First time Investor and home buyer. Looking at Raleigh, Durham

[Emmanuel Mendez]

I have saved some money over time and i started looking for my first purchase in san diego. It's to expensive and i feel like i would get tied down for a while with the mortgage. Condos Appreciate maybe 4-8% a year. I Found Raleigh and durham area and seems like its been growing and prices are still super low compared to san diego of course.. Im guessing i could buy rent and hold that property for 1 or 2 years and then use the brrr to get another property.. and so on. in san diego i would just sit with a high mortgage and low savings...

my question is :

Would it be a good idea for me to dive in and buy a long distance investment property in the area? What should I learn before diving in and starting this journey. I have been aware of the brrr for a few years now but have never actually done it.

I have read the brr book it was a few years ago. i'm starting from page one again.

[Dan H.]

The idea behind BRRRR is to extract all of your investment to be able to reuse it. I would classify such a BRRRR as highly successful, and maybe ambitious for the first time BRRRR investor, but the goal is to extract all of your investment. Assuming you can qualify for the loans, what is the rationale for not doing the BRRRR local if you can extract all of your investment?

Here are some thoughts:

1. A local BRRRR is likely to be lower risk than a long distance BRRRR.
2. Managing a local property will be lower risk than managing a long distance property.
3. Expensive markets have low cap rates.  Cheap markets have high cap rates.  The cap rates are set by a fairly efficient free market.  What this implies is that low cap rate markets are expected to be lower risk and/or product higher long-term returns than high cap rate markets.  Conversely low cap rate markets typically have better short term return, but either are perceived to be higher risk or lower long-term return.  Another way to state this is that markets are typically priced appropriately when all factors are considered.
4. I recommend all newbie RE investors start local.  For you that implies San Diego.  For the investor living in Detroit that means Detroit.  It is due to the above reasons.
5. The more expensive the property the higher the equity obtained from the BRRRR. For example, if you purchase an RE at $400K, you need it to have a $500K ARV (at 80% LTV) to extract all of your investment (excluding closing costs). You have just created $100K in equity in a single BRRRR. Note if all the numbers are 50% of the San Diego costs, the BRRRR would have resulted in only $50K in equity.
6. Historically, the appreciation or San Diego has been forgiving for BRRRR that may have been less successful than planned. As of last year, every one of our properties purchased prior to last year has had all of investment extracted. Note, we typically are unable to extract all of our investment on our initial refi, but the appreciation has resulted in continued equity build up in excess of the principle paydown. We took advantage of the low interest rates to extract out excess equity.
7. Historically San Diego has been one of the best markets in the US for long-term buy n hold real estate.  You live in a market that has historically produced outstanding returns yet you are looking at another market.

Good luck