Advice Needed for First Investment

[Princeton Brooks]

In my current situation, I'm wondering what I should do.  There is a lot of talk about being at the height of the market and a downturn looming.  I currently live in Los Angeles, CA with my wife and our 11 month old child.  We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing.  As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off.  We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.  

We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet.  Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+.  These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea.   We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow.  Especially if the downturn occurs during this process.  We would love to invest in LA, but are open to out of state if it makes sense.  

If you were in my shoes, what would you suggest my family do?  How would you begin your investing career...would you wait? Begin? and how?  

Thanks!  

[James Wise]

Originally posted by @Princeton Brooks:

In my current situation, I'm wondering what I should do.  There is a lot of talk about being at the height of the market and a downturn looming.  I currently live in Los Angeles, CA with my wife and our 11 month old child.  We are renting ($1,500/mo) a 1 bedroom 1 bath "mother in law" suite that we're quickly outgrowing.  As far as debt, we have about $17k at a fixed rate of around 5.5% that we're paying off.  We've managed to save up an emergency fund and extra cash over the years as well amounting to about $58k.  

We've also been pre-approved for $500K and my family would like to begin our investing career, however it's difficult (not impossible) in LA's current market to find cash flowing deals that we have not been priced out of yet.  Which, a lot of times, leaves condos and townhomes as the only affordable options at around $370k+.  These condos/townhomes often do not cash flow but may have potential to appreciate; however, we are unsure if investing now, given where we are in the market, is a good idea.   We are also unsure if buying something we'll have to hold for multiple years before we can invest again is a good idea either if we are unable to find something that can cash flow.  Especially if the downturn occurs during this process.  We would love to invest in LA, but are open to out of state if it makes sense.  

If you were in my shoes, what would you suggest my family do?  How would you begin your investing career...would you wait? Begin? and how?  

Thanks!  

Good news is that you aren't alone. There are tons of other California or other high expense market investors who have ran into the same dilemma as you. Many of them are going out of state to all of the turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

• Cleveland, Ohio
• Dayton, Ohio
• Toledo, Ohio
• Youngstown, Ohio
• Cincinnati, Ohio
• Memphis, Tennessee
• Birmingham, Alabama
• Kansas City, Missouri
• Saint Louis, Missouri
• Indianapolis, Indiana
• Detroit, Michigan
• Erie, Pennsylvania
• Louisville, Kentucky
• Milwaukee, Wisconsin
• Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.