New SoCal RE investor joining the herd

[Joey Kincer]

Howdy all. Thought I'd hop in this forum and join the legions of other RE investors building up their fortunes. Found this place courtesy of Bogleheads.org, which is great for investing topics but too many anti-RE folks over there. I live in the middle of Orange County, CA and have owned my primary residence since 2010 (bought during the financial downturn, and has appreciated nicely since then).

Began my RE investment escapade last summer.  I had a bunch of dry powder saved up to invest in the markets early in 2020, but with COVID-19 turning stocks volatile and bonds no longer paying decent yields, figured better to try elsewhere. My dad who's been a realtor since 1974 told me "You really need to get into real estate!" With interest rates at all time lows, that didn't sound like such a bad idea. Need those rates to work for me rather than against me. But where to begin? I sure as heck wasn't going to buy in tenant-friendly California.

Considering I plan on moving to Arizona in later years/retirement, and they're a landlord-friendly state, that seemed as good as any place to begin. After much research, Dad referred a local broker so I drove out in July and spent 4 days looking at new and existing homes in the northern suburbs of Tucson (Marana/Oro Valley). Narrowed it down and put in an offer, and after a bit of negotiation, went under contract on a 2-story tract home (4br/2.5ba/2575sqft) in Rancho Vistoso, an upscale community in Oro Valley. Had to stretch to the very top of my budget, but it was in turn-key condition and the sellers were very accommodating, so virtually no fixing/cleaning expenses. 25% down, 30 years @ 3.25% interest rate (0.25 point) which is stellar for investment rates.

Drove back out 30 days later to sign papers, get the keys and meet with a reputable property manager. With all the new protocols and screening qualifications shaped by the pandemic, PMs would surely look for quality tenants who wouldn't be taking advantage of any moratoriums. Home was marketed well and only took 2 weeks to find qualified tenants, at $100 over the appraised rent estimate! (Likely due to families moving away from dense cities to the outer suburbs).

Knock on wood, there's been zero issues with the tenants and PM. Cash flow is $650/mo and overall ROI is north of 7%, which I know is lower than most investors would target but I'm willing to sacrifice a little return for an upscale/stable investment, especially my first time out. It doesn't meet the 1% "rule" by any means (more like 2/3%) but no decent property does right now, and I'm perfectly OK with that. To add a cherry on top, the property has already appreciated almost 10% in the eight months I've owned it, which is crazy.

No regrets so far! Would love to buy another one in the next year or so, but with prices shooting up like they have, I'm a little hesitant to go in for a 2nd round right now. If we hit a bust cycle then I'll be ready to spring into action, but I'm super happy with what I have for now.