Invest in doors or invest in your door?

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

6y

OK. I couldn't resist my previous answer. The answer really is simple, but it is based on more than "I ultimately want ...100 doors". What you need to do is trace a path from where you want to be (100 doors), and reverse engineer the steps on h ow to get there...step by step...until you arrive at one or all of the options you mentioned. Then choose the best starting point based on which one will get you to your goal the most efficient way.

Notice I didn't say fastest or cheapest, I said "efficient".

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

6y

...and one more thing, just because CA has a high property value, doesn't make it a great place to invest. Great places to invest are based on the spread between the two "bookends",... what it costs you to get in, and what you can walk away with. The property values only define one of those "bookends".

Jo-Ann LapinPro Member

Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes

6y

If you are going to invest In California is kern County May be an option . Look up Sanjeev Advani he will be a good resource

[email protected]

Edward Liu

Palo Alto, CA · Member since 2017 · 230 posts · 200 votes

6y

I have sold all my properties in CA in the last 2-4 years and now all my rentals are out of state. So it tells you my answer.

Invest for cash flow, not for appreciation. I highly doubt a $700k SFH can cash flow if rent is only around $3500. Many people assume CA real estate only goes up, which is not the case. Many areas in CA had price drop of 40-70% during 2008-2011.

4 Reply

Twana RasoulBusiness Member

Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes

6y

@Haider Abdullah invest OOS and locally. Definitely investment local and don’t pay all that rent. Purchase a 2 unit property to lower your monthly cost of living and you’ll have a rental. 2 bird 1 stone. I highly recommend starting locally like this prior to thinking about out of state.

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Jordan Mummau

Real Estate Agent · Hershey, PA · Member since 2019 · 66 posts · 54 votes

6y

@Haider Abdullah

My 2cents for whatever that’s worth...

Contrary to popular opinion, I would suggest to invest in appreciation first. Appreciation creates equity and equity you can leverage to create cashflow.

The opposite is also true but you’d need to reinvest the cashflow to create more equity. Which could take a significant amount of time. My opinion, It’s better to build equity first then leverage the equity to create cash flow.

Haider Abdullah

OP

Flipper/Rehabber · Irvine, CA · Member since 2020 · 30 posts · 12 votes

6y

Great sharing folks, thank you! I should’ve mentioned that I have 3 young kids too, so house hacking may be a harder option.

We are exploring both options actively and ultimately, the hybrid is best for so many reasons.

Also agree with the reverse engineering concept which is what we’ve actively started to design. Like many posts on BP: if you have “$x”, how should one invest it. For us, at $3400 month in rent, the $40k year I’m spending on rent is a colossal waste IF I can get into a home that works for us and keeps our payments within same range.

I’m actively flipping in Dallas and the intent is to use the cash from the flips to then buy and hold outside of primary residence. And eventually, build up equity and cash out refi to buy more and maybe at that point, even rent out the primary spot and get something else.

So many options, so much fun!

Thank you!!

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

6y

Originally posted by @Jordan Mummau:

@Haider Abdullah

My 2cents for whatever that’s worth...

Contrary to popular opinion, I would suggest to invest in appreciation first. Appreciation creates equity and equity you can leverage to create cashflow.

The opposite is also true but you’d need to reinvest the cashflow to create more equity. Which could take a significant amount of time. My opinion, It’s better to build equity first then leverage the equity to create cash flow.

Except that in most cases, you will accumulate cash flow much faster than you can build equity. However, I agree with your use of equity. The idea is to buy properties that do both.

If you have $20k to invest. You can buy a property (leverage) that will have $5k CF/year. After 4 years, that could bring you an accumulated CF of that same $20k.

Spend that $20k and repeat the process for the 2nd property. Now you could have $10k in CF. So in 2 years you could have accumulated another $20k to get your 3rd property. Now you have $15k in CF.

After just over 1 years you can get your 4th property, and so on...

At the same time, you will be building equity, but as you're using your CF to add properties, the equity is also compounding like the CF.

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

6y

Originally posted by @Twana Rasoul:

@Haider Abdullah invest OOS and locally. Definitely investment local and don’t pay all that rent. Purchase a 2 unit property to lower your monthly cost of living and you’ll have a rental. 2 bird 1 stone. I highly recommend starting locally like this prior to thinking about out of state.

What if his local market stinks as an investment market? Being local doesn't make it a good place to invest. Numbers with $$$ in front does. Now that could very well be local, but the good $xxxx you need to look for are not automatically good, just because the property is local.

Twana RasoulBusiness Member

Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes

6y

@Joe Villeneuve I think you can make it work in just about any market from LA to Detroit to NYC. Going out of state doesn’t make it easier. High cost of living area does not equate to a bad investment. Most on here would probably say $100 cashflow from a property in the middle of nowhere is better vs. negative $100/month cashflow in Beverly Hills. Initial cashflow says nothing about the overall investment and returns. To each it’s own I guess.

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

6y

Originally posted by @Twana Rasoul:

@Joe Villeneuve I think you can make it work in just about any market from LA to Detroit to NYC. Going out of state doesn’t make it easier. High cost of living area does not equate to a bad investment. Most on here would probably say $100 cashflow from a property in the middle of nowhere is better vs. negative $100/month cashflow in Beverly Hills. Initial cashflow says nothing about the overall investment and returns. To each it’s own I guess.

That's kind of what I've been saying here...except initial CF DOES say a lot about the overall investment.

You're right about going out of state not making it easier, but local market doesn't have to mean out of state, and partnering with someone with boots on the ground in another state can make it much easier.

I never said that a "high cost of living" made it a bad area to invest in. What I said was a high cost of living doesn't automatically make it a good investment area. What makes a good area is the spread between your cost to enter and immediate returns. Good spreads are not guaranteed just because the market is local...or just because the market has a high cost of living.

Twana RasoulBusiness Member

Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes

6y

Correct, I know you didn't say HCOL areas are bad investments, but many seem to think so without really understanding how to calculate overall ROI or have any idea what that is. I agree that local for some people may not be the best investment with best overall returns. However, for many, starting out local and having home court advantage just makes it easier to start and if they can't do it with an advantage locally, I don't see why many think in a foreign market that they don't understand they can expect to do better.

Many do it and fail but you don't hear it as much on here because it is not sexy to talk about failures of OOS investing, it is only sexy to talk about how many hundreds of doors you add to the portfolio.

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Justin Beavers

Rental Property Investor · Detroit, MI · Member since 2018 · 47 posts · 20 votes

6y

@Haider Abdullah I would rather invest in doors and build that passive.

Haider Abdullah

OP

Flipper/Rehabber · Irvine, CA · Member since 2020 · 30 posts · 12 votes

6y

The “safer” option is to probably own my own place first too. Worst case, I’m paying toward my own equity (eventually) and that will at some point become leveraged.

Where I'm stuck is: I need to spend money on living regardless. And because I'm spending $40k/year on rent, my thinking is: where can I get the best ROI in this $40k? Because the $40k is a fixed cost. Sure, I can move and spend a bit less but that's unlikely where I am.

So, options would be:

1. Do nothing, keep renting

2. Keep renting, use cash I have to start building CF through, likely, OOS investing

3. Stop renting and buy my own, build equity, leverage and buy more

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

6y

If you are focused on getting a large number of rentals, then buying in less expensive areas is the best option. But rather than focusing on how many places you can get, how much you are bringing in is the more important number. If you could make $50K/yr with 20 rentals vs 5 rentals, to me the answer is a no brainer....five houses is a lot less work.

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

6y

Originally posted by @Twana Rasoul:

Correct, I know you didn't say HCOL areas are bad investments, but many seem to think so without really understanding how to calculate overall ROI or have any idea what that is. I agree that local for some people may not be the best investment with best overall returns. However, for many, starting out local and having home court advantage just makes it easier to start and if they can't do it with an advantage locally, I don't see why many think in a foreign market that they don't understand they can expect to do better.

Many do it and fail but you don't hear it as much on here because it is not sexy to talk about failures of OOS investing, it is only sexy to talk about how many hundreds of doors you add to the portfolio.

I never said I would suggest investing in a foreign market without know that market. All I'm saying is knowing the market isn't a reason to invest there...it is a requirement though. The idea is to find a market that works financially, then know more about that market than the one you live in.

Eric James

Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes

6y

Buying quads for $100k sounds like the fast track to cashflow riches. Untill you buy a couple and discover they are in war zones and you lose your shirt.

Brian G.

Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes

6y

@Haider Abdullah I'm wise enough not to tell you what to do but I can share our thought process as we are in a similar position. We live in Burbank, CA where the avg sfh is $750k. We were priced out of the market years ago. While I would love to house hack locally and I believe we will someday, we are a one income family and it's not possible until/unless we jack up our income. Our current strategy is to build a STR biz to increase our income over time, enabling us to house hack sometime down the road. Meanwhile we continue to rent, thankfully our rent is well under market. We do plan to buy and house hack probably in about 5-7 years or so as we will likely buy a small multi unit property. We still have 4 kids at home, thus a house hack wouldn't even work for our family right now. How do I know? My wife said so. Ha! I feel your pain with the housing prices. Whatever you do, think creatively if/when you buy your first property in Irvine (ie house hack, live in flip, etc.)!

Sean McCluskey

Rental Property Investor · Newport Beach, CA · Member since 2017 · 218 posts · 138 votes

6y

@Haider Abdullah I was in the same boat as you, here's what I did.

Rent a single family 2b/2b house in Northwood in Irvine, for $2800-2900/mo, which is like $7200/year less than you've listed.

Save that cash and buy a house in a more affordable town (like Aliso Viejo, Lake Forest, Mission Viejo). Get a RE license to save like 20k on house purchase.

Then start investing in out of state single family rentals. Value add "BRRRR" strategy, not straight down payments.

Take out a HELOC on primary when you can find one with a nice LTV.

Enjoy both worlds.

Haider Abdullah

OP

Flipper/Rehabber · Irvine, CA · Member since 2020 · 30 posts · 12 votes

6y

Thanks for the newer responses! I wish downsizing was an option. With 3 kids under 8, going from a 3 bed to a 2 bed is not going to work. Especially now with everything being virtual, we need space for work/school/etc.

@Brian G. @Sean McCluskey thanks for sharing the insight. We can come up with around $150k and I’ll get a loan for around $750k so we can bump up to $900k range and keep costs somewhat the same. Love the realtor idea, in fact, have actively been considering this.

Good to have options! I find lake forest to be the perfect compromise relative to location, amenities, etc. most of our social life is in Irvine too, so just off Alton or Bake will keep us close to “comfort” yet allow us to own, not “kill” the bank and hopefully, grow some leveraged equity in our home.

Thank you!!

Alex Olson

Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes

6y

An out of state investment in a cash flowing city like Kansas City works if you have a great team on the ground. Some that have a great reputation and know the market really well and have results to prove it. Search and you will find the best. Hope that helps!