Rental property in Orange County, CA

[George Iskaros]

Hi all, hope you are doing well during these crazy times! Would love to learn from all you experts on Bigger Pockets-- I'm thinking of starting to invest in rental property in Orange County, California. Any thoughts on what the best strategy is? Also, if rental property is not the most attractive strategy in this area, any thoughts on other forms of REI? Thank you very much in advance!!

[Cody Barna]

@George Iskaros what does your current living situation look like?

[Joaquin K.]

What are you looking for?  Cash flow?  Do you need money every month?  What's your holding period?  

I assume you are in neither Florida nor OC so you'll be using some sort of property management correct?  Or do you have friends, partners, or family in either area that would be helping? 

[George Iskaros]

Yes I am out in the NYC area so will be using a property manager. I am definitely looking to at least break even and a thousand bucks a year wouldn't hurt in cash flow! Long term hold period for sure

[Joe Homs]

@George Iskaros not a great idea in Orange County.  If you do the numbers you will be in a negative cash flow situation.  Look into Flipping and Wholesaling, but there are many other things you can do.

Good Investing...

[Alvin Sylvain]

If you're going to go through all the necessary hassle for Out of State Investing, why on earth would you choose Orange Country of all places? That's got to be one of the worst areas for a beginning investor in the entire nation, right up there with San Francisco and New York City.
You can get a 8 unit apartment building in some areas for the price a 2 bedroom dump in Orange County.

[Account Closed]

You need to be able to stop by occasionally.  I would never consider anything further than 30 minutes.  There are many markets in the NJ suburbs of NYC that cash flow, that would be much closer for you.

[George Iskaros]

Forgot to mention my fiancé lives there so have some family and will be visiting quite frequently. But given the consensus around OC not being a great market, what do you guys think is the most attractive region for rental properties in the country?

[Alvin Sylvain]

Originally posted by @George Iskaros:

Forgot to mention my fiancé lives there so have some family and will be visiting quite frequently. But given the consensus around OC not being a great market, what do you guys think is the most attractive region for rental properties in the country?

Having family in a market is not reason enough to invest there. It can be helpful, but only if family is on board with the whole real estate investment thing.

Speaking of which, the more important question is, do you know if your fiancé is on board with Real Estate Investing? Few things can drag down an investment strategy like a Significant Other either being ambivalent, against it entirely, or has completely different strategies in mind. I assume you two plan on spending a long time with each other, and it won't do either of you any good if your goals don't sync up at least a little bit.

And don't even get me started on differing strategies on raising kids! Or what to spend money on! Money habits is a BIG killer in relationships, worse even than infidelity.

To the original point about where besides Orange County to invest: OK, this will sound crazy, but, almost anywhere else.

First thing to do is search the BP forums. There is plenty of free information available, I think maybe even a forum dedicated to the topic, or you can purchase David Greene's book, "Long-Distance Real Estate Investing". Keep a look-out for the BP webinars, he gave one on that very topic a month or so back. And as they tend to eventually repeat, he's bound to give another one again.

Bottom line, keep looking, keep educating yourself, and good luck! Kiss that fiancé once or twice for me.

[Steven Nguyen]

Originally posted by @George Iskaros:

Forgot to mention my fiancé lives there so have some family and will be visiting quite frequently. But given the consensus around OC not being a great market, what do you guys think is the most attractive region for rental properties in the country?

 Hello George,

You can consider buying a property in OC with a huge lot and add an ADU to create your own "duplex" in a sense. I just copied what I posted in another section for reference.

I just purchased a property in Lake Forest with the intent of adding a 1000 sq ft 2 bed / 2 bath with den ADU in the backyard. The company I'm using actually showed me an ADU they were building in Long Beach and are highly knowledgeable. The company does both modular homes built in a factory or build from the ground up. There are a few ADU companies in the bay area as well. Timelines are the same for both modular homes vs ground up - 1 month for plans, 2 months for city approval, and 3-4 months to build depending on weather conditions. The modular home for 1000 sq ft is about 220k vs 275k from the ground up. Ground up requires solar panels and usually appraise better, but modular homes are cheaper, require less on-site construction (usually 2-3 weeks only), don't appraise as high, and tenants cannot tell the difference. Since modular homes must be craned into your backyard, you need a nice rectangular backyard. Keep in mind, just because you spend 275k on an ADU, doesn't mean the house will appraise 275k higher. Since my backyard is L shaped, I have to do from the ground up.

For financing an ADU, best options are HELOC from primary/secondary home or cash-out refinance. Construction loans are an option but interest rates run from 5-7%. Could do a construction loan then refinance the property to pay off the construction loans.

Junior ADUs must be attached to the primary residence (i.e - attached garage can be converted to a jADU, but detached garages do not qualify) and require owner occupancy which is a huge downside if you are trying to buy a new property every year for owner use to get away with <20% down payment.

For some numbers, my main house is 4bed/2bath renting for $3500/month and ADU 2 bed/ 2 bath + Den used as 3rd bedroom will rent for around $3000/month. Main house 10% down with 2.625% interest rate and ADU financed with a HELOC with around 4% interest rate. I am anticipating about $1,400 cash flow after expenses. I currently have tenants in the main house as I am constructing the backyard ADU, but made it clear upfront that there would be 3-4 months of construction. With modular homes, it would be less on-site construction.

I specifically target properties with large lots to build ADUs as duplexes/triplexes/4plexes seem to be extremely competitive in CA.

I hope this helps!