Advice please! Should I go for it in Fresno or Visalia?

Question

Hi guys! I live in Sequoia National Park, have a "fair" credit score (up from zero in a year with a secured loan as my only line of credit), 10k in savings, a wealth of knowledge, specific goals, and high risk tolerance. I am a server living in employee housing for just over $100/month, 2 hours away from both Fresno and Visalia, the closest major cities to me, with no cell phone service but dependable access to internet and a community landline phone using the lodge. I am 23 years old and want to be "able" to retire at 35 using multifamily buy and hold real estate, but I love working and being involved and hands on so I don't ever plan to stop, I just want to be able to step away from my business and travel the world throughout the year. My original plan was to save up about 50k ( I can save 10-20k a year where I am at) and my husband I have been planning to move to Port Angeles in Washington and I wanted to start my investment career there. but the more that I learn, the more I realize that I can buy a 4plex just down the mountain from me with a residential FHA loan with 3.5% down by the end of the summer, if not spring. I can choose either Clovis or Visalia, but I see much more for sale in Visalia and feel that it is more affordable. I can move in to one unit and keep my job up here earning this stable income, but I won't be there often and would probably need to hire a property manager, even though I originally wanted to wait until I can be hands on for the first year or two to learn the ropes firsthand before outsourcing and scaling up. Should I pull the trigger, or wait another couple years? Thank you for your time!

Kathryn MacGeraghty · Answer

I love multi-units. I guess you need to live in it for the FHA loan, but your current rent is a screaming deal! Getting a fixed rate loan is good too, since we never know what future interest rates might be. But with such a low down payment, the investment may be risky. Analyze the cash flow, be generous with repair & maintenance estimates, and make sure you can weather rent fluctuations-emergencies-vacancies for both the long and short run.

Steven Ko · Answer

@Anna Brown I guess I’ll go with the unpopular opinion. Rent is ~$100. That is incredible. You could probably double your savings before year end. Where does your husband stand with saving and investing? IMO, it seems like many people starting out are trying to go to their cheapest option. We hadn’t had a market downturn since 09. If anyone started investing within the past 10 years, they’ll have no idea what it’s like. I feel like a lot of hard and difficult times get over shadowed by the awesome desirable outcomes we often hear. I haven’t been through a downturn yet but I know it won’t be all rainbows and butterflies. Lot of things are changing when a person moves and add in the headache of finding a property manager. How many vacant units do they have, how long will it take to fill yours? Will they put great tenants or just the first tenant. Do they communicate well? How do they handle repairs or evictions? When a tenant moves and you want to upgrade your unit, then you gotta find a contractor or trust the PM. If you are buying in a cheaper neighborhood, more problems are likely to arise. So this is where I stand. I believe it is better to save up more money and get a better financial footing. Personal finance along with real estate investing knowledge. Invest in yourself first! Have you read any books you frequently hear in the final 4? Brandon Turner also mentions the same books over and over again. I like to go in ~40% down payments. I like to pay a little more to get into the desirable school district. I like to only buy Single Family Residence. I guess I have an unpopular investing strategy to begin with 😅 Good luck out there and conquer!!!

Justin Yurong · Answer

Hi Anna! I'm more familiar with the Clovis/Fresno area than I am Visalia, but maybe try consistently analyzing deals in both Visalia and Fresno. If you do that, I'm sure you'll get a good idea of what the numbers look like in both areas, and you'll figure out which area looks more favorable to you. Fresno is pretty neighborhood-specific, so if you have any general questions about the area as you're analyzing deals, feel free to message me any time. I just want to help you understand the neighborhood you're buying in if you're considering Fresno or Clovis, especially if you're looking to live in it.

Justin Yurong · Answer

Generally, yes that's a correct assumption about Clovis and Fresno. I've only had personal experience screening tenants in Fresno, but if you are in a decent area and your rent is reasonable, I don't think you should have anything to worry about when it comes to finding qualified tenants, especially if you're thinking about Clovis. Clovis just comes with higher a higher price point, typically.

Nancy Tran · Answer

Clovis is indeed nicer with newer units and likely higher appreciation, but it's much harder to cash flow in the Clovis area than Fresno and Visalia. It sounds like you aren't just looking for a place to live, but that you're looking to expand your portfolio via house hacking (buy via 3.5% FHA, stay there for the requisite 1-2 years, then move out and find out another place to buy via 3.5% FHA). Keep in mind there is a limit on the number of loans that you can do this way but hopefully you will have already started your portfolio. If you haven't already, check out the Bigger Pockets and Coach Carson guides to house hacking. Back to Clovis and cash flow. Unless you plan on staying there long term (which would not allow you to build your portfolio), you want to make sure your property cash flows whenever you leave. Take the 533 W Santa Ana that just went under contract - $305k for a duplex, one 3 bed, 2 bath and the other a 2 bed, 2 bath. Average rents for a 3 bed in that area are $1350, and for a 2 bed is $975, per Rentometer. A mortgage with 3.5% down at say a 4% interest rate (this is an aggressively good rate, it could very well be higher), is $1405. You can break it down by actual numbers, but for rough estimate, using the 50% expense rule, your expenses would be about $1150. So your incoming rents total $2325, and your expenses + mortgage is $2555, meaning you would actually be losing $230 per month. You can actually break down the numbers to see what 10% repair, 10% property manager, tax, insurance, etc. would be - but this is very typical for the Clovis area. The ideal house hack would be a place where the rents are high enough and the cost of purchase is low enough that whenever you leave to continue expanding your portfolio - it would still cash flow and you would make money. Clovis, it also seems to me, has much more duplexes than 4-plexes, in case that's important to you, but I'm not 100% positive.Let me know if any of that doesn't make sense, but the point is - you need to find a deal to make it work in general, and there are probably more deals to be had in Fresno/Visalia than Clovis. And you will have to balance that deal versus the neighborhoods of Fresno/Visalia vs Clovis to determine whether it's worth it.If you need help looking at actual properties, @Jeff Zimmerman who is on this website helped us get started on our multifamily journey and is a Fresno based multifamily realtor. Best,Nancy

Justin Yurong · Answer

Yes, @Jeff Zimmerman is a fantastic resource for you to use if you are looking in the Fresno area. He helped me with my first deal, and I will continue to use him in the future. I highly recommend reaching out to him.

Jeff Zimmerman · Answer

@Anna Brown congrats on getting started and making a plan! I wish i woud've started at 23. As far as whether to wait or to get started now, I'm always a fan of starting earlier rather than later. Based on your scenario of waiting 2 years to manage for yourself or to hire a management company until you can move down to the valley, you will still profit more by starting sooner. In my mind, the worst case scenario, if you buy at least at a decent price, is that you break even on your cash flow by contracting to a good management company. Even if that's all you do, you still gain your appreciation over 2 years and then get to start cash flowing once you take over. Additionally, the longer you wait the more cash you will have to bring to the deal due to appreciation, therefore your AAR (average annual return) will be higher if you start sooner. Does that make sense? Feel free to message me with any clarifications. Good luck!

Kathryn MacGeraghty · Answer

The buy now or buy later is one of those questions that depend on your vision of the future. Is the economy going to get better or worse? Does the Federal Reserve have an inflationary monetary policy? Will borrowing costs go up or down? Will rents go up or down? What if this is 2007 all over again? In the very long run, the fed's inflationary policy will most likely prevail over all other considerations.

Vincent Galvante · Answer

Good market or bad I always buy for cash flow here in california. Equity is a bonus.

Annalisa Brown · Answer

@Bryce Wong I have been looking in Fresno instead of Visalia, because it's bigger and more seems to be available. I haven't purchased anything yet or even interviewed any property managers or made offers. Classic analysis paralysis, here! I'll update this post if I do start to make some moves and purchase something. I'm not a real estate investor if I don't invest in real estate ;)