Buying out of state

[Noah Mellor]

Hello BP comrades.  I have been listening to BP for the past four months.  I am a Plumber by trade for the past 19 years and for the past year have moved into the design department with my company in designing the plumbing systems.  I have a good amount of money that I want to start investing in real estate with but where I live in the Bay Area (California) it is tough to do so.  I feel my best bet is to invest out of state with multifamily and have looked at Syracuse, Milwaukee, Columbus and anywhere else where i can create a good amount of cash flow with not a hefty down.  My biggest fear is relying on a reliable property management company.  I would love any advise and look forward to continuing to learn through BP.  

[Wes Blackwell]

Hi @Noah Mellor! Great question!

I probably speak with an investor from the Bay Area every single week who has the exact same problem. They're making good money, but investing nearby seems almost impossible with such high prices. What's a guy to do?

Essentially, there are three options:

1. Invest in the Bay Area: High prices, low returns. But, it's close by and you really know the market (or have an agent who does). The high prices are simply because of supply and demand. A whole lot of people want to live in California, but we don't have enough housing to satisfy them. Alameda County would have needed to build 13,456 per year for the past three decades to keep prices on par with the rest of the country! But -- the problem is California is ridiculously expensive to build new construction, as you'll have tens of thousands of dollars spent on permits before you even break ground. LOTS of regulation and fees aren't helping to satisfy the demand either. It would've been great to buy back at the bottom of the market, because you would've experienced all the awesome appreciation @Johnathan Alesso spoke about. California, more than almost any other state, is all about buy low and sell high. Considering that the Bay Area has a 45-60% chance of being in a bubble right now, I wouldn't advise investing in the local area. Much better returns are to be had elsewhere.
2. Invest in the Central Valley (or just Sacramento): Thousands and thousands of people are moving out of the Bay Area every year, and out of state or the central valley of California is where they're heading. Specifically, Sacramento. We are projected to have 18,000 people move here from the Bay Area next year. Good news for investors is that the demand for housing will come along with them, and so rents will continue to rise as Sacramento becomes one of the top rental markets in the nation. To make it even better, we are projected to be the #4 hottest metro real estate market in the nation next year. That means you could buy now, experience 5-7.5% annual appreciation for the next couple years, sell at the peak of the market, and then sit on the money until it all comes back down and you can buy at the bottom of the market 5-7 years from now and get $150,000 of appreciation per property in the next few years after that. Cha-Ching!
3. Invest Out of State: This brings it's own set of complications. Mostly, having boots on the ground to service the property. You'll need property managers, contractors and repairmen, and most importantly someone you can trust. The other difficult part is knowing where to invest. You've got 49 other states to choose from, and probably know nothing about the local economy, job market, real estate market, etc. Makes it a lot more difficult, but it can be done. You'll have to spend some time educating yourself first and then start building a team in the area. Hard to do remotely, probably best to make as much contact as possible long distance and then spend a week or two in the area looking at properties, interviewing agents and property managers, etc.

My advice to Bay Area investors? Invest where you know, or somewhere within a few hours' drive. There are PLENTY of properties here in Sacramento that can give you a positive cash flow of $750 per month, and you don't have to fly 9 states away to find them. You just need the right agent who is working with other investors like you everyday and totally understands your goals and what you're looking to accomplish ;-)

If you ever want more information about Sacramento or the greater central valley real estate markets, just reach out and let me know. No matter what you decide, best of luck!