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Updated about 15 hours ago on . Most recent reply
First time out of state investor - Need advice
Hello BiggerPockets fam! I live in Northern California and am looking to step into real estate investing by purchasing my first rental property. I have ~ $400k cash available and am willing to buy property with cash down, with a long-term goal of building my portfolio over the next 5 years. Here is what I am contemplating and would like some advice:
1) I want to focus on building a high cash flow. Given the interest rates are high, I am looking at acquiring around 2 properties with cash. Is this prudent, or should I still look into a mortgage and maybe acquire more properties?
2) I have started looking into Indianapolis to start. Higher cash flow areas generally have a C tenant pool, and homes are built in the 1900s. I am worried about high maintenance costs and tenant issues. I am also seeing homes sitting on the market for many days, what does this mean?
3) I looked into Columbus, OH, and read feedback that the property management options are not good. Being out of state, I am concerned about this. Without a good property manager, I cannot sustain an out-of-state investment.
4) I don't know what other markets to consider where there is rental/population growth, has high cash flow, a B-grade tenant pool, and not so old properties. Is this a unicorn?
Looking for advice based on your personal and recent investment experiences, thank you!
Most Popular Reply
Hi, I'm in the Bay Area. Please read some of my previous posts/comments. I invest in the Bay Area and Indianapolis metro area. For context I did live in Indiana so I didn't just pick a random market 2000 miles away
1) There is no high cash flow now with 7% interest rates. Investing is much more difficult now than from 2010 to 2021. If I were you I wouldn't pay all cash and lock up all your money.
2) Indianapolis: Class A suburbs: Hamilton County (Carmel, Westfield, Fishers, Noblesville) and west side suburbs (Plainfield, Danville, Brownsburg), Southside suburb: Greenwood. Indy the city: Broad Ripple. I own in Hamilton County but I bought in in 2013 so different market back then - newer home, great tenants, great school district.
Don't buy Class C - you're better off leaving your money in a high yield savings account or buying some index funds. I own two of those (sold vacant one last fall). The one I have loses money each month, -$300 to -$500 from repairs. My tenant pays the rent every month, thankfully. You are exactly right on your observations with Class C having problems, homes built in 1900s are over 100 years old even though they're "renovated". Property management fees are 10% of monthly rent.
I'd guess if it has many days on market it's not highly desirable property area or home. I think a lot of these Class C investors are passing them around like a "hot potato", buy one, not a good investment, sell it, another investor buys.
3) Don't know anything about Columbus but all the problems that Class C has could apply to at least 20 cities in the Midwest and South. I wouldn't just base your decision on a spreadsheet. Fly to these areas multiple times and establish a team in person. Things look a lot different in real life than on video/photos. Talk to local investors - they live there so they can give the pros and cons.
Maybe consider Sacramento? I'm not sure what part of NorCal you're in. If you buy a duplex and rent out one side as a long term rental and other side as mid-term rental (business travelers, travel nurses, etc) you might get some cash flow.
I'm looking at Nevada, looked at Reno and will look at Vegas soon. Price points $400,000 to $550,000. If I had to do it over again, I'd buy one high quality home rather than 2 cheaper older ones with problems. Nevada has low property taxes - the tax rate is lower than many Midwest states
A few of the California investors I've talked to recently bought in Vegas and Utah (Saratoga Springs and Lehi) - new builds. You get a lower interest rate from the builder and there's a warranty so hopefully your capital expenses won't happen at least further down the line (HVAC, water heater, new roof, etc).
I"m a W2 employee, not in the real estate industry and don't make any money for helping you or giving you my contact names. DM me if you have questions. Good luck :)