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.

[Chris Lopez]

@Jonathan Jaime Velarde 

Jonathan Twombly gave you great advice.

I have a personal finance degree. The human psyche and habits are really stressed as part of successful long term investing. One of the reasons I did not pursue a career in financial planning, is because I felt planners play more therapist, than actually giving advice. When the stock market tanked in 2008, everyone was panicking and planners were spending the majority of their time comforting their clients about just riding it out. 

My point? Emotions play a big role in investing! That's awesome you're saving a lot of money. While you're doing that, build up your personal financial plan and your emotional intelligence. 

- Build up an emergency fund of 6 months to 1 year. Consider putting it into a ROTH IRA. You can still access the money with no penality, but there's a bigger psychological barrier of withdrawing the money compared to a savings account.

- You're young. You have time on your side. Don't get caught up in the moment and make a bad deal. Sitting on 50k in the bank for a bit, is a nice feeling. 

- Remember, no matter what, there are always deals!

[Nick Falcone]

I have had several clients look into outbox state property purchases in the last 5 years. A decade ago it was rare, now it is common place as the internet allows us to do so much more than we were able to before. I have rental properties in the metro Detroit area, Las Vegas and Miami, Florida. I have partners in every one of them and a solid team I have cultivated over the past 25 years to assist me. This includes tax attorneys, real estate attorneys, realtors and maintenance workers. I would advocate finding a market you like that provides a solid yield. You don't want a lot of properties with negative cash flows. I would also suggest looking to purchase properties at a discount to their appraised value either by purchasing them direct from homeowners in preforeclosure or finding REO properties. Lastly, don't chase the hot markets, they change all the time. Cash flow should be your primary concern. Yields come from cash flowing properties. Appreciation will come in any solid market.

[Jonathan Jaime Velarde]

Jonathan Twombly

Cash flow is definitely my most desired goal to achieve. I'm not interested in fixing and flipping at the moment.

I don't let my emotions take over when it comes to money and I realize there are deals everywhere if you look and make the right connections. I appreciate you words of wisdom and hope to implement them soon.

I've been reading and talking to dozens of people, but I'm someone who likes to take actions rather than wait wait wait.

JV

[Tim Patrick]

Agree with what has been stated. Flipping in hot markets (like San Antonio) and buy and hold in stable markets (Cleveland, Detroit, Kansas City, Buffalo, etc.). If investing in another market, having key contacts in place is a must. One alternative may be turnkey rentals, where property has been rehabbed, with property management and a quality renter already in place. Several companies do that; just depends on which markets you are interested in. 

Best wishes on your investment journey and God bless.

[Jonathan Jaime Velarde]

Chris Lopez

Over the years I've become great at handling my finances and not letting emotions take over.

If the numbers make sense I am about it!

I'm currently building up my reserves right now and upon departure from the Marine Corps I will have about $20K cash $20K Roth IRA, along with college paid for via my military benefits.

Thank you for the information and I look forward to starting my career in RE investing very soon.

JV

[Jonathan Jaime Velarde]

Nick Falcone

I will make a point to research steady and fundamentally sound housing markets that yield good tenants no matter what the economy brings. I guess these would be your "blue chip" tenants!

Thanks for the information!

JV

[Joseph Pratt]

Semper Fi brother! I too work for the family business in CA...our family business is RE investing and I purchase out of state properties and have PM companies manage them for me...I stopped acquiring properties 3 years ago when cash flow dried up in many markets...buy a duplex with your VA loan?

[Jonathan Jaime Velarde]

@Joseph Pratt

What's up devil dog!?

I could very well do that and occupy one unit with my significant other and rent the other out to a quality tenant. 

My family company is called ABC Valet! My father moved to Santa Monica with $1000 and turned it into multi millions. He's my inspiration.

JV

[James Wise]

Originally posted by @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

 If you are looking to flip a home you would want to do that close to home. So many things you need to be in control of to get something like that done profitably. It would be impossible to do out of state as you would be relying on outside sources and people for 100% of the transaction. If the deal was that good those folks would have already purchased it before you seen it.

Buy & Hold is a different animal though. You can do that pretty much anywhere that has a strong price to rent ratio. Hook up with a brokerage, PM & or turnkey company.

[Jonathan Jaime Velarde]

@James Wise

Thank you James! I plan on doing the buy and hold to start out and rent out to quality tenants!

My goals are to acquire a few and have them paid in full to REALLY start producing income. If they appreciate enough to where I'd like to sell then that would be an option as well.

JV

[David Faulkner]

N

For further details, please refer to my previous 2k posts.

[John B.]

Very fascinating thread, thanks for all the good replies.  

How would a novice go to find the most boring stable markets? Would something like looking at https://www.biggerpockets.com/renewsblog/2016-inve... be a good start? I'm particularly looking at the section "The Top 10 Markets for Strong Rent-to-Value Ratios", which would suggest areas such as Memphis and Indianapolis, where there seem to be some honest turnkey providers judging from other threads I've been reviewing here on the forum. 

Thanks

[Lesley Resnick]

Cash is king.  Unless you are flipping, look for cashflow.  Appreciation in a  hot markets is a mistake.  You are not investing, you are speculating.  Very few people are successful in the long term doing this.  You must know the market and be prepared to take a loss should the market turn against you.  Since you are going  to be in school, you do not want to watch your properties.  I would look for boring and steady income somewhere in the 1x - 2x monthly rent.

Will it be possible for you to get a loan given you diminished income due to attending school?

I don't know your market, but could you consider using your VA benefits to buy a place and get a roommate or two? This is most likely going to be the most profitable way to go. Va has no an low down payment and attractive rates. I believe you are only committed to living in the house for one year. A modified version of house hacking. At some future point you could use the rest of your money to pick up something else out of town.

[Kevin Hunter]

@Jonathan Jaime Velarde,  congrats on your impending PCS.  As a fellow Marine, I would be happy to chat with you one on one about pitfalls etc...  Feel free to reach out any time. 

[Tom Ott]

Originally posted by @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

If you are going to be investing out of state, make sure not to over do it. Many people thinking flipping is easy as long as you know a good construction company. That could easily go wrong depending on the situation. If you are busy with school/work, I would suggest looking into a turnkey model so it is very passive on you.

Best of luck to you!

[Jonathan Jaime Velarde]

@Tom Ott

I was looking for rental properties not flips. I should've been more clear in my original post!

Thank you for advice and yes I concur that turnkey, or close to move in ready besides a few cosmetic repairs, are the best way to go for me at the moment. 

[Mike D'Arrigo]

@Jonathan Jaime Velarde that all depends on how you're defining a "hot" market. The markets that you mentioned are all hot for very different reasons. Denver and Austin are hot for appreciation but have become pretty much unaffordable for cash flow. Indianapolis and Memphis are popular cash flow markets with strong cash on cash ROI and price stability. Personally, I like Indianapolis over Memphis due to the fact that it has stronger population and employment growth. Indy had been seeing strong appreciation for several years but that's beginning to moderate and return to a more normal rate. Currently appreciation is around 4% which isn't bad for Midwest standards. If you're looking for a combination of both cash flow and appreciation, you can't beat Kansas City right now. Like Indy, Kansas City is a strong cash flow market but is also seeing 11% appreciation YOY right now. That's not the norm however so I wouldn't count on that rate long term. We sell turn keys in both Indy and KC and know the markets well. I'd be happy to share my perspective and experience with you if you'd like. Feel free to contact me.