CA vs. FL Market: Buy & Hold

[Bernard Royal]

Hi All,

I want to first start out by saying thank you to the many of you that I have had the chance to connect with through Bigger Pockets, both over lunch/coffee and here online.

With that being said, over the past two years, my wife and I have virtually eliminated all of our "bad" debt and currently saving capital for our first real estate investment purchase.

We have truly been committing ourselves to better understanding the in's and out's through our own research and are getting much closer to finally taking action.

I am from San Diego, recently moved to Orange County, and I'm sure as many of you know the entry level capital required for investing in CA is quite high due to the cost of living (I could be completely mistaken as I only know the OC & SD market to an extent). We also have extensive family members out in Jacksonville and Ft. Laurderdale areas therefore after much research, thought about starting our venture out there.

At the same time I would much prefer to start in CA, and have an acquaintance that is heavily in the LA market. Long term game, we are looking to really target multifamily properties for long term wealth accumulation and cash flow, but I don't see how that could even be remotely possible in the CA market without substantial starting capital.

Some of my other thoughts creating our indecisiveness include:

-Despite the amount of research and networking we do, would out of state investing for a beginner not be advised?

-If we did start in the CA market. We thought condos may be a good entry point due to lower entry capital required and not needing to worry about some of the larger expenses like roof, etc due to HOA.

-Is FL even a good market for a buy and hold strategy? We ideally are thinking of multifamily investments of concrete construction toward the more inland area and the Daytona to Jacksonville stretch. I heard the insurance can also be a real pain due to the hurricanes etc.

Anyone with experience in either/both the FL & CA market that can weigh in on this? I guess what I am asking is.... what is your take on where to start in buy and hold investing in CA or FL and why?

We currently have about 50K saved up for our first purchase but want to be sure to do this right and not rush; therefore would love to get some of your thoughts.... thanks!

[Dan H.]

I am very pro San Diego REI investing but I am even more pro for newbies to invest local (i.e. in your case OC).

There are a lot of similarities in San Diego RE and OC RE. The entry price is high in both but that is because of outstanding historical appreciation. This is both property and rent appreciation. Both markets historically beat in ROI of almost every other market. This is true if the duration is 5, 10, 20, 30, 40, 50, 60 years; it does not matter what number of years you want to start the basis at.

I do not know your current living situation but knowing that I am pro investing local this is what I would do: 1) Look for a detached duplex local (in OC) that has sweat equity but can still qualifies for an FHA loan. 2) Purchase the detached duplex using the FHA loan (at 5% of FHA down your $50K will go a long ways) and house hack the duplex living in the more thrashed unit 3) Rent the "bettter" unit while referring to yourself as the Property Manager (not the owner) 4) while you live in the more thrashed unit I would work on earning the sweat equity (rehab the place) 5) when done rehabbing the more thrashed place I would consider if I want to keep the tenant of the other unit. If I do, I give him an opportunity to rent the newly rehabbed unit just below market rent. If I do not desire the tenant or he does not want the increased rent I look for a new tenant for the rehabbed unit. 6) I move into the not rehabbed unit and start rehabbing it. 7) when I am done rehabbing it I refinance it pulling out hopefully all of my invested money (using contractors I usually get my down and part of my rehab cost but if you are doing much of the work yourself I think you may be able to get out all of your invested money 8) Use all that knowledge you have obtained to do it again with less mistakes trying for that homerun investment (I think most experienced So Cal RE investors have the Homerun deal: the type of deal you can potentially retire on).

Here is also something you may not know: Commercial RE loans (5+ units) are more based on the numbers of the property than the numbers of the investor.  Granted you would need to find some partners because in the OC market it is too competitive to find the deal that would allow a low down payment option.  I point this out not because I think this is where you should start as much as pointing out the loan qualifications are different.

You live in a market that has historically produced some of the best ROI numbers in the nation and you are looking to invest elsewhere. Think about what you know of OC and San Diego appreciation. What was the rent when you were young? What did your parents pay for their first home? What did homes cost 5 years ago? 10, 20, 30, 40, 50 years ago?

BTW I have purchased near market highs twice.  Both look great investments today.  Do not get over leveraged so that you need to sell when the market is depressed and historically you will do great.

I have also purchased an RE at near cash neutral.  I cash flows great today.

My point is that I know the arguments against investing in So Cal but I have first hand experience with most of the arguments and it has always worked out great for me.  Here is the final case: My money goes to what I preach.  My last close Oct 2017.  I continue to look, make offers, and occasionally close on So Cal RE.  I expect to make an offer this month or early next month.

Good luck