Living in SoCal. Should I buy around the country and hire PM, y/n

[Jonathan Jaime Velarde]

Happy Saturday!

In about a year I will be back in Ventura County, CA and will be saving up towards buying my first property. I will be attending school w/ the Post 9/11 GI bill for free, working in the family business, and living at home saving tons of $$$. 

Would it make sense for someone buying their first property to buy in a hot market like Denver, Memphis, Indianapolis, San Antonio, etc. and hire a PM company to run the show. Obviously I would do my due diligence and have a good exit plan in place, but I just want some input from my established investor friends. 

Any comment is great information so please feel free to share. I appreciate your advice as I am a learning REI.

JV

[Jonathan Twombly]

@Jonathan Jaime Velarde

New investor + hot market + getting in late in the bull market = new investor loses lots of money

Investing away from home is fine.  It's what I do, and most of the pros I know do it too, because they tend to be from expensive markets like SoCal, where it is very difficult to purchase anything that makes sense.

But going for "hot" markets is a bad idea.  It sounds like you are a buy/hold investor, or you would not be looking to use a PM, but hot markets are for flippers.  Hot markets are for people who want to get in and out quickly and think they can get out before the market turns against them.  It's for bettors, not investors, in my mind.

If you are a long-term buy and hold investor, then you want to be looking for stable markets with strong underlying fundamentals of population growth and job growth, and you want to be looking for strong cash flow with a built-in margin of safety for when the economy inevitably turns down and your vacancy goes up, so that you can still meet your debt service and not get foreclosed on.

So many new investors see other people making money in a hot market and want to jump in too.  What they usually fail to realize is that the reason many people are making money now is because they bought BEFORE the market got hot.  They are just cashing out now.  Those easy appreciation profits are mostly gone at this point, where the bull market has been running for years already.  But new investors usually jump in at the top of the market, and get burned.  Inevitably, they look for "hot" markets, because they think the party will go on forever.

To avoid this, look for boring markets with stable growth.  Avoid hot markets.  Look for the ones under the radar.  And invest for cash flow, cash flow, cash flow.  Ignore appreciation.  Its the siren's call.  Appreciation will come with rent growth naturally.  But if you invest only for appreciation, then you run the risk of buying high and selling low, or getting foreclosed on, because you cannot support the out-of-pocket costs of holding onto an unprofitable property waiting for it to appreciate at some point in the future that no one can predict.