Long Distance REI as a Newbie

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Long Distance REI as a Newbie

Hannah Noble
New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes

Hi, my name is Hannah and I am new to REI. For the past few months I have been educating myself and soaking up anything I can. I know sometimes getting started and pulling the plug is the hardest part. I want to be able to start my REI journey soon. Right now I am saving up and trying to get pre-approved so I know how much I can afford. I currently live in Orange County in Southern California, which is a very expensive market. As a newbie I wanted to start out east just to kind of get my feet wet as I'm still learning. I was wanting to use the house hacking method on my first investment. However, being such a high priced market I know that most likely there won't be much to any cash flow here. This isn't a make or break it factor for me, especially it being my first. However, I was wondering what more experienced investors opinions are on being a newbie REI and doing a house hack in an expensive market versus doing a multi-family rental property out of state in a cheaper market with more cash flow. I know there are pros and cons to both, but curious to hear what others have had success in and possibly in what markets if they are doing long distance and of course taking into consideration everything that is going on right now with COVID.

Thanks!!

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Jared Baumer
Laguna Hills, CA · Member since 2017 · 21 posts · 11 votes
6y

@Hannah Noble There are definitely pros and cons to both local and out of state investing. When it comes to investing out of state it is extremely important to build a reliable team in the market you want to buy. Making sure you have solid boots on the ground can make your out of state REI experience much less of a headache. My first investment was out of state right before COVID hit actually and I give a lot of credit to my PM on their tenant placement since I am still cashflow positive during these times. Do you have an idea on which markets you are considering for an out of state investment? Midwest markets are typically a lower price point with a greater chance of positive cashflow.

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  • Jared Baumer
    Laguna Hills, CA · Member since 2017 · 21 posts · 11 votes
    6y

    @Hannah Noble There are definitely pros and cons to both local and out of state investing. When it comes to investing out of state it is extremely important to build a reliable team in the market you want to buy. Making sure you have solid boots on the ground can make your out of state REI experience much less of a headache. My first investment was out of state right before COVID hit actually and I give a lot of credit to my PM on their tenant placement since I am still cashflow positive during these times. Do you have an idea on which markets you are considering for an out of state investment? Midwest markets are typically a lower price point with a greater chance of positive cashflow.

    4Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    Hi @Hannah Noble I would 100% recommend getting started in your area with a house hack using an fha loan to put 3.5% down vs going out of state for your first investment.  You will get this biggest bang for your buck using this approach than putting down 20% OOS.  

    I have OOS investment as well as local ones in my area and my latest house hack was purchased/moved into end of last year in here in SD and probably more than half of what I do is help others with house hacks here in SoCal and it works very well for them by lowering their cost of living and setting them up with a great property to rent once they are ready to move out.

    The key is to run your numbers/calculations based on you not living there or paying market rent to make sure it is a sound investment for you once you move out.


    Best of luck!

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  • Matt Guignon
    Real Estate Agent · St. Louis, MO · Member since 2017 · 74 posts · 20 votes
    6y

    @Hannah Noble Welcome to Bigger Pockets and the world of Real Estate Investing. Although I have no experience investing out of state myself, we help a ton of investors residing in higher priced markets find cash flowing deals here in St. Louis. It seems like the common theme for investing OOS successfully is creating effective teams and systems in the market you'll be investing, and having solid, reliable property management who you communicate with regularly. Feel free to reach out with any questions regarding the Midwest, Rustbelt, or Southeast. Depending on your goals, investment strategy, and comfort level with outsourcing, the flyover states can offer great potential to earn a quite attractive return on your money! don't hesitate to reach out with any questions. Happy Investing! 

    1Reply
  • Account Closed
    Real Estate Agent · Oklahoma City · Member since 2020 · 46 posts · 35 votes
    6y

    Hey @Hannah Noble,

    House hacking is more manageable and can give you the experience of managing a property. You only be working one tenant, but since you're next door, make sure it's the right tenant, as you'll be the one in charge of repairs.

    You'll experience less cash flow in higher-end markets, so it will need to align with your overall goals in REI if you are looking to invest in certain areas.

    Good Luck!

    1Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Twana Rasoul Thanks for your input! I agree I think house hacking would be a great start to my REI journey. It's good to hear that you have had success with it in SD being that it is a similar market to Orange County price wise. What kind of property is your house hack in SD and what would be some good advice in finding a good property where the numbers works.

    0Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    Thanks @Account Closed I agree. This area won't be a great area for cash flow in a house hack, but more of a good way to get started and cover some of my rent to help me in future investments. Thanks for your help!

    0Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Matt Guignon I completely agree! From knowledge of others doing OOS investing having the right team is crucial. OOS investing is something I'm definitely looking into doing in the near future possibly after my first house hack here in Orange County. I am starting to look into different markets to see where the numbers would make sense and there would be cash flow. I know some that have had sucess in the midwest and would be interested in learning more about those markets. How far usually are your investors from the properties they are investing? If they are across country, but have a good team in place does it seem to work well for them still being so far?

    Thanks for your help!

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    6y

    @Hannah Noble - I've never done the house hack thing. I rent and live exactly where I want in LA, could leave whenever I want, and I have zero cash tied up in my primary residence. Being a real estate investor and owning a home don't really have much to do with each other, IMHO. However, there are areas where you can get two homes on a lot and offset your rental payment to the point that it's cheaper than renting, which I like. You can also have a SFH and rent out the rooms. I can certainly see how this makes sense for people, especially when they know they will stay somewhere for a long time. No job uncertainty, want kids to stay in same school, etc. I personally just focus on RE investments so I'm not swayed by what I want or like. Where I want to live has terrible numbers! I have built an out of state portfolio but I also invest in LA.

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  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Hannah Noble:

    Hi, my name is Hannah and I am new to REI. For the past few months I have been educating myself and soaking up anything I can. I know sometimes getting started and pulling the plug is the hardest part. I want to be able to start my REI journey soon. Right now I am saving up and trying to get pre-approved so I know how much I can afford. I currently live in Orange County in Southern California, which is a very expensive market. As a newbie I wanted to start out east just to kind of get my feet wet as I'm still learning. I was wanting to use the house hacking method on my first investment. However, being such a high priced market I know that most likely there won't be much to any cash flow here. This isn't a make or break it factor for me, especially it being my first. However, I was wondering what more experienced investors opinions are on being a newbie REI and doing a house hack in an expensive market versus doing a multi-family rental property out of state in a cheaper market with more cash flow. I know there are pros and cons to both, but curious to hear what others have had success in and possibly in what markets if they are doing long distance and of course taking into consideration everything that is going on right now with COVID.

    Thanks!!

     House hack. I wish I would have when first starting out but now I know and understand. It is the best advice I would give my younger self. 

    1Reply
  • John S.
    Investor · USA · Member since 2019 · 11 posts · 7 votes
    6y

    I agree with everyone saying house hack. I started with a 2 family in an expensive market in the northeast, living in one of the units. Pay yourself "rent" into a separate account to use for the property/future investments and get a feel for what the actual cash flow would look like. In hot markets like yours, you should (hopefully) see good appreciation of both property value and rent, and be able to cash out a decent amount via refi in a few years to reinvest. More importantly, you'll learn what goes into managing the property, which will help you in the future whether you choose to manage your own properties or manage a property manager.

    0Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    Nothing against long distance ownership at all since compared to Orange County you can find better returns.  In addition, larger cities are going to get a lot more activist and anti-landlord.

    However, some caveats:

    1) Go to a place you know.  Places like PHX (example) have good and bad neighborhoods.  Bad neighborhoods are stagnant and show little promise of income growth.

    2) You need someone you can trust in that area.  Sometimes you can get lucky and find a broker or prop mgmt company.  They should know the town well enough to tell you what's a good buy and realistic upside

    3) Since you'll need to hire a prop mgr, talk to them and see if you trust them. Besides day-to-day stuff (lease ups, paperwork, maint), you should be able to have a regular conversation (monthly?) and the question should be "What are the X things we're going to do to increase NOI?"

    4) Understand how apartments work and how to read an operating statement.

    If you want to DM me, I wrote 80-page PDF on buying and selling nad operating apartments for my clients.  It'll help a lot.

    0Reply
  • Drew Busbee
    Rental Property Investor · Los Angeles, CA · Member since 2016 · 4 posts · 2 votes
    6y

    Hi @Hannah Noble I’m in a similar place as you. I’m out in the LA Area and have been looking to house hack. As many other have said it more than likely won’t cash flow unless you charge by the room to room mates. I’m looking to invest back on the east coast specifically the Carolinas. Be happy to share any resources I find there if your looking to invest out of state.

    0Reply
  • Matt Guignon
    Real Estate Agent · St. Louis, MO · Member since 2017 · 74 posts · 20 votes
    6y

    @Hannah Noble Sounds like you have a great game plan moving forward. And regarding your question about the distance of the oos investors we work with, that really varies. Some folks have family in town, therefore they are able to stop by and check in on their properties a few times throughout the year. However, we also work with institutional funds and hedge funds who may never personally see the properties in their entire lifetime. We even have some Israeli investors, who rarely if ever even come over to the United States, much less St. Louis. With all that being said, it really comes down to you as an individual and how comfortable you are with the distance and how hands off you want to be. If you're constantly uncomfortable, or anxious about a property that you don't have much direct control over, it may not be worth investing out of state, regardless of the potential returns. State of mind and your well being will always come before ROI! However, as with most aspects of life, fear and uncertainty can almost always be reduced or eliminated through education and familiarity. Once you determine a few markets that may interest you, I'd recommend spending quite a bit of time learning the neighborhoods, demographics, industries, and other applicable socio-economic factors that may impact the local real estate market.

    0Reply
  • Jacob Repreza
    Real Estate Agent · Orange County, CA · Member since 2016 · 207 posts · 111 votes
    6y

    Hi Hanna! As someone in Orange county who had a similar start as you I hope I can help. House hacking was my goal initially but if you're going to do it in the OC you have to know what you will be getting yourself into and make your choice. 

    First off, there's not too many multi families available in OC. You see them in the older areas like Santa Ana and Fullerton and also along the coast but of course once you get to huntington and newport the prices get outrageous. Now from what I've noticed most of them are old which means you have to do some sort of rehab to them and usually aren't less than about 450/475k+. 3.5% down on 475k would be about $16,625 as a down payment, mortgage with PMI and taxes around $2500ish. So more than likely the other unit will pay for MOST of your rent but not all and it will almost surely not cash flow. Now that's not the worst thing in the world.

    The key would be to wait until you move out and you can rent that side as well. Then 2 units paying you market rents will more than likely cash flow nicely and then the almost guaranteed southern california appreciation kicks in over the years and it's just icing on the cake. 

    I'm still debating doing this but just feel like my money is better off out of state. We're in escrow on 8 different properties in Cleveland at the moment and that 15-20k downpayment here can have more effect elsewhere. Just my 2 cents! 

    2Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Drew Busbee yes agreed, my first house hack down here in Orange County I would most likely to rent by room and more to offset my rent and get my foot in the door. I am definitely looking into doing out of state investing eventually and would love to hear any experience and resources you find in other markets or in LA.

    1Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Matt Guignon thank you, that is great advice. I agree the more education and familiarity I have with all of it and the market I am looking into will help ease those fears. I will keep your contact for when I start looking into different markets and learning more about areas such as yours. Thanks again for your help!

    0Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Jacob Repreza thanks Jacob! Agreed cash flow most likely wouldn't happen, however like you said not terrible since my rent could still be reduced and Orange County will hopefully be an area that will appreciate. Out of state is also a great thing I want to get into once I feel more comfortable with it, thanks for your advice!

    0Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Steve Morris thank you for the advice those are all great things to keep in mind and the PDF sounds like a great resource for myself getting into apartments!

    0Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Lee Ripma that is a great outlook on it! I agree here the numbers don't always make sense, which is why I would have to do something like rent by room or what not for a while to offset my rent a little, but open to learning about all the different ways to invest and what works best for me! Thank you for your advice and experience! I appreciate it!

    1Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    If you want the book. send me a DM and I can eMail it.

    0Reply
  • Cody Charnell
    Real Estate Broker · Long Beach, CA · Member since 2014 · 64 posts · 33 votes
    6y

    I am from Long Beach, Ca and I decided to invest locally for my first investment. The ability to drive by the property and keep an eye on management and contractors was very valuable. The other advantage that you have in Southern CA is appreciation. If you purchased a duplex for $650K with 3.5% down and the property appreciated 5% in the first year you would make $32,500 on your $22,750 down payment. There are closing costs and rehab costs to take into consideration as well, but still a very healthy return on your money. Cash flow in CA isn't great starting out, however it makes up to the lack of cash flow with very strong equity growth. 

    1Reply
  • Stephen Tanquary
    New to Real Estate · Fullerton, CA · Member since 2018 · 15 posts · 3 votes
    6y

    @Hannah Noble I second @Jacob Repreza's thought. I am also a new investor in the Orange County area, specifically in Fullerton where there are a decent amount of duplexes. My wife and I spent a lot of time over the last year trying to figure out how to make the house-hack work for us. We ended up buying a place with an extra bedroom we plan on renting out.

    I think we had to come to terms with the fact that the "traditional" ideal house hack that you hear about a lot on the podcasts, where your tenant "completely pays for your rent and then some" isn't as realistic in our market. The prices for any multifamily properties are just too high, and for most newbies like us, we don't have the capital for high enough down payment.

    However, I think a "non-traditional" house hack can be just as beneficial of an investment if you want to get your feet wet in real estate before you feel comfortable to move OOS where the positive cash flow markets are. By "non-traditional" I just mean renting out a room or 2 to roommates. While this might not completely eliminate your rent, your still teaming up with some one else to essentially help pay your mortgage for you, while you continue to save for other investment opportunities. That way you're putting money into an investment, and you get the experience purchasing a property, working with agents, contractors, lenders, etc. So maybe instead of looking for a duplex, you could find a 2 or 3 bedroom home. Just a thought

    Sorry for the long post, I know our market can be tough! But as they say on the podcast often, there are so many ways to find success in real estate, you just have to find the right path for you.

    1Reply
  • Hannah Noble
    OP
    New to Real Estate · Orange County, CA · Member since 2020 · 19 posts · 8 votes
    6y

    @Stephen Tanquary thank you for your input! I totally agree with everything you said and think it is a great way to get my feet wet, even if it isn't cash flowing in the way the traditional house hacks are. It is encouraging to hear you guys are making it work! Thank you.

    0Reply
  • Jon Lallande
    Rental Property Investor · Oceanside, CA · Member since 2019 · 63 posts · 51 votes
    6y

    Hi @Hannah Noble

    Not to beat a dead horse here but I agree with everyone above. A few other things to consider:

    • You have to live somewhere. I think house-hacking makes more sense in high cost areas than anywhere else. By house-hacking, you can at least eliminate a good chunk of your housing expense while gaining landlord experience and paying down your principal. Whether you decide to buy a multi-family and rent out the other units or a SFH and rent out rooms, you will likely spend far less than if you rented in the same area.
    • Huge tax benefits. On top of the pretty awesome tax benefits you have from owning real estate (MCC credit in OC included), if you decide to rent/Airbnb rooms, you are running a business. You will be able to write off any space that you rent out as well. I'd recommend talking to @David Pere if you want personal experience as he is doing the Airbnb house hack in SD County. 

    Let me know if you have any questions! 

    1Reply
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