Picking up 2nd multi family ...stay in CA or go out of state?

Question

My wife and I are in our first house hack (duplex) in Citrus Heights CA (Sacramento County) that we closed on in Dec of 2020 and looking to pick up another multi-family unit before the end of 2021. We hope to have 30-40k saved by the end of the year but want to get the most bang for our buck by way of monthly cash flow.

Duplexes in our area are around 500k but we're al so looking at Dayton Ohio and other markets where we have folks to help property manage.

Any advice on what to consider?

Duplexes in our area are around 500k but we're al so looking at Dayton Ohio and other markets where we have folks to help property manage.

Any advice on what to consider?

Jon P. · Answer

@Aj Parikh @Ali Boone

Aj, here you go again shameless plugging Martel, but not disclosing you are actually marketing for them, and get paid to do so!  Just a few days ago when you were called out for doing this, you wrote posts apologizing about not disclosing your ulterior motives of financial incentives saying "you would make sure to not do this again, but here you are."  It's crazy to me how apologetic you were on this thread when called out, but then you look at the other posts you've made and you're simply copy & pasting the exact same plug for martel on all sorts of threads where people don't even ask for recommendations.  I think everyone needs to be aware of what you are doing, and I still don't appreciate you pulling me in with the bait & switch method to simply send my info to Martel in hopes of getting paid for the referral.

https://www.biggerpockets.com/...

For everyone else on this thread, Aj gets paid to refer clients to Martel even though he does not mention that which is against BP rules.  He reached out to me when I was looking around for investment options, asked me to PM him where my information was passed over to Martel's marketing list.  Not I receive all their emails.  They told me that they pay Aj whenever some buys a property from them which would constitute a referral commission.  Pretty sure you need to be a licensed broker to receive a referral fee, which you are not.  Clearly you are not operating with integrity here!

https://www.biggerpockets.com/...

Dan H. · Answer

Coastal So Ca RE market is very different in many way compared to Ohio or Pennsylvania.  Price of entry, initial cash flow, appreciation, tenant/landlord laws, property taxes (prop 13).

Some items:

• The higher rent appreciating market will always eventually have superior cash flow as long as rent appreciation exceeds expense inflation (excluding extraction of value which is in reality what most investors do).  It is just math.   I have a property over a 4% rent to purchase ratio.  All of my properties except the one purchased 2 months ago have rent to purchase ratios above 1%.
• The statewide rent control is 5% plus local inflation, capped at 10%, and only applies to multiplexes.   The local inflation typically is significantly higher than the national inflation.   This typically means rent increases are limited to between 8% and 10%.  In my market, Rent Cafe states average rent is $2179 for 874’.  At 8% increase, this allows rent to increase $174/month per year. At 10%, rent can increase $217/month.   Unless I dislike the tenant, I never raise the rent more than $100/month per year so the rent control does not affect my rent increases.
• The tenant/LL laws have resulted in some real horror stories.   Think Pacific Heights.   These are very rare and often a result of an ownership dispute.  The low vacancy/housing shortage results in a very high rate of good tenants.  An eviction could prevent the tenant from ever getting quality housing in my market (we accept no one who has ever been evicted).  The late/missed payment and the eviction rate in my market is near the lowest in the nation.
• Historically my market has great appreciation going back at least 60 years.  Just under 6%.  The appreciation for this century, which includes the worse depreciation cycle in the last 60 years, is 4.7%.  That is a long track record of appreciation. 
• Normally, San Diego RE investors purchase and add value extracting out their initial investment in the near term or they do not have a value add and in a handful of years the property appreciation allows them to extract out their initial investment.  Few local investors have significant capital trapped in their RE investments.  This is especially true of the sophisticated RE investors (many who are on BP and typically are not holding condos for LTR and seldom holding SFR for LTR).  I have only one property that has my investment still trapped in it (non value add purchase from New Year’s Eve close).

In general, coastal so Cal requires a long term perspective to recognize the positive traits of the market.  Other markets can produce good returns on day 1.  I personally believe most markets provide opportunity to make money via Real Estate Investing.  I also believe newbies should start local.

Good luck

Pavan Sandhu · Answer

Add an ADU or two and turn it to a 4 plex? WHY buy another property when you already own the land to add more units. ADU FTW

Brandon Sturgill · Answer

@Timothy Olaore what are the price points in Sacramento...from what I understand they are affordable...Columbus Ohio duplexes are $500k in 60% of the city...why not stay put?

Alex Uman · Answer

I'd say out of state to Ohio. More bang for your buck and fewer headaches than in CA.

Aj Parikh · Answer

I worked with Martel turnkey to buy a SFH in Cleveland, OH. They have a good operation if you want to check them out. Let me know if you want to connect and chat about the purchase process.

Dan H. · Answer

Other than counting all the money made via buy n hold Real Estate, what other headaches are you referring to?

• High appreciation?
• Great long term cash flow?
• Low vacancy results in short vacancy periods?
• Low vacancy/housing shortage result in near low in nation missed/late payments?
• Low vacancy/housing shortage result in near low evictions in nation?
• Prop 13 results in CA having more fixed expenses than virtually all markets?

Both Case Shiller and neighborhood Scout reflect the incredible profit of buy n hold RE in coastal Ca cities.

Brandon Sturgill · Answer

I'm glad I got to drive the 1 up the Cali coast before it started falling into the ocean...

Remington Lyman · Answer

Yeah, less natural disasters in California vs Ohio.

Alex Uman · Answer

@Dan Heuschele I'm in a pretty different market so I only really know about the state as being more pro tenant than landlord. Only ever heard about difficulty in the eviction process and rent control. Looking into Prop 13 that's actually pretty great to have very fixed expenses. For the investors who are familiar with the market and can afford to invest there it makes sense. I simply see my own market as similar to Ohios in having a lower cost of entry and more landlord friendly policies.

In reference to @Timothy Olaore's post I was simply thinking he'd be able to get more doors in OH for the same amount of money as in CA. Having that network local to the area would make OOS investing work well depending on your strategy.

Picking up 2nd multi family ...stay in CA or go out of state?

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