Debating on Investing in this market

[Nick Allen]

All,

As part of my continued education, I've been trying to read anything and everything in hopes of being the most knowledgable I can be when I pull the trigger on my first deal, whether thats in CA or in TN. 

I also understand part of that is setting goals so I don't get analysis paralysis.

I have been 90% sure that I want to invest back in TN where i'm from since I know the area so well and the cash flow is hands down better. However, I wanted to keep my mind open and talk to a real estate agent about the market here. So, I set up a meeting with a local REA to discuss the numbers and what I could afford etc..Once we started going through MLS and all the "off market" deals, it became obvious that there are no "good deals" IMO and the number of opportunities are at a all time low right now. The pricing is out of control (even for foreclosures) and as a newbie I don't see anyway to justify a purchase especially not with the negative cash flow. There was nothing cheaper than 400k for a SFH and that was the outskirts of the city.

Whenever I mentioned my cash flow requirements to the REA, they quickly dismissed the importance of that and that they were hopeful the rent would "probably" cover the mortgage. This struck me as hope for a strategy and you know what they say about hope. I also know their trying to make a buck so I understand where their coming from. 

 I have also been warned from mentors and through BP podcasts about using appreciation as the sole justification for a purchase. Didn't brandon turners book talk about appreciation as the icing on the cake and not the whole thing? I've also been encouraged to disregard California entirely due to the cash flow situation. Interested in the communities thoughts on this.

I'm just looking for some guidance on how to think logically about investing in CA or not. I have seen the effect of appreciation because of the major increase in property from 2010 to now and wish we would've bought a condo back then but I didn't have a crystal ball.

My other question is whether to purchase a SFH for our personal home since I feel like i'm throwing away good money on rent every month (3300.00 a month!) which could be going towards a mortgage.

thanks for helping a newbie wrap his head around these issues.

V/r

Nick

[Matt R.]

Originally posted by @Nick Allen:

All,

As part of my continued education, I've been trying to read anything and everything in hopes of being the most knowledgable I can be when I pull the trigger on my first deal, whether thats in CA or in TN. 

I also understand part of that is setting goals so I don't get analysis paralysis.

I have been 90% sure that I want to invest back in TN where i'm from since I know the area so well and the cash flow is hands down better. However, I wanted to keep my mind open and talk to a real estate agent about the market here. So, I set up a meeting with a local REA to discuss the numbers and what I could afford etc..Once we started going through MLS and all the "off market" deals, it became obvious that there are no "good deals" IMO and the number of opportunities are at a all time low right now. The pricing is out of control (even for foreclosures) and as a newbie I don't see anyway to justify a purchase especially not with the negative cash flow. There was nothing cheaper than 400k for a SFH and that was the outskirts of the city.

Whenever I mentioned my cash flow requirements to the REA, they quickly dismissed the importance of that and that they were hopeful the rent would "probably" cover the mortgage. This struck me as hope for a strategy and you know what they say about hope. I also know their trying to make a buck so I understand where their coming from. 

 I have also been warned from mentors and through BP podcasts about using appreciation as the sole justification for a purchase. Didn't brandon turners book talk about appreciation as the icing on the cake and not the whole thing? I've also been encouraged to disregard California entirely due to the cash flow situation. Interested in the communities thoughts on this.

I'm just looking for some guidance on how to think logically about investing in CA or not. I have seen the effect of appreciation because of the major increase in property from 2010 to now and wish we would've bought a condo back then but I didn't have a crystal ball.

My other question is whether to purchase a SFH for our personal home since I feel like i'm throwing away good money on rent every month (3300.00 a month!) which could be going towards a mortgage.

thanks for helping a newbie wrap his head around these issues.

V/r

Nick

Appreciation may be icing on the cake if that location does not historically appreciate otherwise that statement is a pretty ignorant way to look at real estate investing. Here is why, San Diego is #3 nationally for total profits ( cash flow + equity gains) since 2000. LA and SF are number 1 and 2. This is partly due to the higher than average appreciation, which turns out to be the cake in those locations. It goes beyond that. In some of those locations the dirt became so vaulable that condos or other new construction became the next phase. In those cases the returns become lottery like. It is those reasons you pay $3300 rent today and if your landlord owned for awhile I bet represents more cash flow than he would have had in TN. So now the best of both for him perhaps. 

Good luck with your search!