Rental Property Investor · Laguna Niguel, CA · Member since 2019 · 175 posts · 116 votes
Hi BiggerPockets Community - pretty new to the site and forums. I am not sure if this has been posted already, if it has then my apologies in advance and please point me to that thread.
I've been looking at different RE markets in Southern California, and so far Riverside and Moreno Valley seem like the cheapest options for investing in some rental properties. My real estate agent suggested that Riverside/Moreno might not be a good option because of high taxes, is there any truth to this?
Are there any cities in or close to Southern California that are good for the newbie investor just getting started in rental properties? I think ideally Single Family Residence is where I should want to go, before moving up to multiunit properties, but I'm new so I could be wrong in this approach. Would condos be a better option to avoid high ticket maintenance items like the roof and garages, landscaping etc?
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
7y
Originally posted by @Account Closed:
@Dale K Poyser no city in CA is even close to viable for an individual investor. Do a flip, wholesale some deals, go out of state, or wait for a different stage in the market cycle. Not only are you not going to cash flow, you're going to take a bath in negative equity when the music stops.
There are other ways to make money in investing!
I doubt that no city in California is viable. It is a pretty big state. Also doubt most invest out of state IMO, that is mostly a BP thing. Most in Cali invest in Cali I think, just like any other place. I would say there is a larger percentage that invest OOS than most states though.
Maybe also check studio condos around LA, Long Beach etc...good luck!
Title Representative · Brea, CA · Member since 2011 · 6 posts · 6 votes
7y
Southern California is almost a dead zone for rental properties if you're coming in to purchase one right now. Everyone looking out of state. Read up on the "2% rule" or even make it 1% for S.California, can't come close to hitting it. Just from a quick browse on Zillow right now for Mo Val, numbers just don't work. 400k homes renting for 2k.
Rental Property Investor · Laguna Niguel, CA · Member since 2019 · 175 posts · 116 votes
7y
Thanks Curtis, I have been checking prices almost daily and I found a couple cheaper properties in Santa Ana and in Moreno Valley. I found a condo for 138k and I've seen 3/2 bath houses for mid 200's to 300's.
But I'll keep running the numbers and keep that in mind. What out of state cities would you recommend?
Thanks Curtis, I have been checking prices almost daily and I found a couple cheaper properties in Santa Ana and in Moreno Valley. I found a condo for 138k and I've seen 3/2 bath houses for mid 200's to 300's.
But I'll keep running the numbers and keep that in mind. What out of state cities would you recommend?
I'm currently not looking for rentals out of state so couldn't help you there, if you read about a great area somewhere it's probably already too late haha, going to be focusing on chasing down off market deals around Scal.
Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
7y
@Dale K Poyser Moreno Valley tax rate is usually 1.25% unless you hit the special assessment areas Riverside 1.10% usually not too bad all things considered. If you were to look out of state to say Texas the property taxes can be more like 2.75% and they don't have prop 13.
I'm currently not looking for rentals out of state so couldn't help you there, if you read about a great area somewhere it's probably already too late haha, going to be focusing on chasing down off market deals around Scal.
@Dale K Poyser Moreno Valley tax rate is usually 1.25% unless you hit the special assessment areas Riverside 1.10% usually not too bad all things considered. If you were to look out of state to say Texas the property taxes can be more like 2.75% and they don't have prop 13.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
7y
What are your goals with this property? Where are you located? Southern California is massive and has great areas and awful areas.
If you are looking for free cash flow you are likely going to be out of luck. I wouldn't even bother with SFR as it's just not likely going to happen. There are areas where you can buy condos that will slightly positive cash flow or break even. Even nicer areas like the SFV and Burbank can have the occasional minor positive cash flowing condo.
If you're looking for appreciation, where were you 8 years ago? Prices have doubled in the decent areas and tripled in the hot areas. While it probably will happen, I wouldn't bet on continued appreciation and clearly nowhere near the recent surge rate.
Consider South Central LA. The area is changing from awful to better. The new football stadium is causing prices to surge, but they will likely go higher after the area improves more. The downside is that it is a 100% liberal area and measures are being enacted to "protect" renters.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
7y
While the price of a property matters, it's not what you should be looking at to determine if it's a good rental. What are the actual numbers on it? Specifically, where will your profit come from?
will it cash flow?
if not, how do you plan to profit? appreciation?
There are basic criteria that make a property a good rental property investment. You definitely want to learn those first.
Unfortunately once you learn to run the numbers, you'll find there really aren't any properties in SoCal that will do much for you unless you have a lot of skill in creativity and know how to make something work. That's why a lot of SoCal-ers invest out-of-state. Nothing really here, unfortunately.
Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
7y
@Dale K Poyser If you buy right, there is a opportunity for cash flowing in Bakersfield, the "High desert", and a few other areas that have lower than typical California values. It may take more effort than purchasing in the Midwest and South, but they are out there.
Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
7y
Kern county of of purchased right meaning not a lot of maintenance with in the next up coming years, still has decent returns and job growth too . I would focus on Bakersfield . You may pm me and I can give some referrals.
My first goal would be cashflow and the second goal would be appreciation. I'm located in Orange County, which I did not mention because I don't need to be too close to home, especially with current prices.
I have been giving condos some thought because I feel I may have less (only the inside of the walls) to worry about but I know condos come with their own set of problems like HOA costs and politics, etc.
I've seen the crazy appreciation in prices since 2008/2009 but I think that was largely due to how things were over leveraged and I agree with you things won't appreciate that much. I do see ALOT of construction going on in certain areas around SoCal and there is only so much land to go around. Places like Irvine, Huntington Beach, Laguna are really being built up.
I'll take a look at South Central LA, thanks a lot for taking the time to reply.
Rental Property Investor · Laguna Niguel, CA · Member since 2019 · 175 posts · 116 votes
7y
Thanks @Ali Boone I have noticed the numbers won't work in Orange county at current prices, unless you put a large down payment down. But I am really liking some of the prices I'm seeing in certain areas like Santa Ana, and Anaheim. I was trying to see if there were even better areas that I could look at in the area. I only know about Riverside, and Santa Ana because I work in those areas and see all the construction going on.
Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
7y
@Dale K Poyser no city in CA is even close to viable for an individual investor. Do a flip, wholesale some deals, go out of state, or wait for a different stage in the market cycle. Not only are you not going to cash flow, you're going to take a bath in negative equity when the music stops.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
7y
Originally posted by @Account Closed:
@Dale K Poyser no city in CA is even close to viable for an individual investor. Do a flip, wholesale some deals, go out of state, or wait for a different stage in the market cycle. Not only are you not going to cash flow, you're going to take a bath in negative equity when the music stops.
There are other ways to make money in investing!
I doubt that no city in California is viable. It is a pretty big state. Also doubt most invest out of state IMO, that is mostly a BP thing. Most in Cali invest in Cali I think, just like any other place. I would say there is a larger percentage that invest OOS than most states though.
Maybe also check studio condos around LA, Long Beach etc...good luck!
Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
7y
If cash flow is your goal.... go OOS. If you’re looking for appreciation and cash flow down the road. Stay in ca. But be prepared to lose some money monthly in the short term unless you use a huge DP. And when you start talking about going to Bakersfield, San Bernardino, etc.... why not go out of state at that point. All the benefits for less up front cost and better returns. Just my 2 cents as someone from Southern California that’s about to invest OOS for cash flow. Will eventually invest in ca again for the appreciation if/when things stabilize.
The HOA dues are generally meaningless as long as the complex is managed properly. So you pay monthly dues, but that usually covers lots of things you'd pay if you had a SFR like water, insurance, trash, gardener, pool, and be on the hook for 100% of the repairs. Well run HOAs can save you money by spreading out the costs over many units.
I do second what some people have said about Bakersfield. Seems to be a pretty hot area, but some of the heat is tied to the oil industry. Fresno also seems to be a popular destination. Lots of immigrants moving there, so low cost housing might be an easy rental. Once the bullet train is completed in Fresno, circa 2078, the area will heat up with commuters.
Rental Property Investor · Laguna Niguel, CA · Member since 2019 · 175 posts · 116 votes
7y
All, thank you so much for all your responses and feedback, I can't tell you enough how much I appreciate it. I'm adding the following cities to my watch list and will be doing some research in this areas. Thanks again for all the pointers!
Thanks @Ali Boone I have noticed the numbers won't work in Orange county at current prices, unless you put a large down payment down. But I am really liking some of the prices I'm seeing in certain areas like Santa Ana, and Anaheim. I was trying to see if there were even better areas that I could look at in the area. I only know about Riverside, and Santa Ana because I work in those areas and see all the construction going on.
Realtor · Fresno, CA · Member since 2013 · 471 posts · 225 votes
7y
Hi Dale - one other thing to consider is that you mentioned starting with a SFR before diving into multifamily but I can tell you from experience that if you can purchase a multifamily then that is a better option - the problem with SFR is that if your tenants stop paying the rent or are late then you are responsible for 100% of the payment - of course if you buy all cash then its a different story - also - you spread the expenses AND the risk over multiple units - insurance for a duplex is cheaper than insurance for two seperate homes .. etc. For beginning investors - I think multifamilies are a safer bet to start building your portfolio. When you find the right market to invest in - look towards a multifamily to generate cash flow - once you have enough income to cover a missed payment you can start looking into SFRs. ALso - looking on the open market in California is not likely to yield a high cash flowing property - you need to look off-market for situations like foreclosures, divorces, moving out of state , frustrated landlords, etc. Start sending out some letters / postcards and try to get something off market - check with you local wholesalers too - sometimes they have some good deals to and have done all the marketing already. Best of luck to you.
Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
7y
@Matt R. you're right- short term rentals might make sense. Long term rentals don't, but viability is defined differently from one investor to the next. I know some folks getting a 7% ROI in CA now renting rooms separately to college students in a large SFR in Sacramento, so it works. Those are unacceptable returns in such a high market though, with no margin of safety for a softening rental market which we as a state tend to experience a bit of during a downturn.
I also mean to say the low returns you would get here are not worthwhile considering the temporary depreciation losses a CA investor would see in the event of economic correction. We're a volatile state, so buying at the peak to make a little bit of money isn't worth the equity bath. I think investors that insist on buying long term rentals in CA right now should just wait, & I'm no proponent of waiting.
You're right about the local vs. OOS investors. I've run data on people that invested in "cheap" states who don't live in them. The overwhelming majority of OOS investors in those states came from CA- I want to say it was close to 60% of them. NY wasn't even a close second.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
7y
Best California cities to invest in by decade based on return (not in order) I believe every decade since the 1970s: San Fran, LA, San Diego, OC
Since 2000, Core Logic lists the best buy n hold return in the US for large cities are (in order): San Fran, LA, and San Diego. Note they are all expensive CA cities. The market price reflects this level of return.
What do you think the odds are that those are not the best cities in CA to invest in for the next 10 years? There is a difference between initial cash flow and long term cash flow. If you purchased in any of those cities 10 years ago you could have purchased in virtually any city and achieved better initial cash flow. How many of those other cities 10 years after the purchase would have the cash flow of a purchase made in San Fran or San Diego 10 years ago? I suspect none of the low appreciation markets.
Buy n hold is supposed to be about the long term return. To me, long term is >10 years. I am not convinced over 10 years that RE from historically lower appreciation markets will have a better cash flow than more expensive markets (The potential long term return is why the market price is high). I know historically the lower appreciation RE has not had the same market appreciation.
About a year ago I researched rent increase in San Diego. The average SFR in San Diego had $500/month rent increase over the previous 3 years. This implies a SFR rental purchased 3 years prior that was cash neutral now had cash flow of near $500/month.
The best cities for RE buy n hold investing in So Cal are likely San Diego, LA, OC. It has been so for nearly 50 years. I suspect it is highly likely to be true for the next 10 years.