You can build a cash flow portfolio out of state very fast and easily, but the appreciation may not be there for a long time, in fact, real estate values are more sensitive to economic changes in many out of state cities, and you may find yourself with negative equity and lack of liquidity for over a decade, specially if you already purchased for top dollar.
Regardless of where you buy, you want to buy at the lowest possible price, but that is not always easy. Property owners have as much access to education and property values as everyone else, thru the internet, which is making deal-finding seemingly harder for investors.
When buying turnkey out of state, you need to consider that the seller may be specifically targeting investors from high-priced areas, such as California and NY. They sell you a gorgeous home for $150k, which would cost $800k or more in some CA areas. However that $150k house was purchased 6 months prior for $30k-$50k. Then they also charge you management fees.
To enter the RE market in California in any form or manner, you need much more money than you need to enter out of state RE investing. Some of the people who have commented on this threat on their CA cash flow portfolio, have owned most of it for a while. We have plenty of private money for the right deals, though, as well as many opportunities for those who are willing to put the time and effort.
There are also, as it has been mentioned, some very good rental areas where the cost of entry is significantly lower than in, say, big old Beverly Hills. Our company has some SFRs for sale inland and in dessert communities that would pay for themselves AND build appreciation from day one. Plus you can raise the rent 10% every year! A client purchased a 4-plex in Ontario 5 years ago and recently got $350k out of it with a cashed out refi.
You always need a strategy. I have a client who came to USA from Ireland at 23. From his modest machine shop job, he decided to start investing in RE at 24. All his co-workers thought he was crazy. His strategy was purchasing at least one condo/SFR in and around Fountain Valley every year, regardless of the market conditions. He used his savings and cashing out equity. Ten years later he wasn't working anymore, just living out of his rentals. He now owns 33 properties and his biggest complain in life is the many pages he needs to add to his tax return - one schedule C per property!
We have been able to put someone who was just making $3,000 a month into a 4-plex. Then, a year later into a SFR and now into a duplex. So this modest worker went from renting to owning 3 properties in just 4 years. The best is that those properties are paying for themselves in increasingly high rental demand communities AND building around 10% in equity a year, which is a significant amount in a +$1.1M portfolio. That is the magic of California equity building.
