Invest in CA or out of state?

Question

Hey there BP!

Wondering if anyone is currently buying in or around Southern California area, if so where?

I am finding the properties a bit out of reach for me in my local area, and I’m hesitant to start buying out of state on my first property. My initial plan was to find a duplex/triplex/quad using first time buyer incentives. Then I would house hack, enabling me to save enough money to begin BRRRRing.

However, even average SF houses in my area are 400-500k, and duplex/triplex are few and far between and even further out of reach. Rental returns for 2 bedroom seem have the best ROI, priced about 2k-2500. I am thinking I could find a better value in a different state, although its intimidating. Or possibly section 8 in CA?

Any advice is genuinely appreciated. I am committed to learning this.

**Note I have 15k saved now, and access to family funds (potentially) if I were to secure a property and show good returns as a proof of concept

Account Closed · Answer

Hi @Eric Colicchio, you're facing the same dilemma that many investors face when they start out on their investing journey. They're outpriced in their markets, so they go out of state to purchase cash-flowing properties. IMO it's better to own your own residence and house hack to lower your cost of living expenses first. As you save money, you can then start buying more rentals to expand your portfolio. $15K isn't much to work with, and I'd recommend that you save a bit more while learning of different investing strategies and attending meetups to better decide where you want to place your funds. Best of luck and let me know if you have any other questions!

Jason Hsiao · Answer

@Michael ParmenterYou don't have to live in the ADU like I mentioned. Some cities have owner occupied requirement some don't. Those that don't you can rent out both units and cashflow that way

Michael Parmenter · Answer

Thanks @Jason Hsiao and @Dan Heuschele for the feedback/comments, very helpful. Also fun to see another person from Poway (I'm from there as well!)

Dan H. · Answer

No city in Ca can require owner occupancy (OO) on an ADU. JADU typically requires OO. As for the quality of the ADU investment, make sure you know how the ADU will appraise before proceeding. In most cases, a hands OFF ADU will be a poor RE investment. This is because the ADU typically has a value far below the hands off cost of the ADU. This implies that the initial cash flow will go to recover the initial negative position. The negative position can consume years of cash flow to reach a neutral position.

Zachary Beach · Answer

@Eric Colicchio I’m getting insane returns in Southern California over 100% return on equity this year. Massive cashflow and even more massive appreciation. On appreciation front it will not be every year but the cashflow is also crazy good. Not everyone In my market is getting good if any cashflow but we manage our STR’s with about 3 times as much revenue as average.

Twana Rasoul · Answer

@Eric Colicchio Definitely try to house hack a single family unit using low money down options and rent out the other rooms or ideally buy a duplex and rent out the other side....I do not recommend getting started buying out of state, buy your own place first and take advantage with the high leverage options that you have for owner occupying before you start to look out of state.

Michael Parmenter · Answer

@Jason Hsiao Yeah it's definitely a great strategy - my agent/investor friend in San Diego has recommended me the same path. As I mentioned previously, house hacking isn't an option for me at this time (currently renting and girlfriend is not interested in that). I'm in Hermosa Beach (South Bay LA) - but open to properties here, OC, or SD.

Jason Hsiao · Answer

@Eric Colicchio @Michael Parmenter you can find a SFH with a detached garage. Convert the garage as an ADU, live in it, and rent out the front house to cover your mortgage. It's much more time and cost effective as building a detached ADU. Where in SoCal are you or are you looking?

Eric Colicchio · Answer

@Sean PanThank you for your advice, I will definitely do just that. Saving up and house-hacking is my preferred solution if I can figure it out. I would love to find an active investor in this area to mentor under.

Michael Parmenter · Answer

I'm in the same boat as you @Eric Colicchio, from SoCal and on the same path in terms of saving up funds for my first purchase. I've been looking in and out of state to better understand the markets and what my options are. I'm currently renting and don't think the House Hack option is possible (living with GF and she's not onboard) I just joined a few virtual meetups and hope that will help, suggest you do the same!