Inland Empire - SoCal.. Where to invest?

Question

Hi BP,With SoCal home prices on fire right now and people moving towards the suburbs, where would you invest in the Inland Empire?I recently heard some news that Amazon is on a hiring frenzy, hiring thousands of employees in Riverside County. Previous articles I read suggest Menifee, Jurupa Valley, and Riverside may be some areas to consider but would love to get some feedback from BP. I currently reside in San Gabriel Valley and looking to purchase a second property, either SFR or multi-family.Any input is much appreciated. Best,

Brandon Carlson · Answer

@Aaron K. Thank you for your input. Murrieta has been on my radar as well as Temecula. Great school system and both towns have a lot to offer. To your point, I may have to look for B neighborhoods based on the type of people I want to attract to my rental. By any chance do you invest in Murrietta/Fontana?

Aaron K. · Answer

I don't have a crystal ball, but I'd expect what I've been expecting since last year and that is a bit of stagnation, especially in the outer cities. We have seen a bit of a run up in price as supply has been low, but I don't see prices dropping significantly, at least not on sub $450k-$500k properties.

Brandon Carlson · Answer

@Nick Robinson 1. Yes 2. At the moment SFR, but my goal within a year is to get a duplex and house hack. 3. California is where my family is at and my job. The appreciation that comes from California, is exciting. It has allowed me to leverage debt to pursue other properties. 4. I self manage my properties. 5. I have been thinking of exploring out of state investing. Possibly Indiana. Best,

Aaron K. · Answer

@Nick Robinson yeah I think the diversity is more or less a non-issue once you get past like 3 units because it will average out more evenly. Yes I plan to hold long term, I don't think selling as a portfolio is ever a great way to go, I'd much rather go through an ibuyer if I had to or just suck it up and do the 8 transactions, they really aren't that bad once you understand the process. Also because I'd plan to stay in SFR or similar I could probably do 1 at a time if I wanted, not to mention a $400k SoCal house goes a lot farther in other states.

Nick Robinson · Answer

@Aaron K.Thanks for your thoughts. What other states are you investing in?What I meant in terms of diversity is if I have a SFR and someone moves out I am 100% vacant. In the 8-unit I’m 12.5% vacant. (Obviously want to go bigger)Is your plan to hold on to your properties long term? The reason I ask if you plan on doing a1031 exchange you won’t be able to go as big as you want since if you sell it as a portfolio you will usually give some type of discount. Also, say you have eight SFR, you need to coordinate eight different transactions instead of one transaction. All that being said I think investing in real estate is always a great plan no matter the type of real estate.

Aaron K. · Answer

@Nick Robinson1. Yes2. SFR and 1-4 units3. I use PMs (which are cheaper than any PM I've found OOS)4. appreciation is a factor but not the primary one, given purchase price several years ago, prop 13 etc. what I already have offers a better return than I could get OOS5. That being said except for exceptionally good deals in CA I'm mostly looking OOS6. I like SFR because if I wanted to sell they are easier to move, and move at top dollar compared to something like an 8 plex7. I would think a single larger complex would be less diversified than spread around SFRs8. As for the legalities it is bad if you don't pay attention, or are the tenant that has a landlord that does pay attention. Rent control is a great example I'd often not raise rents for years at a time, now with rent control and the looming potential for it to affect SFRs as well there are no longer years where it doesn't rise to market. Also because it drives others away it raises rent prices overall, as long as you stay on top of it not a problem. Also when I go OOS I really miss prop 13, we often don't realize how nice that is to have.

Nick Robinson · Answer

@Brandon Carlson @Aaron K.Hey guys Do you guys currently own property in CA? Do you guys go after SFR, 2-4units or 5+? What’s the reasoning behind staying in Ca? Do you guys manage your own deals? Going for appreciation? I live in Murrieta and sold the properties I had in Riverside,ca and did a 1031exchange and moved it into an 8-unit in PHX,AZ. I moved it because to me the numbers make more sense the bigger you go and it becomes a safer investment. When I moved my money I make more money and it’s more diversified. I also have a property manager so I don’t have to worry about too much. I also thought California May not be the best state to be a landlord in. Interested to hear your guys thoughts.

Brandon Carlson · Answer

@Aaron K. I agree. That price point doesn't have much room to drop, demand will be their due to first time homebuyers.

Brandon Carlson · Answer

@Aaron K. I am doing the same. Just waiting patiently to see what pans out in the next 6-9 months. Obviously, timing the market is difficulty and by no means I'm I stating that something is happening but I am predicting some sort of correction. What are your thoughts of where the market is heading?

Aaron K. · Answer

@Brandon Carlson most of what I have now is Moreno Valley/ Riverside but I haven't bought anything else locally in a bit more than a year, I am keeping a pulse on the market though, Moreno Valley has just shot up in price over the past 2 years or so.