Buy & Hold in Coachella Valley

Buying & Selling Real Estate
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Buy & Hold in Coachella Valley

Sebastian Dombrowski
Member since 2018 · 13 posts · 6 votes

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

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Frank Wong
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y

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. 

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  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    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. 

    2Reply
  • Sebastian Dombrowski
    OP
    Member since 2018 · 13 posts · 6 votes
    7y

    @Frank Wong Thank you, that makes sense. So new builts are a plus not a minus.

    1Reply
  • Travis Moe
    Rental Property Investor · La Quinta, CA · Member since 2016 · 103 posts · 29 votes
    7y

    @Sebastian Dombrowski

    Also consider that much of the undeveloped land ina and around the CV is Native American land. Particularly in Palm Springs, you can see the checkerboard pattern of the way the reservations were established. Not that these lots cannot be developed, but it isn’t the same as just a bunch or raw land or old, unused ranch/farmland.

    0Reply
  • Sebastian Dombrowski
    OP
    Member since 2018 · 13 posts · 6 votes
    7y

    @Travis Moe Thanks for your response Travis. I wasn't aware of that. I see that you are actually from the Coachella Valley. Would you recommend investing there (in Buy & Holds that cash flow)? I saw on your profile that you acquired a Buy & Hold yourself not too long ago in Jacksonville, Fl. Did you invest out of state because you didn't see good investment opportunities in the Coachella Valley (if you don't mind my asking)?

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  • Travis Moe
    Rental Property Investor · La Quinta, CA · Member since 2016 · 103 posts · 29 votes
    7y

    @Sebastian Dombrowski

    I recommend investing anywhere your numbers work. That is, if it's a deal, then it's a deal and if it fits in with your strategy and goals, then you try to buy it. @David Greene, @Alexander Felice, and others have helped me understand that you live where you want to live and buy where it makes sense to buy if they're not the same place. 

    There are many buy and hold investors making it work in the CV - so it is possible. One BP member, @John D., has an interesting strategy of buying larger, higher-end homes, adding rooms and amenities and then renting them out as short term rentals - especially for events like Coachella/Stagecoach or the BNP Paribas Tennis Tournaments. You may want to reach out to him. 

    Like those successful buy and hold investors, I see potential deals all the time. Regrettably, I lack a sufficient war chest, for buying at the price points most of the rentals are going for in the CV. I chose Jacksonville, FL for a number of reasons, but the price-to-rent ratio was chief in my analysis.

    I hope that answers your question!

    0Reply
  • Sebastian Dombrowski
    OP
    Member since 2018 · 13 posts · 6 votes
    7y

    @Travis Moe I'm facing similar issues that you are facing. There is nothing reasonable to invest in where I actually live and even if there was, I couldn't afford it. So thank you for your insight. I will look keep looking at the CV and see If I can find any of those deals you mentioned.

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