All Forum Posts by: Becca F.

@Denise Lang

I'm not sure what part of California you're located but I invest in the Bay Area and Indianapolis metro area. I've had mixed results with Indianapolis. It's referenced in one of @Nicholas L.'s posts

So far I haven't had any issues with my tenants here and my properties are located in a very pro-tenant law city. There are nightmare stories but most of the CA investors that I know haven't had major issues. Otherwise they'd all sell and invest OOS or get out of RE entirely and many of them have been investors for 20+ years. One of the disadvantages is if I add an ADU to my single family rental, it's considered a 2 unit and under rent control so I decided not to do that considering all the construction costs. This rule differs from city to city. Vetting the tenants and following local laws is extremely important.

If you don't own a primary residence, would you consider house hacking (buy a single family and rent out the rooms or a duplex and live in one side/rent the other? If you're in the Bay Area, Sacramento and the Central Valley are all within a 2 to 2.5 hour drive and price points are much lower. 

When you mentioned that you don't have a lot of money to start with, I'd recommend focusing on increasing your current income and decreasing expenses. I'd suggest attending local meet ups so you can talk to people who invest in CA and OOS. Some of these investors might let you walk some of their projects. Knowing about construction, how to pick a good inspector and read inspection reports will save you a lot of headache/money -  it's difficult to invest in RE just by doing things online.

Feel free to DM me if you have further questions. Happy Holidays!

Great question. I'm looking into possibly doing a 1031 or reverse 1031, have kind of identified potential markets. 

What are fees associated with the Qualified Intermediary holding onto this money? Does it outweigh paying the capital gains tax? Do capital gains offset passive losses that the investor has, so someone really isn't paying a high capital gains tax as they thought? 

@Shaylynn O'Leary

Being a realtor you have an advantage of staying local.  I also watched Chad Carson's videos about being a small but might investor. I understand being in high cost market and it being difficult to buy but the "cash flow on paper" inexpensive markets is a gamble. I talked to numerous California investors in real life and phone/Zoom calls who have lost money in far away OOS markets, mostly Midwest markets (e.g. repairs, capital expenses, bad tenants, properties vandalized while under renovation, evicted tenant stole all the appliances, property managers with high fees or overcharging for repairs). To be fair, I'm not saying the Midwest is a bad market but you have to be really careful where and what you buy. 

Some Bay Area investors I know are: house hacking, rent by the room, mid-term rentals, STR (depending on your location AirBnbs may not work). One of the smarter recent strategies is the owner is living in the ADU and renting out both levels of the main house on AirBnb.

I invest in the Bay Area and Indianapolis metro area (Class A suburb and Class C). I've posted many times about my experiences. I changed my strategy from 2 years ago of acquiring more doors and "cash flow" to now looking at the asset if I continue to buy. 

Feel free to DM me if you have questions about Indianapolis :) 

With East Side, Christian Park and Emerson Heights (but I sold this one). I recommend visiting in person and getting to know Indianapolis on a detailed level, establishing a trusted team and meeting them in person (or at least Zoom calls). Much of Indy is street by street. I don't recommend buying a property sight unseen unless you have a high risk tolerance.

I've found the property tax rates a little high, 2.78% on East Side and 2.70% for my Class A suburb so that does affect cash flow. The question is do I keep  holding onto these properties for appreciation, especially the Class C?

I meet in person lots of CA investors who invest here as well as OOS. I don't think there's one solution for everyone. DM me if you would like more info :)

I rented out my Indianapolis suburban home in 2019 when I moved back to California. My property taxes went up 2.7 times once the county found out I was renting it out - it took about 2 years. My initial net rental income was $402 a month to $224 a month. It's now at $121 a month. I lost the homeowner (called homestead in Indiana) exemption, mortgage exemption and another exemption. My property tax rate is 2.70% 

I have a great tenant so I haven't done large increases (like $150 or $200) since I don't want a unit turn but I'm in the market rate range. I'm not factoring in a percent for vacancy, repairs or capital expenses. The net number is rent minus mortage PITI, property management fee and HOA fee). I'm not sure if I should call that cash flow. I'm keeping this property for the appreciation (in a high demand area with great schools) and low interest rate for now.

 Even with high property tax rates, the deal can still work.  I have California investor friends buying in Texas (Dallas and San Antonio). 

I invest locally and in the Indianapolis metro area. I posted many times about this. I would go for appreciation in Class A/B area and not try to buy the cheapest properties Class C. My home in a nice suburb (Hamilton County) with great schools doubled in value from 2013 to 2021.. Home built in 2005. Great tenant but property tax increases have reduced my cash flow. I used to live there so I didn't just pick a random market. It's been rented out since 2019. The county discovered I was renting out my home and property taxes more than doubled (lost homeowner and two other exemptions).  Property tax rate is 2.72% for investors. I don't do large rent increases (like $200) because I don't want a unit turn but my rent is in the market range.  My net income is now $121 a month (from $402 when first rented out to $224). I'm holding onto this property for now because of appreciation and my low interest rate.

I bought in 2023 on the East side of Indy, Class C $130,000 and $132,600. Both homes went through inspections, built in 1920 but renovated by previous owners. . Sounds like great prices but 9 repairs in 12 months called in by tenant, it seems to have finally stabilized after owning for 18 months (no repair calls in 3 months so far), stolen AC unit, attempted break in on other house (alarm scared intruder away). Property tax rate 2.78%. I just sold one of the Class C - I saw the writing on the wall. I made the offers and closed without seeing them in person. I later flew out there and walked the properties -the properties and neighborhoods look much different in person than on video. Indy is very much street by street. My net income is $71 a month (with no repairs called in) after the recent 17% property tax increase. The question is how long do I hold onto this property and how much will it appreciate?

I would recommend flying out there, getting to know the area on a detailed level  and talking to local investors (someone not trying to sell you anything). My opinion is that these Class C properties are better for locals who are on site and can check on the properties and do some of their own repairs. Get a full inspection and a sewer line scope. 

If you pick a solid property in a good area with good schools, it'll appreciate - it'll be negative cash flow as a long term rental (unless you have some creative strategy or do STR/MTR) and you're less likely to have repair, tenant issues, crime etc. The nice suburbs are in Hamilton County (Carmel,Fishers, Westfield and Noblesville), Hendricks County (Avon, Plainfield, Brownsburg, Danville) and Greenwood. I've talked to so many California investors who have bought in inexpensive markets in the Midwest or the South that have had so many issues with Class C.

What about investing within a 2 to 3 hour drive of where you live so you have more control and can check on your properties?

Hi @Lolo Druff,

 @Nicholas L. referenced my previous post about buying out of state - I've had mixed results in Indianapolis metro area, Class A (nice suburb, great schools) rental has done well but Class C has been a huge headache (repair costs, stolen AC unit, attempted break in). I'm deciding how long I should hold onto those properties and if the Class C will appreciate enough. My property tax increases have been 17% for both homes (no Proposition 13 like in CA with our max of 2% increase).  Also you'll need to winterize a vacant property in the Midwest. In contrast I can keep an eye on my Bay Area properties, try to do a minor repair myself, etc. 

I'm going to offer a different perspective of looking more at the asset instead of cash flow on paper. With $400k you could invest in California. If you're in the Bay Area have you considered Sacramento? It's 2 hour drive. 

I talk to lots of investors who buy locally as well as OOS. Some strategies to lessen the negative cash flow are: house hack and rent out the other unit as a mid-term rental (to traveling professionals or for people temporarily displaced because of insurance reasons like fire) or short-term rental (business or vacation). One of the smarter strategies I've seen recently is buying a single family with two levels and an ADU. The owner is living in the ADU and renting out both levels of the main house on AirBnb. They are usually fully booked - it's in San Francisco. For obvious reasons, STRs won't work in every market. Rent by the room for long term rentals is another strategy.

With OOS, what about Nevada? If you're in SoCal you could almost drive to Vegas or if you're in the Bay Area drive to Reno. I'm looking at Nevada - property tax rates are low and there's lots of appreciation.

I'd recommend attending local meetups so you can talk with investors who buy in CA as well as OOS and ask lots of questions. Good luck.

 This is very helpful information. I'm not a flipper but maybe looking to buy property in Vegas or Reno. Those electricity rates sound reasonable to me compared to our California rates. I like the idea of solar energy but I'm not totally convinced that I should be looking for properties with solar for cost savings - I wouldn't want to lease the panels but probably buy them. 

In San Francisco Bay Area, my 2024 rates are $0.494 for peak and $0.464 off peak hours per kWh for the two counties my properties are in. There's a baseline credit of -$0.101 per kWh. I see some homes in the suburbs which get more sun and have hot summers with solar panels, a few in San Francisco where there are a lot of overcast and chilly days. 

Great comments. I don't think it's one or the other. With real estate, there's appreciation, depreciation, leverage, and tax benefits. I can add value to RE by adding a bathroom, renovating the kitchen, ADU, etc. I can't do that with my stocks or do anything myself to influence its value. I've done a cash out refi and taken that cash to pay for a renovation for another rental - that money isn't taxed since it's a loan. If I sell my stocks to access cash, there's capital gains tax. There are multiple ways to invest in RE: single family, multi-family, long term rentals, mid-term rentals, short-term rentals, rent by the room, commercial, co-ownership, syndications (I personally won't do syndications) etc.

I'm weighted towards RE but I have been buying in the public markets recently (stocks, index funds, bonds, REITs, Master Limited Partnerships, Business Development Companies). I won't dispute that buying stocks is much easier than analyzing a real estate deal and closing on a property. My one worry is if the stock value goes down when I retire, like the stock market went down at the beginning of COVID. 

If I continue to buy RE, cash flow isn't the major reason. It's appreciation and passing on wealth to my kids. If someone doesn't want to do the work and put in the time to invest in RE, stocks and index funds is probably the better way to go - I've stopped trying to convince my friends (the mortgage free people) the benefits of RE. 

You're in Texas, which other people have commented is a gold mine.

On #3 I agree with buying primary residence and building an ADU. House hack if possible. ADUs seem to be really popular in California, depending on location. San Jose it's the first city where you can sell an ADU as separate property, not sure how the land value is divided up from main house. This is what I see younger high W2 earners in the Bay Area doing.

For #2 buying land- is that only specific to Texas? Does this work better for certain states than others?  Hold onto the land then sell myself in a few years or 20+ years and let my kids inherit it, when I die, take step up basis and sell it. I just Googled this and it said an average acre of land in Texas in 2023 is $4670, depending on location and more if near urban areas. Are the property taxes on the land very minimal? What are other costs associated with buying land? 

I know CA investors buying in Dallas and San Antonio, specifically apartment complexes and an Austin investor (who lives there) buying land to build retail. Wow... no zoning in Texas? I've never even been to Texas and I can seen the appreciation and economic growth - might need to take a trip there