New member from San Diego, but looking out of state

[Sundeep Amin]

Hi Everyone!!

This post turned out to be longer than I intended, you’ve been warned :)

I joined BP a few months ago, but just recently started really diving into the site and can’t get enough.

A little about myself, and where I want to go.

I live in San Diego, and was thinking of buying something during the last market crash, but was glad I didn’t since I had no idea about the 1% rule and all the other tips and tricks needed to make sure property cash flowed. That being said, I think I still would have lucked out and gotten quite a bit of appreciation, as the market is up quite a bit since then. My main goal however is cash flow as I don’t want to rely on potential appreciation as an investment strategy. Currently, I still rent.

As luck would have it, instead of buying something for myself, I ended up getting a house in Temecula for my parents (story for another time) and that house has now appreciated 50% in the past 4 years, with most of that coming in the last year. It didn’t meet the 1% rule then, still doesn’t even with the appreciation. Even still, I think market rent would just cover the mortgage if I ever had to rent it out., so that’s a little bit of a plus.

So that’s where I’m coming from, as far as where I want to go…my main goal is to create a stream of “passive” income which at some point would be high enough to cover my humble expenses, thus giving me a choice to do whatever I want, allowing me to quit the rat race being one option. I started on the stock market path a few years back, but haven’t really jumped in before seeing better returns in real estate. Stocks are one way, RE is another to get to the same end goal. Eventually I’ll do a little of both to diversify.

Since this is a RE blog, I’ve come to the conclusion that many California RE investors have, and have decided I have to go out of state to invest. At least for cash flow. That’s fine with me, so the next step was trying to find some good markets where the 1% rule was easily achieved. I’m looking to focus on buy and hold SFHs rentals using a property manager, but would also be interested in teaming up with investors in some of my targeted markets below on quicker deals to build up some capital as I go.

After going through some forum posts here, it looks like several markets have their positives and negatives, with places like Indy and KC being solid for cash flow (my main goal) but low on appreciation (not my primary goal anyway), whereas places in Texas are typically lower cash flowing, but higher on the appreciation front. So the next step is figuring out where to start.

I know the recent hot markets include Atlanta and several cities in Texas, but it seems like those markets are all super hot. I would love to find the next hot place and think I’m going to start looking into the following markets:

Indianapolis or other high cash flow cities – Since my main goal is consistent cash flow over appreciation, I figure I would look to Indy to get my feet wet and go from there. I’ve also heard Kansas City might be another good cash flow city. Any others?

Texas – Even though there might not be the plethora of deals there were a few years ago, the quality of the growth of these markets make them appealing. Some of the areas include Austin,

Dallas-Ft. Worth, Houston and maybe even San Antonio.

Utah – I’ve been reading a few different things recently about Utah showing signs of being the next strong market, with a few solid cities, including Salt Lake City, Ogden and Provo. I like this market as its kind of close to California and I’ve been to Salt Lake and Ogden numerous times on snowboarding trips.

Florida – I don’t really know anything about the Florida market, but have heard it’s also growing so I figure I would at least do some due diligence. And it would be a great excuse to maybe even spend a week out there.

North Carolina - I’ve heard some good things about Raleigh and Charlotte, so they’re on the due diligence list as well.

Some other potential areas of interest include some of my favorite ski area destinations like

Denver, Idaho (Boise and Coeur d'Alene), and Seattle/Bellingham although these are more for my own personal interest and might not really be good investment locations.

I doubt I’ll have time to look into all these markets, and want to start by picking up my first property in a high cash flow market (Indy or KC, etc), and then research Texas, Utah and North Carolina and go from there.

I look forward to networking with the BP community and any help or insights would be greatly appreciated!

Thanks,

Sundeep

[Rob K.]

Greetings Sundeep,

I too am based in San Diego County and like you have only recently started diving into the site.

One of the common themes I am seeing here is that cash flow oriented investors are looking outside of California to other markets.

True, it is much more difficult in the current environment to find real estate opportunities that paper out. I am a longtime investor in California, so what I am about to say may seem a bit divergent from what the consensus seems to be. It may also have more to do with my personality and the way I choose to manage risk.

In 2004-2005, I reached the same conclusion. California made no sense from a cash flow perspective. I began traveling to out of state markets to investigate new markets. Based on what I learned, I did not pull the trigger and invest anywhere out of state.

One thing I learned, was when locals learn you are from California, the price seems to go up. You tend to get offered properties at prices and terms very different from what locals would ever pay. There seemed to be an assumption that Californians were rich who would not mind over paying based on what they were used to in California. Almost like I had a "kick me" sign on my back.

Another thing I could not get comfortable with was finding property managers who you could trust, both in ability and judgment. Most talked a pretty good game, but once I started doing due diligence and looking at the properties they were actually managing, I kept getting discouraged. Of course, if you have prior relationships with someone whose judgment and ability you trust is actually local to where you are looking, then you have a bigger advantage.

The fact of being thousands of miles away from a property you own was something I could not overcome, at least in my mind. For instance, I had an issue here in California on one of my properties a while back where I needed a heat pump repair. The first vendor came out and said I needed to do an entire replacement for $4500. Did not seem right, and I was able to determine with another vendor that there was a line leak that was easily repaired. If my property were out of state, what could I have done? Paid for a new heat pump I did not need most likely.

I am sure there are those Californians who do just fine investing out of state. But for me, I have become comfortable staying put. It just means you have to look harder in the areas you know, stay patient, and look for “forced appreciation” opportunities, situations where an investment is based on taking a current “non-papering” property to a better place based on vision and a plan specific to that property. But that is something that I could only do locally, can’t imagine trying to do that out of state.