Cash Flowing in Southern California

[Eric Leach]

Hello,

I am new to real estate investing, but am eager to learn and put in the work.  I am curious to learn what kind of deals folks are getting done in SoCal that cash flow.  I am San Diego-based and would prefer to start locally, if possible.  It seems like there are mixed opinions on this with some folks saying it's impossible to cash flow here, while some others are only willing to invest here given the natural tail winds (limited supply, proximity to ocean, good weather, higher income renters, etc.), in fact, MeetKevin recently said he only invests in SoCal.

Thanks in advance.  I look forward to learning from you all.

[Twana Rasoul]

@Eric Leach Initial cashflow in San Diego is difficult with 25% down (investment) or lower 0%-20% (owner occupied/house hack).  

I've gone from negative cashflow to positive cashflow on my local properties in 2 ways.  

1st way, which is how I started, I would just purchase a property retail with low money down. I made sure the property needed very little to no work because I had limited funds and barely knew how to screw in a light bulb. I would start by house hacking it then move out after a year to make it a full investment property.  Each year I would increase rents  until I broke even then eventually cashflow.  That is the easier way to get started especially if you don't have a lot of funds for value add.  One condo I purchased never made it out of the red (negative cashflow). However, I sold it recently, after 4 years, through a deferred 1031 exchange into a multifamily 4 unit property without additional funds out of pocket (technically zero down).

The 2nd way which I've done a couple of times, including this past summer...purchasing a property with value add potential. I purchased a triplex that was making $2,850/month between ALL 3 units, way below market and I was paying their utilities like water/sewer. Needless to say I started out about $2,500-$3,000 NEGATIVE cashflow each month. I renovated all 3 units within 3-4 months and increased rents to $7,825 with tenants paying their own utilities. Also, I am in the process of converting 2 single car garages on the property into a 1bed/1bath ADU which will increase rents another $2,000/month to get to around $10,000/month. There's nothing passive about investing in Real Estate.

Contrary to popular opinion on here, I prefer newbies get started with the first method, buying something move in ready in lieu of doing a major value add.  purchasing a fixer for the first property or something that needs a decent amount of work can be risky for someone just starting out with limited funds.  Construction costs often go over budget and end up behind schedule, this is true for professionals (I was in commercial construction for quite a few years) so it certainly would be the case for a newbie.  Imagine running out of funds in the middle of a rehab.  Buying a property that has out-dated finishes but is still livable would be ok since that work can be done slowly, overtime.

I personally started investing locally buying what I can afford with low money down and slowly rolling those into bigger properties.  It is certainly easier to get started locally than in a random market that happens to be cheaper unless you have ties to other markets that you know well or have family or trust worthy resources in (not just a PM and Realtor).