Real Estate Agent · Rocklin, CA · Member since 2016 · 79 posts · 50 votes
I saw a thread like this pop up a while back but instead of reviving it I want to hear if anyone has any fresh suggestions/opinions. As the title states, my wife and I want to leave CA. I feel as though even though I make decent money here we could do a lot better if we liquidated everything and moved to a less expensive area and could seriously invest.
Anytime I visit friends in different parts of the country (Memphis, Orlando for example) I can't help but look at real estate and their rents in the area. It is crazy how good of deals there are that you would never get here. In my area most investments are done off speculation and only in the scary areas do you start to see cash flow.
Anyways, has anyone who left or thinking about leaving CA have opinions or regrets?
Also, if you could choose a market to start over now which area would you choose?
San Diego, CA · Member since 2008 · 301 posts · 108 votes
10y
Chris,
I live in California and pay heavy "sunshine" tax for doing so. I invest both in California and outside of California. We invest outside of California for the very reason you mention which is to get good cashflow. But we also invest in California because good deals come to us here from operators who do well here.
Live where you want to live and invest where there are good investments. In my opinion, living in a certain marketplace does not make you a good real estate investors. You can make great money in California as much as you can make great money in Tennessee. It is you who determine success.
Having said all this, I am not discouraging you from moving elsewhere because that is not a bad strategy. But you will fail in any great market if you do not have the skill set and resiliency to succeed. Work at acquiring both. Good luck to you.
I moved from Orange County to Denver 10 years ago with no regrets! More sunshine in Denver than CA, less congestion (although traffic here is getting worse as more people move here so I really shouldn't be telling you this) access to the mountains and outdoor activities if you like to live an active lifestyle, great place to raise kids, and compared to CA, cost of living is much better.
Wholesaler · Redford, MI · Member since 2015 · 153 posts · 50 votes
10y
Detroit market is awesome ! i have been wholesaling here during the bad times , and now the good times and things are only getting better , Dont let the media scare you away from investing in Detroit this is a great rental market to be in . You just have to know where to invest at in the City.
I'm trying to decide between the NorCal Bay area and Nashville, TN. I'd love to hear what strategies you see as viable in California right now. My family is here but it's not as clear to me how to generate great returns w/o aggressive appreciation assumptions.
Developer · Austin, TX · Member since 2014 · 266 posts · 110 votes
10y
Chris Soignier is correct. The property taxes are higher in TX but that is just one part of the cash flow equation. If you run the numbers making sure you account for all expenses and it still cash flows well, then go ahead and make the purchase.
Real Estate Agent · Rocklin, CA · Member since 2016 · 79 posts · 50 votes
10y
I hear good things about TX all the time, like some people said if the numbers still work than property taxes are just a part of the equation. I hope not to offend anyone but Austin isn't exactly my cup of tea, but I am glad to hear people are having great success in Austin and are enjoying themselves.
One market I am curious about is Knoxville, I hope this triggers some keyword alerts and I can get responses. It seems more overlooked than "hot" markets like Memphis and other popular FL/TX markets that top the list but according to some articles over the last few years it seems to show positive growth. Interested to hear your thoughts.
Glad to hear you have no regrets about your move, I hear great things about Denver but have never been. We are a very active outdoor family and I have seen Denver on the Outside Magazine top rated places to live along with Boulder. We have family in Colorado Springs and we have contemplated heading out there to take a look around at the surrounding areas. I feel like it is a similar market in the aspect of price to rent that I deal with here but maybe it is worth looking in to.
Real Estate Broker · CA · Member since 2016 · 243 posts · 226 votes
10y
I am with @David Faulkner. These online forums all bash CA returns. In my opinion there is more money to be made here than almost anywhere. Of course there are no 2% rule properties, not even close. But we cash flow just fine here and the gravy that is appreciation will come at some point and you can simply collect every month while you wait. And as David also pointed out you can have less units for the money which when you get big is also really helpful.
Nice to hear this. The "rules" are sometimes just not reachable in some areas.
Can I ask, on average, what kind of time frame you're doing before you've hit the 2% "rule" (if you didn't start out at 2%)? What's an acceptable starting percentage for you?
I don't understand what the obsession with 2% is ... it is a completely meaningless metric. For example, I turned my primary into a rental in 2009. It had positive cash flow and equity in 2009. Rent has gone up by $1,200/month since then. Not total rent, a $1,200 increase from $2,000 to $3,200, and expenses are about the same. Do you really think I care if it hits 2% or not?
Positive cash flow, after ALL expenses are calculated on average over time, is a minimum for me to purchase a pure rental ... calculated in dollars, not percent. For neighborhoods that are less than B- or further out from the city, I would demand more cash flow, but if I look at my portfolio, I've made much more money on the stuff closer in, in nicer neighborhoods, and with lower (but still positive) cash flow. Either way, I would only do it if I could get an immediate forced appreciation equity bump, equal to at least 3x my renovation investment assuming I sub it out. That way, I have positive cash flow AND I have a solid equity position locked in early on ... I've got some profits locked in and can hold with a margin of safety.
Real Estate Agent · Rocklin, CA · Member since 2016 · 79 posts · 50 votes
10y
@Matt H. Nobody here seems to be bashing CA returns, I have explicitly stated several times that there is money to be made in CA and that this thread is not expressing otherwise.
I did respond to one poster saying that his cash flow returns were probably not as great as a like for like area in Memphis. IMO I still believe I am right with the numbers published in this thread. The location of the properties is one many locals would mention if you asked them where are the sketchiest areas in Sac.
In parts of CA cashflow can be good and as you said the gravy is appreciation.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
@Chris Isaacson I get what you want to do. I wish you all the best.
For the readers as far as I know the initial 2% rule for cash flow was born from mobile home investing. It is not found in any RE textbook nor taught at any accredited insituition. It is in no way is any kind of indicator of an investments good health overall. In fact, it may be an indicator that something fundamental is off track.
@Matt H. you are correct. The top 3 for Cali for returns since 2009 are SF, SJ and LA and since 2000 that is LA, SF and SD. All of those are tops for the nation as well.
Real Estate Broker · CA · Member since 2016 · 243 posts · 226 votes
10y
@Chris Issacson you are correct. No one on this thread is doing any bashing and the numbers are within reason here. I think you just caught me at a moment where I have read a bunch of posts of people stating CA is a no go due to the returns. And as you noted CA has different parts. It is like 7 normal states combined and that should be considered.
But you are talking about leaving. So, the point I would make to you is I have been investing here for 15 years and had I been almost anywhere else I would have made signifigantly less money doing the exact same thing. And I think the next 15 years will be no different.
I'm trying to decide between the NorCal Bay area and Nashville, TN. I'd love to hear what strategies you see as viable in California right now. My family is here but it's not as clear to me how to generate great returns w/o aggressive appreciation assumptions.
Thanks!
It is a really tough market for a newbie to start investing in right now, and not just in CA. I think if I were young and just getting started, I'd get my RE license and start selling RE on the side or full time so I don't expose myself to market risk at this phase of the cycle but still take advantage of a hot market, get paid to learn, build my network, and save up investment capital like crazy. Flipping was good for awhile, but I hear those margins are super tight right now unless you're doing major development (adding square footage, bedrooms, bathrooms, etc.) ... that means higher renovation costs and longer hold times (not in a good way as a cash flow positive rental), so not my cup of tea. Selling your odd ball properties that no longer match your long term goals or are poor performers is good (I'm doing this) if you have stuff to sell. Others are 1031ing their properties from more marginal neighborhoods to nicer ones ... this is more a wealth preservation strategy than an aggressive growth strategy. You could house hack in a nice neighborhood, accept negative cash flow if and only if you could afford to hold as a primary indefinitely and could get some nice forced appreciation. Buy-and-hold you'd likely need to move East to the outskirts of town to find cash flow ... note that these neighborhoods get hit hard in a downturn, so I'd want to find something I could do a significant forced appreciation on to insulate myself and make sure I planned to hold for a long time. I never buy based on aggressive market appreciation assumptions ... forced appreciation that I control is a different story. Forced appreciation+cash flow positive to hold safely is even better ...
If you live in Nashville, invest there ... if you live in NorCal, invest there ... just understand the market dynamics, learn the mechanics of different strategies, and tailor your strategy accordingly. If you are trying to decide where to move and invest, either move where you want to live and learn to invest there OR figure out which strategy you are more comfortable with and pick a market to move to that best matches, but then be prepared to adapt your strategy or move again if/when the market changes.
Real Estate Agent · Rocklin, CA · Member since 2016 · 79 posts · 50 votes
10y
@Matt H. I appreciate your input and respect your years of experience. That is exactly why I started this thread to hear from those with CA experience as well as out of state experience to hear their advice, opinions and regrets.
St. Helena, CA · Member since 2016 · 147 posts · 59 votes
10y
Its great to hear more about the California market, especially the Bay Area and Central Valley. It's a fairly intimidating area, especially for a first time investor on a budget. Thanks for your insights @David Faulkner, @Joe Bertolino, and @Chris Isaacson.
I found a couple of deals on Loopnet and 1031 exchanged 18 San Diego units for 250 Memphis units.
Chris, Erik Nowacki has offered to "bounce ideas with him" with regard to moving your family from CA for the purpose of cash flow investing. Based on his post (from which I quoted above), he would be THE person from whom I would seek counsel if I were you.
Like Erik (but on a much much much smaller scale!!!), I 1031 exchanged my California 4 plex for a 38 unit in suburban Cincinnati. It was nearly an even trade, 4 plex = 38 plex !!!
Investor · Chattanooga, TN · Member since 2012 · 227 posts · 114 votes
10y
I just happened to sell my business, personal residence as well as a large commercial property in Oceanside, CA in 2003. I did a 1031 exchange and purchased 40 SFH in Chattanooga TN as well as a few commercial properties for over 1.5M. I did not read through all the posts, but if you want more conversation, drop me a line.