Purchase a Home in the Bay Area or Invest Out-of-State?!

[Krystin Aversa]

Hi BP Members!

I am currently in the SF Bay Area and ready to begin my real estate investing journey. I had initially began pursuing a property to house hack in the Bay Area through a realtor here, however the properties available within the FHA loan limits (below 1,053,000 for a duplex and 1,272,750 for a triplex) are in C-class neighborhoods with moderate crime rankings and very poor school rankings. Safety is a non-negotiable, so I am trying to pivot and explore different strategies.

My realtor recommended instead purchasing a townhome or condo with a mortgage that is equal to or less than what I am currently paying in rent; this way, the money I am paying towards rent is at least going towards an asset. My concern is that this feels less like an investment and simply a property purchase. Another strategy we discussed was also buying a home that I could force appreciation into.

And my other option would be to just continue renting here and take my saved capital out of state! With so many approaches and options on the table, I would greatly appreciate any reccomendations and advice!

[Darius Ogloza]

If you are interested in building substantial wealth over the long-term, there has been no better bet than California in general and the Bay Area in particular over the past 40-50 years.  My recommendation: be patient and continue saving until you qualify for a home in the Bay in a desirable area, preferably a fixer.  Live there for 3-7 years, make some improvements and rent it out when it is time to move on to something bigger and better.  The first home I purchased in the Bay in the late 1990's for $445,000 (a fabulous sum of money at the time) is now worth $1.6 million and generates over $5,000/month in gross rent.  There has not been a vacancy since 2009.  Twenty years later, it feels pretty nice to have a spare million or so in your back pocket as well as thousands in positive cash flow per month.  Try repeating that in any "cash flow" market where your capital expenditures are almost certain to eat up most or all of your income over time.  I did, only to walk away with pocket change instead of quadrupling my money like my other California investments.  In my opinion, too many prospective investors focus on an ideal projection of the short term instead of on a realistic picture of the long term.