Buy & Hold in Coachella Valley

[Sebastian Dombrowski]

Hi Biggerpockets members,

I'm from Southern California where real estate is just ridiculously expensive. It seems impossible to find rental properties that fullfill the 2% or even the 1% rule.
However, I found the Coachella Valley that is 2-3 hours away from where I live. Prices seem to be more reasonable there and from what I've seen it seems like if you find a good deal there you might hit the 1% rule.
My concern is though that there is a lot of undeveloped land around there (from what I can tell). So if I invest there now and prices go up a little, more houses/appartment complexes might get built which will put pressure on prices and potentially rents as well.

So my investment would probably not appreciate in value and even the cash flow might be in danger.
Does my reasoning make sense or am I making wrong assumptions?
Does anyone have experience investing in that area?

Thank you very much for your help,

Sebastian

[Frank Wong]

Hi Sebastian,

New construction and new apartments are good, not bad.  You want developers to build new housing near your investment. The more the better.  Yes, that will add more competition to your existing house and there will be more options for renters.  

The problem they will run into is their cost to build and price point per unit will be much higher than yours.  Construction costs are skyrocketing and they need to charge a much higher amount for rent to pay their debts.  This actually benefits you.  This will make your rental look like a steal.  Yes, there is a chance they will overbuild and saturate the market.  Every market has a risk of that, but as it evens out, in the long run, you will be in a much better position because your cost to acquire was much lower.