New CA resident looking for out of state investment

Trexie E.Pro Member

BiggerPockets Support · Davao, Davao del Sur · Member since 2015 · 937 posts · 163 votes

10y

Hi @Bryan C.,

Welcome to BP! It's great to have you here! Hopefully we can help each other out in the future. Best of luck to you! :)

0 Reply

Alex Franks

Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes

10y

Originally posted by @Bryan C.:

Hi,

I have just finished reading Brandon Turner's Book on Rental Property Investing and I am brand new to these forms.

I have saved about $130K which is not enough for downpayment where I live (Mountain View, CA). The prices here are surreal and I have decided to not purchase here as I will likely not be here my to many years.

I have decided I would rather purchase some rental units out of state where I am investing for cash flow rather than speculation. The only problem is I am only familiar with the real estate markets in California which do not offer good ROI. I currently own a condo in San Diego which I rent out; I figure that's enough CA property for now.

Is there a section in BP for out of state real estate investors? I have a few friend's who have invested out of state (Boca Raton FL, Dallas TX, Tulsa OK) but I figure I would post here and get more ideas.

I am basically looking to either purchase:

- A Single Family home for cash with purchase price around $100-$120K; After 6 months I will re-finance to free up my cash again.

- 2 Single Family Home's with downpayment around $30K each and purchase price's around $100-$120K each.

- Multiple Units (Triplex, fourplex) with $60K Down and finance the rest with purchase price around $200 - $240K.

I will obviously have lot's of analysis' to do. However, I am hoping to get some insight as to what neighborhood's look attractive for landord's in the U.S. at the moment. This way I do not waste time looking at crappy parts of town's before realizing they are not ideal places to own.

Any insight will be much appreciated. Thanks!

Once I am done analyzing, I plan on flying out to the city I decide on to get the deal done.

Bryan First welcome awesome place here.

I don't sell turn key any more but from 2010-2013 I co owned a larger company in Charlotte. So I can offer a lot of advice on the subject. Feel free read a lot of my older post on the subject. PM any time with questions.

Alex

1 Reply

Andrew Davis

Investor · Asheville, NC · Member since 2011 · 833 posts · 499 votes

10y

Hey @Bryan C., firstly, welcome to BP!

Whichever strategy you go with, depending on the market you choose and who you choose to aid in your acquisitions and management, you can do very well.

The scenario you land on will ultimately depend on your goals. I'm personally a fan of leverage, so my suggestion would be to buy 5-6 SFR's around the 100k price range, with 20% down on each.

I work primarily with investors here in the Orlando, Central Florida area, and this continues to be a very strong investing market, with a 13% YOY increase in rental rates.

http://www.bizjournals.com/orlando/news/2016/02/17/orlando-rent-increase-among-the-top-2-in-the-u-s.html

Since you're new to the site, here are a few tips to help you get the most out of BP:

Start here. You'll get a wealth of REI knowledge and learn how to take full advantage of Bigger Pockets (including how to connect with other local investors).

Listen to the podcasts , get active on the forums & set up key word alerts to be notified when people are discussing topics you're interested in.

Check out the webinars, they are very informative, and there’s usually a new one every week.

1 Reply

Lane Kawaoka

Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes

10y

I don't know quite what you are doing with the refinancing in 6 months with the SFH since the lender fees of doing transactions will make it a wash. Maybe fill me in with the big picture, seems like you have not zeroed in and sill hovering at 5000 ft.

1 Reply

David Faulkner

Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes

10y

Newbies are funny ... so narrow minded in thinking that investing for anything other than cash flow is speculation. If you open your mind a bit, slow down, and take a look around, you'd see lots of investors (not speculators) consistently making great returns all around you and may learn a thing or two from them. There are speculators too, no doubt ... I am thankful for them, as they keep me supplied pennies on the dollar deals every down turn.

Don't get me wrong, I have nothing against investing for cash flow, just think it is a bad idea to put all your trust and money into a out of state provider and buy something far away in a market you know nothing about before you know what you are doing; that looks a lot more like speculation to me. To do it on the premise that there are no good investment opportunities locally because prices are high and anything that isn't cash flow is speculation is even worse. Cash flow is an important thing, but it is not the only thing. Forced appreciation is not speculation.

I have nothing to sell and wish you luck either way, just think there are much bigger risks down the path you're headed than you seem to realize.

7 Reply

Kadian F.

Orlando, FL · Member since 2015 · 79 posts · 21 votes

10y

Welcome to BP @Bryan C.!

Consider locations where your family or good friends live in making an out of state investment. Knowing your numbers is a great step but knowing the neighborhoods is important as well.

0 Reply

Bryan C.

OP

Investor · Mountain View, CA · Member since 2015 · 10 posts · 3 votes

10y

@Andrew Davis Thank you for the information.

@Lane Kawaoka thanks for the input and challenging my view on California property. I think the forced appreciation concept sounds great; however, I feel that at this point in my life I do not have the skills or time for a successful BRRRR strategy. "Forced Appreciation" Seems like a pretty big risk for someone who doesn't have a whole lot of time to actively participate in the project. Sure, I can buy somewhere in California but I would never go to the property so what difference does it make if I buy in San Diego or Florida?

Furthermore Without forced appreciation in California, the cash flow will be negative with a 20% downpayment in all areas I know in California. Many other area's my cash flow is positive with 20% down. I currently do not have the means to take on a negative cash flow property. I went in with 30% down for my condo in San Diego and I barely break even.

Here's the elaboration on my three strategies originally mentioned:

- A Single Family home for cash with purchase price around $100-$120K; After 6 months I will re-finance to free up my cash again. I am currently not a good borrowing candidate as I have been paying a lot rent up until this month. The rent is crushing my debt to income ratio since I was paying $3,500 per month. I figure in 6 months, I will be a better borrowing candidate as my debt to income ratio will be back to a healthy level. When I'm a better candidate, I would like to re-finance in order to free up my cash in case I want to purchase another property next year.

- 2 Single Family Home's with downpayment around $30K each and purchase price's around $100-$120K each: This strategy would actually involve my sister. She has a much better debt to income ratio than I do, allowing us to be joint applicants on the mortgage. I would provide the downpayment for one home while she pays the other downpayment. I was thinking I might be able to get a package deal in this scenario with the property management company because we will end up having two properties under management. Furthermore, my sister has expressed an interest in joining me in my real estate endeavor. Like me, she has some cash in the bank just sitting there and I was thinking we could partner up.

- Multiple Units (Triplex, fourplex) with $60K Down and finance the rest with purchase price around $200 - $240K. This strategy is pretty much the same as purchasing 2 single family home's. Only difference is buying a duplex, triplex, or fourplex, in place of single family homes.

0 Reply

David Faulkner

Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes

10y

If you want completely passive on properties you don't have the time, skill, or interest to actively participate in, don't have the experience to perform full due diligence on an investment or provider, and don't wish to get hands on to gain such experience, then you'd be better off just buying a REIT IMHO. Passive or Control, pick one ... trying to pick both and you will likely get neither.

2 Reply

Bryan C.

OP

Investor · Mountain View, CA · Member since 2015 · 10 posts · 3 votes

10y

I don't like the idea of a REIT because I am leaving the bookkeeping up to someone else who is most likely cooking the books.

I actually own Realty Income Corporation (Ticker symbol = O) and have gained about 60% in 2 years. However, if the stock market goes down, I am pretty confident that REIT's will go down with it. That means the dividend yields will go down as well.

If you look at rental prices during times of recession, they do not decrease much.

If I own $100K in a REIT and my net dividend is 4% per year, I collect $4K per year.
If market drops 50%, REIT is now only $50K, Dividend still 4 %, I collect $2K Per year.

If I own $100K House, net cash flow is 4 % per year, I collect $ 4K per year.

If market drops 50%, my House might lose value, but my net rental income will still be close to $4K per year.

Also REIT's, do not allow me to benefit from loan pay down and depreciation which are basically guaranteed returns.

0 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

10y

I can't seem to vote enough for this David gentleman:) and he really knows his REI shiat.

Keep in mind the top 3 Cali cities since 2009 for total returns are SF, SJ and LA, since 2000 that is LA, SF and SD. (SFHs) All of those are tops for the nation as well. It just might make a difference Florida vs San Diego long term.

@Bryan C.Good luck with your search!

2 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

10y

@Bryan C. Publically traded reits are highly regulated. If the value drops 50% on your real property there is likely a serious problem going on and any cash flow will most likely be impacted significantly.

0 Reply

Bryan C.

OP

Investor · Mountain View, CA · Member since 2015 · 10 posts · 3 votes

10y

@Matt R. that was an extreme example. However, if you look back to 2008, REIT's got crushed and so did their dividends.

If you look at the REIT Index and the dividend history, you will notice that they just quit paying dividends after the financial collapse in late 2008. No dividends paid in 2009! When dividends finally started getting paid out again in 2010, the dividend payouts were half of what they were prior to the collapse! I don't know many tenants who just decided to quit paying rent in 2009. My parents own a lot of real estate and they did not feel the financial crisis of 2008 as their rental checks kept coming in and their mortgages continued to get paid down.

You can see for yourself here: http://www.nasdaq.com/symbol/rwr/dividend-history

0 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

10y

@Bryan C. Right on. I hear ya. I think there were some Reits that kept chugging along. Check OHI

0 Reply

Mike D'ArrigoPro Member

Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes

10y

@Bryan C. I'm in the Bay Area also so I'm very familiar with the challenges here. It's great for long term appreciation but won't cash flow at all. Personally, I like Indianapolis and Kansas City a lot for cash flow. Both are stable markets with strong economies and very affordable prices. You can find a lot of information about both markets on my websites and through my podcasts if you're interested.

2 Reply

Cailyn AunePro Member

Tacoma, WA · Member since 2015 · 176 posts · 88 votes

10y

Hey Brian! Welcome to BP....! Throw a profile pic up so we can "meet" you. :) Don't take the criticism too much to heart. No one knows your full story before they start commenting... You obviously have spent some time thinking this through and have done some research. With that being said- glean whatever you are able... Go look at that members back ground, connect with them to see where they are coming from and why. It's probably more important to know why someone disagrees with you than why they agree with you. You will find every opinion on here from why you should absolutely consider out-of-state to why you should run from it. I wish I could credit who said this last week on a thread- "It's like the Mac/PC argument- most people don't realize there is a time and a place for both." Regardless - do a TON of due diligence. Take your time to educate yourself- BP has tons of stuff- read and listen to it all. You might be surprised to find out where you end up. I'd be happy to share my out-of-state experience with you. PM me if you want.

3 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

10y

@Cailyn Aune Great point. Consider the bias of the source. I see most the out of state crowd being sellers of those assets and their buyers. On average is they have been in a 100% flawed thinking stage for the last five years and have cost newbies many thousands of untold profits since.

0 Reply

Garth Wilson

Los Angeles, CA · Member since 2016 · 9 posts · 8 votes

10y

Hey @Bryan C.

Very short piece of advice. I go on vacation 3 times a year, some long some short. I always build in a few days visiting Estate Agents, drives my wife crazy! Some vacations are build around 'investigating' certain areas I find interesting. The last 5 trips have resulted in 3 purchases. Bottom line... you can't beat boots on the ground. Always buy in areas you'd like to live, you never know, you may want to retire there and manage your own properties at some point.

Also... yes. California is super overheated in some areas, I'm in Hollywood and gave up trying to buy an income property here. After I visit the tax man in April, I'm going on a 'road trip', if you catch my drift. Oh one last thing... always travel at the worst time of year for that location. Flights cheaper, accommodation too, agents more ready to help looky-loos and the property will never appear worse. In other words... don't buy in Vermont in October.

5 Reply

Darrell Lee

Investor · Springfield, VT · Member since 2014 · 158 posts · 75 votes

10y

A lifelong So. Cal resident. Last year I bought about a dozen houses ALL sight unseen, out of state. In 4 different states. 3 houses after over 6 months I still haven't looked at yet and may never.... Sold my Hollywood Hills house that was also free and clear for a stupid amount of money and I like my new Springfield, Vt house better and I paid $62.5k for it...

While I've been out of the real estate game for about 18 years, it is like riding a bike. My typical deal was buy for 20% of the median house price in that area. Most were bank reo's, paid cash and expected I would need to do a lot of rehab. One house I paid $17k and median houses are $75k, got lucky on this one as it only needed a new water heater and some minor work. In Norther New Hampshire, I rent it out on AirBnB for between $100-145 per night and I hope/expect to earn my money back in 2 years.

A money pit example is another NH house I bought for $29k where median homes are about $160k. I've had to pay for all new plumbing, all electrical, new kitchen/appliances, custom kitchen cabinets, granite counters, remodel existing bath, all new flooring, new heating system AND adding a new master bath. Renovation costs I project to run about $40k. So if I decide to sell once complete, I'm still looking at 100% return on investment.

But I'd rate myself as an aggressive buyer, willing to pay cash and buy sight unseen. This year I plan to buy some interesting properties. Just won an auction for a community center with a huge gymnasium and 25 meter indoor pool plus a 7000s.f brick mansion. Paid $60k for about 24k s.f. that's about $3.50 per sq. ft. I have a use for the property but I'm guessing the property will gross about $8k/mo so I should get my money back in 2-3 years. I evaluate all the metrics, assessed at $985k, $3.50/s.f. $48k NOI/yr, 1.5 acres land value for prime downtown location, etc. I think it was a great buy...

I found every property myself. I've worked with a dozen brokers and it's usually me emailing some broker I've never met or emailed or talked with before and I send them an email... "Congrats, you just sold me a house". Of the dozens of brokers I've worked with, only one broker ever sent me a property to look at... The price was cheap, but it was a crappy house... Pass...

3 Reply

Nadine Lajoie

Investor · Long Beach, CA · Member since 2015 · 201 posts · 29 votes

10y

There are many good deals and strategies Out of State, access to REO lists every month between 800-1200 deals a month and other turn key programs where you can buy houses for $50k!!!!

Yes ROI is higher outside CA, risks are different and you need to learn the pros and cons.

I started investi on OOS in 2008, I had only $80k, barely spoke English, knew nobody in USA and nobody wanted to lend me money because I'm Canadian and had no credit score here at that time. Even hard money lenders didn't want to touch me with 50% cash down... was a nightmare, so I had no choice. I invested in 3 houses for my 80k... and went from there. If I would have let me fears and people discouraged me, I would have never doNE 14 deals in 18 Months... I didn't even what foreclosure and short sale meant at that time.

Everything is possible, let me know how I can help. :)

2 Reply

Dan Krupa

Real Estate Broker · Phoenix, AZ · Member since 2013 · 749 posts · 399 votes

10y

@Bryan C., welcome to BP. I have three investments all out of state. My suggestions would be to look for an area in driving distance within your budget. If you are starting out you should see the process and be part of it, especially if you are looking for cash flow. Self management is a great way to pick up extra cash however, make sure you study up and ask a lot of questions. Maybe Nevada is the place to start, Cali has a lot of rules and regulations. Best of luck to you, you came to the right place.

0 Reply

Elizabeth Moore

Real Estate Investor · Chapel Hill, NC · Member since 2015 · 78 posts · 10 votes

10y

Check out Nevada - close enough to Cali for you to pop in and out. If you need help here in Vegas, let me know and good luck!

0 Reply

Roman M.

Investor · Miami Beach, FL · Member since 2016 · 486 posts · 216 votes

10y

If you are planning to refi at some point why not talk to the lender first to see what are their qualifications for single family and multifamily. This way you will know if you will qualify for refi down the road. This way there are no surprises later on when you try to refi.

I think it's better if you try to get financing lined up before you plan to buy (you don't pay additional closing fees). Since you have a sizeable down payment now, I suggest to go after a four-plex. The right lender will not look at your total obligation ratio and will qualify you on the income that the property brings (make sure property is leased so they will count that income). They will look at your credit and experience and if you have enough in reserves. It's better if you go after properties that have financials available to present to the lender. I know TD Bank lends on Income Producing property and recently I found out about another lender that lends on income properties in all 3 states you are looking at.

Pick a market and find out what are their lending requirements are for that market.

Pick a market that you like and look for rental rates history (realtor probably can help you or a management co that you will probably need).

1 Reply

Bryan C.

OP

Investor · Mountain View, CA · Member since 2015 · 10 posts · 3 votes

10y

Thanks everyone for the comments. I now have a better understanding of how these forums work.

I am still leaning towards going out of state; it just makes more sense to me when I look at the numbers. I already own a condo in San Diego and I am happy with it.
See you all in other threads!

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

@Bryan C. If your going to take the plunge then probably better to line up your financing now.. I have seen instances were folks bought with cash and could not refi.. and you know the rates now.. in another 6 or 12 months they could be different. kind of the bird in the hand theory.

Have you looked to House hack in CA.. If you don't currently have a FHA loan you could get into a 4 plex for 3.5% down close in to Mountain view.. that might be an option as well.

Podcast Guest on Show #222

JLH Capital Partners51 Review

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0 Reply

Bryan C.

OP

Investor · Mountain View, CA · Member since 2015 · 10 posts · 3 votes

10y

@Jay Hinrichs. Thanks for the advice. I do plan on speaking to banks and mortgage broker's before purchasing to ensure I can re-fi.

I did consider a house hack in Mountain View but the purchase price would be well over $ 2 million so I would not qualify. People do not realize how expensive it is here!

Check out this property 3br/ 2bth of $1,600 sq feet that just sold down the street from me for over $1.8 Million.

http://www.zillow.com/homes/for_sale/19515746_zpid/any_days/globalrelevanceex_sort/37.388903,-122.073971,37.386554,-122.079206_rect/17_zm/1_rs/

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New CA resident looking for out of state investment

New CA resident looking for out of state investment

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