I probably could and should write a book of my thoughts on this subject (at least for my own use) so Ill just dump what is on the top of mind mind here....
I was in the exact same situation as you a few years ago. I also live in the bay area (Oakland)
I was looking to start investing both flips and long term but could not see any way in with the cap rates or the competition in the big cities. My feeling is that in the big cities there are a few deals but the problem is that there always seems to be someone else with more cash, experience, and connections to beat you to the deal. I figured that if I made a mistake in CA (or any other big area) I would lose BIG. If I started in a 3rd tier city I could still screw up but not nearly as bad.
I ended up going to Syracuse NY. I bought both rentals and flips. I both lost and made $ in rent or in capital gains.
Lets start with the main ways I screwed myself and lost $:
-Taking a long distance relationship for granted: You cant trust someone just because they have a license and you are paying them. If they sense that you are not paying close attention, they may take extras wherever they can.
-Underestimating the significance of properly setup utilities in a cold climate: Buying a rental building which has owner paid utilities or even a building which has tenant paid heat but is so inefficient it costs almost as much as rent to heat the house/ The tenant will pay the heating bill way before rent.
The above are just 2 of the big ways where I screwed myself, but there are literally hundreds of other pitfalls when it comes to buy and hold property.
On the more positive side I did also make good profit on a single family flip(by doing cheap but effective big city style renovations), and collected 1200/month cash flow for several years (real cash flow after ALL expenses and payment on 20% down mortgage)on another building.
As of today, I own none of them and I am in the process of taking my knowledge gained and starting over, probably in a different city which has even better prices/taxes/rent rates.
Even though I lost money overall I look at some of my experience as the college education that is not offered.
I still very much support going to smaller cities to invest. I think if you come in with big city cash and out of the box thinking, you can do very well.
My approach to dealing with the remote investing issues starts with this:
-Do your research and pick a city you want to invest in.
-Take a trip to this city and spend one week learning the dividing lines of the bad area, talking to realtors, contractors, lawyers, and just locals. Ask everyone everything you can. See some houses when you are there but dont expect to find the best deal on your short trip.
-Go home and if you still want to invest in that city, start looking via the internet and start making offers. Dont get emotionally wrapped up, just make offers that fit YOUR plan. When you get some accepted offers, hire one of the contacts you made on the first trip to do an inspection. If nothing pops out at this point, and there is nothing else to hold back the deal, this would be a good time to take another trip there to see the property. Make sure you want it (the $1000 trip is far less $ wasted than buying the ugly duck sight unseen) If you are in fact going to buy the property, then use this time while you are there to determine any work that needs to be done before you will rent or sell it. Work on your suppliers/contacts while you are there. At this point you may want to go back to wherever home is and wait for the deal to close or if you are flexible, stay in the investment city and wait for the keys and get started. If your are doing repairs or renting you really should be present during this time to oversee things.
I have done the above myself with good results but I am self employed at home so I was able to disappear for 2 months total time to make it all happen start to finish. I know this sounds like a big pain in the *** and for most people it is but the truth is if you have the tolerance for this you can make money, if you don't want to put in the extra effort and you count solely on people who know you are 2000 miles away, you are very likely to not get what you think you are paying for.
You reap what you sew is the moral of the story. It takes a lot of work, knowledge, and involvement to make this work. The dream of calling a realtor up across the country and asking them to get you an investment property and manage it all for you is rarely found.
If you really want to buy and hold long +remotely I believe it can be done but I think it requires a building which cash flows enough for some accepted loss/ travel to the property several times a year.
As far as managing the tenants, good tenants can be found and I found the good ones much easier myself than with the use of a manager. The problem is that managing is dealing with tenants' unique personalities and problems. Not everyone is good at that. If you do use a manager, I would find an unrelated person or maybe 2-3 people to do repairs so the manager cant take advantage of you there.
Many people dont like tenants which are on section 8 or other programs where some government agency pays some portion of their rent. I love it. The checks come to you directly and on time. In smaller cities where the cash flow is good, there are many decent people who have all sorts of free money coming in for rent. I have found that these people are happy to not trash the place since they are more or less freeloading and pay little or nothing themselves.
In these smaller cities you have to be very careful with those tenants who pay their own rent. This is because in these cities the prices are such that anyone with the money for rent should be able to just buy their own home. I have had a few good ones, but it was not the norm.
I also found smaller units to be better. A 1 bedroom unit will rent to a young couple or single person. A 3 bedroom unit will rent to a family usually at least 5 or 6 people. The worst part is you have to consider that the reality is that family of 5 or 6 will have their friends/ extended family over there, possibly living there. Trust me you don't want that set of tenants.
I have tasted the cash flow possibility that can be found by a person with little $ in a small city but its not without problems. I am currently working on my own plan of how to implement remote management in the most successful way possible and start up again.
Given the recent decline we may now be able to find properties which meet our criteria within a day's drive of the bay area. That would be a lot better than the 1 day flight I had to take to NY everytime.
Take the time to make a solid plan before spending any $. Get advice from seasoned investors on biggerpockets and elsewhere. Stick to your plan once if you do start, and only do one property at a time start to finish before starting the next one.
