Hey Ya'll,
I've heard something to the extent of live where you want, invest where the numbers make sense. I happen to live in an expensive market, Santa Cruz California and want to get started investing in real estate. I am trying to develop a strategy and am thinking about flips, buy and hold, and multi-family properties. I have no experience, but I may be able to get a private loan for enough to start something in this market despite my lack of experience (I will have to show good numbers for this to happen).
What do people think: if the numbers make sense for a property, is it ok for a new investor to start out in an expensive market (average sfr is like 500k here), or should I start in cheaper markets?
If the latter, how does one start investing in different markets from where they live and work a job at the same time?
Advice appreciated!
Jacob
Hi Jacob Yufa,
I happen to say that to our clients often, because it's a true statement!
The answer to your question depends on what your investment strategy is. If you're looking to rehab properties then you'll likely want to stay within your greater market area. This is mainly because it's an "active" hands on strategy.
If you're looking to be a "passive" investor then you'll want to pick the best market(s) for your investment dollars. I've always been a long distance (out-of-area) investor and built my company around that model.
So, have you figured out what your investment strategy is?
BTW - I find the numbers in most California markets to be very unattractive! Unless you want to focus on lower-income or sketchier areas, your numbers wont pencil out like they do in other "investor friendly" markets.
Marco Santarelli
Hi Marco,
Thanks for the reply! I guess I haven't :) And, I keep hearing that about California too.
Maybe i'm getting confused, but isn't my investment strategy partly formed by these things? I have a certain set of circumstances that limit my ability to use certain strategies right (funding, location, etc)? So I have to pick strategies that work for those circumstances. Since I am entirely new, wouldn't investing out of state be even more complicated? Here, I have advantages of being able to look at properties with my own eyes, manage the properties myself, do repairs myself, and even rehab myself (I am a carpenter). Out of state, wouldn't I have to immediately assemble an entire team? How does a new investor get started investing in out of state markets? Much appreciated, thanks!
Hey Jacob Yufa,
You bring up a lot of good questions:
First of all, I think it all start with you and your goals. Do you want to fix up distressed properties since you're a carpenter, or do you want to invest more passively. These are quite different in terms of time involved, level of knowledge required and financial outcome.
In short, if you want to rehab then I suggest you work locally since you will need to be active locally.
If you want to invest more passively then your location is irrelevant in my option. Here why. If you're investing in other markets for the purpose of getting the highest returns and leverage on your investment capital, you will have your team in place (specifically a property manager). I deal with this question all the time with our clients and I tell them they should never try to manage or repair their own properties unless that's what they do professionally.
I suggest you do a little research on the other markets available to you. You will find useful information on BiggerPockets as well as my website to help you out. Once you've identified the market(s) that make the most sense (financially and economically), then you can narrow it down to neighborhoods and specific properties. That's been my strategy since I started investing outside of California in late 2003.
Hope that helps a little bit. Let me know if you have more questions.
Continues success!
Marco Santarelli
Thanks Marco, yes it is all very helpful, as many answers are, by raising many more questions for me lol! Why don't you recommend that investors try to manage or repair properties? For a carpenter, for example, couldn't this be a big cost saver in the early stages? Obviously if the plan is to scale, or build a company, the investor eventually won't have time to do that anyways.
Lets say that my strategy is to get the highest return on my dollar, build a portfolio, and transition to real estate investing full time. My first steps would be to start looking at other markets, doing the math and making contacts with property managers in those markets? Thanks again,
Jacob
Jacob Yufa -- I only recommend they don't do their our management or repairs if the property is long distance to them and therefore not practical. If it's local then it comes down to their skill set and knowledge. If you're a carpenter then it would make complete sense to do it yourself (if you're investing locally).
You have two options here:
1) You can do everything you mentioned on your own, or
2) you can work with a turnkey property provider that will help you with every step of the process, including the market research (comparing one market to another), running a detailed cash flow analysis, and providing the tenant and property manager all "under one roof".
I used to do rehabs back in 2004 but quickly decided to go the turnkey route as I was able to cover more ground and reduce my risk and exposure. I'm into real estate for the long-term wealth building benefits. :)