Invest in CA or outside of state and if so where?

Question

Hi,

Northern CA is way overpriced but I want to get into the market- its just too expensive. Where else could I invest with low money down (that would yield consistent rent profit - or wholesale) or what are my options? I'm worried that buying out of state might create more problems. I was also looking into crowdfunding. Basically I don't know how to proceed so if anyone has some advice I'd love your opinion. My issue with alot of the podcasts is that most people on the podcasts live in more affordable areas than SF.

James Wise · Answer

Tons of turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors •Cleveland, Ohio •Dayton, Ohio •Toledo, Ohio •Youngstown, Ohio •Cincinnati, Ohio •Memphis, Tennessee •Birmingham, Alabama •Kansas City, Missouri •Saint Louis, Missouri •Indianapolis, Indiana •Detroit, Michigan •Erie, Pennsylvania •Louisville, Kentucky •Milwaukee, Wisconsin •Jackson, Mississippi Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly. One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible. •Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow. •Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail. •Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do. •Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed. •Make sure your property manager is a licensed real estate brokerage. •Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Matt K. · Answer

All real estate transaction take quite a bit of funds to make work, consistently. If you're going OOS because it's more affordable don't lose perspective that it's still expensive. If you're stretching yourself to the max buying a low dollar property those repairs will be the same more expensive ones and more often that low dollar deal has issues that need to be addressed. With that said I went to KC a while back and it works for me. Not the cheapest place but I am happy with the return I get and the logistics of it all. I picked KC mostly for the price range of deals/rents but also because I can get out there same day if needed without much trouble.A 100-200k place in KC will get me similar rents to that in the less desirable areas of CA for about half the cost. Travel isn't too bad, at worst you're looking at something like a 500 dollar flight same day.... with proper planning and little bit of luck you can get it down to half that, often. The flight itself is easy (can leave from any bay area airport) and about 3 half hours... and direct. This coupled with the fact that it's central time vs eastern is huge savings in time for me.Where ever you go to invest, visit. This isn't a spreadsheet game, it's real life and things happen differently then you can create with numbers. Understand the market you want to enter as if you were moving there. You'll want to know where the people work, eat/drink, enjoy/dislike, and just get a sense for the community. Then you can pick up on certain things like getting bigger 2/1.5 vs a 3/1 because the area you chose is full of young adults who like to go out but don't want to share a bathroom. Or you find that smaller 3/2 that's close to some school that even though isn't rated the highest everyone wants to live by it because (insert some reason). You want a property that people WANT to live in because it has something special (location, school, size etc) vs something that have to live in because that's the only option.Networking is also huge and you can save significant time by reaching out here to those that are successful in what they are doing and what you want to do. But be legit about it, say what you mean and mean what you say. Show you are good for the cash and can follow through on your end of the deal. Lastly, don't trust someone because they tell you something is legit..... you should build up the foundation of your knowledge so you can fact check them. Plenty of marketing speak to spin poor deals as once in a lifetime opportunities that don't really exists or aren't sustainable. TRUST, BUT VERIFY...

Rob Bergeron · Answer

I work with a lot of out of state investors in my market (including David Greene). We have an awesome infrastructure. Mike Butler (Author of Landlording on Autopilot, one of Brandon's Top 5 must read books for all new investors) lives in our market and manages most of the long distance investors. While I think Louisville is known for it's cashflow, I also should note the crazy appreciation. There is nowhere to build!

David Greene · Answer

Hi @Anna BoguslavskyI wrote the BRRRR book, the book on investing out of state, and also live in CA. So I might be able to offer you a perspective that covers all three. Send me a message here on BP, or follow me on IG and DM me there (@DavidGreene24) for a faster response. Hopefully I can help

Dan H. · Answer

According to RentCafe the average Cleveland rent has done up $127 total over the last 3.5 years. So rent is going up but not very fast (unless we are comparing it to the historical average Cleveland rent increase). If you desire a low cost of entry then Cleveland meets that goal. However, Cleveland historically has produced low ROI because it is a zero appreciation area (meaning historically it appreciates slower than inflation). In addition, an OOS investor in Cleveland will have the usual OOS hurdles to overcome. I recommend all new RE investors start local. This applies to those that live in Cleveland as well as those that live in CA. The OOS hurdles are real. Local expertise is valuable. There is value in newbies self-managing and the value is not only the money saved by not using a PM. Good luck

Dan H. · Answer

> entry into the market is nearly impossible here It depends on what you are willing to do. If you can house hack (FHA) at 96.5% LTV, your money goes 7 times further than an OOS investment RE at 75% LTV. $20K (plus closing costs) can purchase $571K RE at 96.5%. The same $20K (plus closing costs) would purchase an $80K RE at 75% LTV. Non-local cannot get the benefits of owner occupied including the benefit of the high LTV loans. If I were starting out, I would look for a detached duplex in an nice STR friendly area. I would get a high LTV owner occupied loan of a property in need of rehab. I would do a first rate rehab of the more thrashed unit while occupying it and then STR it when complete. While doing the rehab, the other unit would be LTR. I would then move into the other unit and rehab it. I would self manage the STR because it would be not too hard living next door. The STR would pay for me to live in a nice, freshly rehabbed unit in a desirable location while having my mortgage payment paid by the STR tenants. I would refinance after both units have been rehabbed if there is enough equity to warrant it ideally pulling money out of the RE that can be invested elsewhere (BRRRR). I am far past the point of house hacking (I did it when younger), but besides that aspect I have used this technique as well as this technique with LTR. The STRs we use professional PM. The LTRs we mostly self manage. We have crushed it with the 2 STR units that we still own; we have to a lessor degree crushed it with the LTRs. Coastal CA has always been expensive but has always provided outstanding return on investment. To look elsewhere when Coastal CA has provided outstanding returns seems strange. Look for ways to leverage the fact you are local (such as high LTV loans). Another thing I want to point out is that the state is not very STR friendly. However, in virtually all the proposed regulations limiting STRs, the owner occupied STR is typically exempted. This implies if any of these anti-STR regulations ever get passed for your location, it is likely to eliminate you competition (me) than to negatively affect the owner occupied STR.

Michael Albaum · Answer

@Anna Boguslavsky I’m also a northern CA resident and have actually invested in Murrieta a while back, but have since turned to investing out of state. While there is more to learn (local laws and compliances) it is totally doable and there are numerous markets worth investing in. You just need to find one that resonates with you and go in there and start doing deals! Beat of luck!

Perry Livingston · Answer

Hi @Anna Boguslavsky, Given your parameters, I'd highly recommend @David Greene's book on the BRRRR strategy that was just released recently + the other one he wrote called "long distance real estate investing". I'd also recommend perusing listings on the BP marketplace and/or realtor to get an idea of the market, then checkout craigslist & the FB marketplace for current rent on comps. Use what you find and input the values into one of the BP calculators to help you figure out if it's a good deal or not as a starting point. I hope this helps! :-)

Mike D'Arrigo · Answer

Bob Hance · Answer

Article on the top 10 zip codes for 2019 which are good places to start investigatingTwo are in Michigan - Grand Rapids - 2 hours outside of DetroitLivonia Mi - Borders Detroithttps://www.cnbc.com/2019/08/0...