one's average annual appreciation rate is 5.6%. On a ten-year hold, 80% of outcomes produce positive appreciation, and the worst outcome on a 10-year hold is -0.8% annual appreciation.

Moreover, the Olympics are coming to LA in 2028! The Olympics in and of themselves are usually not an economic boon for the host city, but in this case, LA is pushing hard on several public transportation and infrastructure developments ahead of the 2028 wave of visitors. I'm especially focused on the corridor between LAX and the new Rams Stadium, where opening night of the Olympics will be held.

Now's a good time to start a 10-year plan in LA!

Best,

Jon

[Lane Kawaoka]

@Jason Phu You need to look in the south or midwest to hit the 1% RV.

San Antonio/Dallas/Houston are great markets but everyone knows that for a few years now so its going to be tough for a non local investor to find something.

[Antonio Cucciniello]

@Jason Phu In my opinion, the only way to pick a location is to pick one based on the best data available. Don't make an emotional guess. Look for the data points for crime rate, schooling, price to rent ratio, taxes etc, and compare each town? 

[Jason Phu]

Originally posted by @Stone Saathoff:

If you're serious about investing out of state, put some effort up front into building the right team. Talk to agents, talk to wholesalers, talk to lenders (local lenders), and property managers, also GC's and repairmen. The team is crucial to your success.

I would highly recommend the San Antonio market due to affordability and appreciation. Long term rental numbers are still great here as well in comparison to other large cities in TX.

 No doubt about building the right team to success. Once my market is set, that is next to do on my list.

[Jason Phu]

Originally posted by @Antonio Cucciniello:

@Jason Phu In my opinion, the only way to pick a location is to pick one based on the best data available. Don't make an emotional guess. Look for the data points for crime rate, schooling, price to rent ratio, taxes etc, and compare each town? 

Thanks for your input! 

[Michael Robbins]

@Jason Phu You might consider narrowing the market down based on a location that you may relocate to in the future. I have not invested out of state and I am mainly focused on Henderson/Las Vegas NV, but as many people here have pointed out, have a really good team.