Orange County, CA Overpriced for Investment Properties?

Question

I'm trying to find an investment, cash flow, rental property, and everything seems crazy expensive.

- Less than 20 years old

- Desirable school district

- Single, detached home

Anyone have any pointers of surrounding areas that might be more promising? Or am I too late to the party?

(hoping for another recession?)

Victoria Winters · Answer

Hi Jefferson,

Orange County is a highly desirable area in which to work and live. The prices are a reflection of those conditions, but this does not mean there is no opportunity for investors. Motivated sellers exist in all areas.  Finding the property that meets your buying criteria is the part that requires patience and consistent effort.

May I suggest that you carefully examine your plan to reach your investment goal. What specific actions have you taken taken that have not worked?  There are many ways to improve on the things you are currently doing that may bring the results you seek.

Above all things, do not give up.  Perhaps gathering more information or choosing to make small adjustments in your marketing plans will bridge the gap for you. If I can be of help, please feel free to contact me directly.   If I can not help, I may be able to refer you to another person who can.

Will Barnard · Answer

Just because you are in OC does not mean it  would be required for you to go out of the state, simply hit up the desert cities and IE and you can find some cash flow deals with some effort. OC is tough because most places are A and B properties in A and higher B areas. Very tough to have true cash flow with that.

Cash flow can also come from other avenues, not just house rentals. Thought about trust deed investments, loans, investing in commercial with PPM deals (private placement memorandum), etc?

Brent Seehusen · Answer

You can find SFR's in LA, Riverside, and San Bernardino counties that cash flow, but nothing in Orange Country right now.  It's still possible to find a handful of condos that cash flow in OC but they are in complexes with lots of deferred maintenance and at high risk of special assessments IMO.  The SFR's that cash flow in LA county will be in C-areas so you won't find them in neighborhoods that are less than 20 years old with good school districts.  Long Beach has a lot of condos available that will cash flow but it's a big city with many different areas, so you'd need to see what the trade offs are for any particular condo (crime, deferred maintenance, high HOA's, etc).

The only area of Orange County with SFR's less than 20 years old and good schools that I can think of is Irvine, where Chinese buyers are paying $800,000-$1 million for a 1% cap rate and huge negative cash flow.  Even at the bottom of the market you couldn't find cash flow in Irvine because prices just didn't crash as hard as the rest of OC.

So I think your criteria is a little too strict.  Try looking outside of OC and loosening up your criteria from A+ areas.  I've been having success finding properties in San Bernardino county in B-areas that have no problems cash flowing.  Notice I said B-areas which indicates blue collar, low crime.  I would still avoid the high crime areas of SB county.

Eric C. · Answer

Funny thing is that I do have a HELOC on the property (much easier for a primary residence).  I was thinking about this exact strategy 9 years ago when I signed up for a no cost HELOC at prime - .75%.  The CL got slashed over 60% during the 09 recession, but I convinced the bank to revert it back to my original CL in 2010.

I tried getting in to some Vegas properties 2.5 years ago, but was never successful in purchasing a property and then took a hiatus.  Now I'm back in the mindset to purchase an investment property, but local deals are difficult to make work.

Jefferson Kim · Answer

I was readin gthrough this thread: http://www.biggerpockets.com/forums/62/topics/1233...

And actually, some bubble chasers brought up a good point about appreciation. Even though you may not be cash flowing, I'm almost damned certain your house will appreciate, and when it does, you'll be able to cash out, or HELOC and profit it. Or just straight up selling it.

In some ways, you're just deferring the "cash flow" into a later pay date when you can appraise it at the height of the bubble.

Maybe a mixed strategy is best, which is what I'm thinking of doing.

Using the California homes to appreciate and HELOC out cash to invest in cash flow properties out of state where cash flow is the primary focus.

At least, this seems less risky, than trying to continually feeding into the appreciation game until "pop" goes the bubble, and you're completely screwed. Even if the bubble pops, you still have your HELOC (though the bank may revoke it, but at least you'll still have 15 years to pay off the balance), and HOPEFULLY, you still have your renters in your cash flow properties.

WIN-WIN?

Jefferson Kim · Answer

I ended up looking into areas like the suburbs around Atlanta, GA and it was like OMG, CASH FLOW!!!

This report led me to the best cash flowing places that fit my criteria.

http://www.realtytrac.com/content/foreclosure-mark...

I'm in process of working my first all cash deal since the total home prices are so low (and I can't get traditional financing due to my newly minted self-employment status). One more year, and I'm going HELOC, including on my home in So-Cal. I wish I thought of getting the HELOC nailed down BEFORE going self employed. . . blast.

It makes me think how much further ahead I would've been in the Real Estate cash flow game if I had lived in a more cash flow friendly part of the country.

Eric C. · Answer

@Jefferson Kim I'm in the same boat as you.  I have a rental in Irvine and it's only cash flowing (barely) because of my significant down payment (it was a primary residence conversion).  I think it will be tough to find a SFR in OC that will cash flow, but with condos it should be a lot easier.  I'm still debating whether I should go out of state or purchase a condo in OC as my next investment.

Karen Margrave · Answer

@Jefferson Kim  Sometimes you have to think more creatively to find what you're looking for! Also, you didn't mention what price point you are in, and how much you will be putting down, etc.  Obviously the cost of money enters into the equation too.

There are some opportunities out there if you take your time and look, and know what you are looking for, and that's why I always encourage people to buy in the areas they know.

For instance in Orange Counties coastal areas there's a good market for vacation rentals, in other areas there's a need for student housing, etc. As was mentioned, there are always motivated sellers in every market. There's also property that changes hands due to a death in the family, etc. and houses are sold.

The thing is, there are always opportunities in areas, but it can take some real work to find it.  The low hanging fruit isnt' there.

Randy Chang · Answer

Hi @Jefferson Kim I am in a similar situation as you, so I've decided to invest out of state.  That being said, I've heard of a lot of people doing a lot of deals in southern california.  I'm waiting to be a little more experienced before tackling the southern california real estate market.

Ali Boone · Answer

You aren't going to find cash flow down there, unfortunately. A lot of CA investors buy out-of-state for cash flow. There are some things you can do down there if you are willing to branch out from straight rental properties. @karenmargrave would be one to reach out to (sorry, the link thing isn't working).

Orange County, CA Overpriced for Investment Properties?

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