Is trying to BRRRR in So Cal where I live possible than doing out-of-state investing?

Question

Hello Awesome BiggerPocket peeps! I live in San Diego and am trying to find local areas where I can BRRRR. I'm familiar with the Crestline/Lake Arrowhead area where I'm trying to find run down places to add value to but I'm still running into numbers that aren't the best. I'm wondering if buying out of state is the way to go. Any advice, guidance, or next steps would be helpful! I can also help if anyone needs a Structural Engineer for any remodeling or renovations! I'm licensed in 48 states so I can help most states 👍 thanks! Allen Ramirez

Dan H. · Answer

I have done well with brrrrs in San Diego, but it is my opinion that the interest rate makes the hold after a refi to extract value bleed cash.  This is not only true in San Diego.  There are 2 recent studies that both show it is initially cheaper to rent tan owner occupy in virtually every large city up in the US.  Note owner occupy has advantages over LL such as no vacancy, lower interest rate, no tenant flips, in general lower maintenance/cap ex, less bookkeeping, less need for asset protection, etc.

However, you thought that cheap market is better for brrrrr is flawed. I want a market were my value add adds the most value.  That is the high cost market.  Last year I added a half bathroom out of existing space in a very high cost market (over $2k psf - missio beach).  Comps showed the hat bathroom added ~$50k of value.

In addition brrrr is a long play. This means long term appreciation is desired. High cost RE markets typically have higher appreciation forecasts. The long play also means rent growth is more important to the cash flow than initial cash flow. In general high cost RE markets have better long term rent growth. Both these are not happenstance as market RE price is based on numerous parameters of which expected appreciation and expected rent growth are 2 key parameters.

I do not flip (it is a job, stop flipping and you stop earning) but with the current rates and their impact on cash flow, I think it is more a flippers market than brrrr market at this time. This belief is not isolated to San Diego, but virtually all markets.

By the way I have done quite a few brrrrs.   I am on site virtually every day during the value add communicating and being responsible.  I could not manage doing my first brrrr OOS.

good luck

Allen Ramirez · Answer

@Becca F. Thank you Becca! This is all great info! Yeah that's what I'm afraid of too. I can travel out of state and do as many visits as I can to the potential area but since I'd be trying to target areas where housing prices are lower, I'd have to deal with tenants that may not be the best tenants. This is one of my concerns, especially being out of state. I can do my best to hire the best property manager available, but I'd be at their mercy really haha.. but thank you thank you for the feedback! It helps tremendously to hear other people's views 🙏🏻👍

Jesse Rivera · Answer

I'm in Long Beach, so I feel your pain. We've had success in Riverside and Sacramento for our local investors that can't make the numbers work locally. I have a great realtor in each area, message me and I can connect you with them.

Eric Gerakos · Answer

Southern California is a great market for local, knowledgeable investors. I mostly invest in Riverside County and have done plenty of BRRR.

Benjamin Aaker · Answer

So Cal is known as a tough market for investors, but investing out of state is tough as well. I generally recommend to invest where you live. Deals can be found anywhere but in your market you'll have to underwrite more to find a good one. Looking for value-adds as you are doing is a great idea. Since it is in your area, driving for dollars is a good strategy. Start sending those letters.

Allen Ramirez · Answer

@Scott Scoville Thank you Scott!! Good to know 👍

Scott Scoville · Answer

I'm still BRRR'ing in Sacramento. Look location and heavy value add, and it's totally doable. Be patient, find the right property, rinse and repeat.

Allen Ramirez · Answer

You are correct! A live-in-rehab wouldn't be ideal for my current situation. And we ARE renting in RB. My wife and I don't plan to stay in the area after our kids are out of school, and prices in our area are out of our possibility.

That's great to hear about your son! I am honestly going to try and steer my kids into real estate as well. My wife and I did the schooling and "normal" job route and are up to our ears in student debt. But we're giving them all options for opportunity.

$365k for Hillcrest/MIssion Hills sounds like a steal! All the numbers sound great too. I'm sure keeping it long term will end up getting more cash flow in the long run, not to mention appreciating like crazy eventually. That's such a great area to invest in, didn't think prices where that favorable.

My goal and focus is to take properties that NEED some serious fixing up, and force appreciate it as much as I can. I am Structural Engineer by profession so I have extensive knowledge in building practice and dealing with GC's. Not to mention being able to do the permit plans myself.

Please keep me in mind if you find any other off-market possibilities! Also, how are you getting your off-market info if you don't mind me asking? Agent? Wholesaler? Property Manager? Would it if you had any contacts that you'd be willing to share :)

Thanks for your time and knowledge BTW! much appreciated!

Dan H. · Answer

Off market virtually always have risk or require a lot of work.  In general risk free, rent read properties are typically sold via the MLS and are not offered off market.  In addition, most off market listings are not that great a discount because the competition in this market is significant and everyone (even off market) desires to sell at the highest price they can obtain.4957 Brant st #8 was $360k (I remembered it wrong when I said $365k).  It is a 1/1, but it was a mess and has finance challenges.  It sold in less than 3 hours.   Hopefully the person who went under contract understands the finance challenges.   The EMD was $15k so breaking contract is not cheap.   My son’s play would have been to MTR it (HOA does not allow stays less than 30+ days).   Ideally at least cash neutral year one.In general I recommend newbies start by using a real estate agent that can help protect your interests.  This will limit the upside, but it will protect you from the worst case scenarios (such as potentially not understanding the finance challenges).   If you decide to ignore my advice, you can pm me and I will provide some off market options for you to connect with.  You can network to obtain additional sources.  Good luck

Adam King · Answer

Hi @Allen Ramirez,

My name is Adam King, I have a decent amount of experience with out of state BRRR, and have also had a lot of success with my investments here in San Diego as well.

You may want to consider a mixed approach when it comes to investing here.

A good example of this would be using an FHA 203k loan to buy a rehab needed home. This will usually be a home that needs more work than many homeowners are comfortable with, but not enough spread for a traditional flipper. I am not a mortgage professional, but the FHA 203k loan has options to let you continue to rent while the work is being done to the new home, and even the possibility of deferring the mortgage for up to 1 year.

The best plan would be to find a property that qualifies, and then do a serious value add in the form of ADU, JADU, and garage conversion.

There are some costs/considerations involved there, but long term that is likely going to be the best path if you wanted to invest in San Diego.

I have done something similar in multiple homes that I have lived in. If you have any questions, lets connect and talk through some options!

Is trying to BRRRR in So Cal where I live possible than doing out-of-state investing?

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