Cannot find cash flowing deals in CA

Fresno, California
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Cannot find cash flowing deals in CA

Sahil Rajput
Sunnyvale, CA · Member since 2015 · 7 posts · 13 votes

Hello BP community. 

I am a newbie to real estate investing and located in the bay area. I am looking for my first deal around Freno, CA area (want to start local). I have spoken to few realtors. 3/2 SFHs are priced around 400k and rents are around 2.5k. I am looking at numbers and cant seem to have any cashflow unless I do a ~75% down payment. Is this the reality or I am missing something? For those who say we can still find cash flowing deals in Fresno, what are those strategies?

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y

You won't find cash flow even if you go to the Midwest. It may pencil on paper, but you'll likely be underwater net of all costs of truly owning a physical asset. Don't just look at excel, look at the cost of owning and the real intention with it. @Becca F is a good example of that in her big post.

Your better bet is to go after a really high quality properties--maybe not Cali--but other areas like Tennessee, Carolinas, pockets of Texas, etc., if Cali is too rich for you. At $350-$400k you'll be hard pressed to find much, no asset is truly intrinsic. In the yester-years that made sense and assets were intrinsic. That's just not going to work when you add up higher rates, less supply, and net population growth. Your better bet is to get in front of entry-level starter homes in a good to great areas, and hold the asset for it's investment strength not it's Day 1 intrinsic properties.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y

    Flip in high cost markets, like California. Then invest with your profits in the Midwest for cash flow. It's done all the time. I've helped many REI's, and partnered with some) do this very thing.

    1Reply
  • Jon Schwartz
    Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
    2y
    Quote from @Joe Villeneuve:

    Flip in high cost markets, like California. Then invest with your profits in the Midwest for cash flow. It's done all the time. I've helped many REI's, and partnered with some) do this very thing.


     This is 100% right.

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Sahil Rajput:

    Hello BP community. 

    I am a newbie to real estate investing and located in the bay area. I am looking for my first deal around Freno, CA area (want to start local). I have spoken to few realtors. 3/2 SFHs are priced around 400k and rents are around 2.5k. I am looking at numbers and cant seem to have any cashflow unless I do a ~75% down payment. Is this the reality or I am missing something? For those who say we can still find cash flowing deals in Fresno, what are those strategies?


    All my houses in bay area are cash flowing. How come ? you donot follow standard strategy that people teach here, it's outdated.
    You need to think to be creative.

    I have few units/tenant in the house. Hence I'm cash-flowing.

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Dan H.:
    Quote from @Kurt Grossman:

    Add bedrooms and or an ADU to make money in CA. CA Law allows for the construction of an ADU. You can rent it out. The interest rates are high now. The prices are high. But the money per room and bathroom makes sense. If you add 1,400 square feet you can easily put 3 Br/2 BA on it for $210,000. Your payment goes up $2,200 and your rent goes up $2,600. The property value goes up about $350,000.

    I do not know how many appraisals on ADU properties you have seen but I have analyzed dozens. I have yet to see a hands off ADU addition obtain a valuation to cost ratio anywhere close to approaching what you site ($210k cost to add $350k of value). Can you provide this property address for me to analyze?

    A vast majority of appraisals are valuing the ADUs less than the hands off cost of adding the ADU. Look at posts on ADU appraisals on bigger pockets or go to RE meetups and talk to investors.

    Those doing best with ADU addition appraisals have an active role (flippers, developers, etc) and are adding them in areas that have traditional MF.

    Adding ADUs in pure SFH areas are getting appraisals that are lucky to get 50% value for the ADU versus the cost of adding the ADU.

    Best wishes


     THere's even no need to add bed room because lot of home in existing supply already has one or two new rooms.

    The one I saw yesterday has six ; in record it says 3/2 ; so there's that LOL

    0Reply
  • Taylor Bauer
    Member since 2024 · 5 posts · 0 votes
    2y
    Quote from @Account Closed:
    Quote from @Sahil Rajput:

    Hello BP community. 

    I am a newbie to real estate investing and located in the bay area. I am looking for my first deal around Freno, CA area (want to start local). I have spoken to few realtors. 3/2 SFHs are priced around 400k and rents are around 2.5k. I am looking at numbers and cant seem to have any cashflow unless I do a ~75% down payment. Is this the reality or I am missing something? For those who say we can still find cash flowing deals in Fresno, what are those strategies?


    Your observation is very sharp. Based on the data you provided, it's indeed not easy to achieve positive cash flow. You mentioned a house price of 400K and a monthly rent of 2.5K  If we calculate based on these figures, then your rental yield is only 6.25% (2.5K*12/400K)

    (2.5K×12)/400K×100% = 6.25% Generally speaking, an ideal rental yield is around 8%-10%

    Consider renovating and upgrading to increase rental income or using financial tools such as mortgages to optimize cash flow. However, these strategies require careful financial analysis and planning to ensure that you can obtain sufficient cash flow to cover your expenses and debts

     Isn't it 7.5?

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Sahil Rajput:

    Hello BP community. 

    I am a newbie to real estate investing and located in the bay area. I am looking for my first deal around Freno, CA area (want to start local). I have spoken to few realtors. 3/2 SFHs are priced around 400k and rents are around 2.5k. I am looking at numbers and cant seem to have any cashflow unless I do a ~75% down payment. Is this the reality or I am missing something? For those who say we can still find cash flowing deals in Fresno, what are those strategies?


    All my houses in bay area are cash flowing. How come ? you donot follow standard strategy that people teach here, it's outdated.
    You need to think to be creative.

    I have few units/tenant in the house. Hence I'm cash-flowing.

    This is a very important statement.  Most REI keep trying to do the same thing over and over, that has worked (sometimes) for decades.  These strategies never worked everywhere, and today some don't really work the same anywhere.  The key is to learn how to use other strategies.  To do this there needs to be a greater understanding of Geometry and Algebra, and how that math applies to REI through an education of how money works. 
    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Joe Villeneuve:
    Quote from @Carlos Ptriawan:
    Quote from @Sahil Rajput:

    Hello BP community. 

    I am a newbie to real estate investing and located in the bay area. I am looking for my first deal around Freno, CA area (want to start local). I have spoken to few realtors. 3/2 SFHs are priced around 400k and rents are around 2.5k. I am looking at numbers and cant seem to have any cashflow unless I do a ~75% down payment. Is this the reality or I am missing something? For those who say we can still find cash flowing deals in Fresno, what are those strategies?


    All my houses in bay area are cash flowing. How come ? you donot follow standard strategy that people teach here, it's outdated.
    You need to think to be creative.

    I have few units/tenant in the house. Hence I'm cash-flowing.

    This is a very important statement.  Most REI keep trying to do the same thing over and over, that has worked (sometimes) for decades.  These strategies never worked everywhere, and today some don't really work the same anywhere.  The key is to learn how to use other strategies.  To do this there needs to be a greater understanding of Geometry and Algebra, and how that math applies to REI through an education of how money works. 

     Right


    copy paste previous decade investment style would not work

    1Reply
  • Becca F.
    Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes
    2y

     I invest in the Bay Area and Indianapolis metro are but my CA properties were acquired pre-2013. My Indy house in a nice suburb with excellent schools is appreciating and cash flowing but the CF is getting smaller with the property tax increases (17% with the recent assessment). I used to live in Indiana and moved back to the Bay Area, which I chose this Midwest market.

    I know investors buying in the Bay Area but they're house hacking, adding an ADU to an existing property or doing mid-term or short term rentals. I also looked into the Sacramento market - if I do a combination of LTR and STR on each side of a duplex I might be able to cash flow.

    There are OOS investing challenges. I had to call my Indiana property manager because of recent storm to check on hail damage. There are also winter issues (e.g frozen pipes possibly bursting and having to crank up the heat to prevent that) that we don't deal with in CA. I bought 2 affordable Class C homes (built in 1920 but renovated) in Indianapolis in 2023 at 6.99% and 7.625% interest rates. On paper SFH#1 was supposed to cash flow but I've been losing money - it seems to have stabilized now and no more repairs called in by tenant (so far). SFH#2 isn't rented out yet. The first year of owning the property is rough

    If I were to do OOS over, I would have bought in Nevada or Arizona. Property tax rates are much lower, below 1% and appreciation is higher, also a shorter flight there than the Midwest. My Indiana property tax rates are 2.77% and 2.78%. I think this is high and they're not appreciating as much as  Texas properties. 

    I don't know much about Fresno market. I briefly looked at Turlock, which was suggested by my local agent. I personally wouldn't put 75% down on a property. I know people paying cash in multiple states so theoretically it "cash flows" but I'm not a fan of paying cash

    Can you do MTR or STR in Fresno to traveling medical workers or corporate professionals so you have less negative CF vs. LTR? Would you plan to self manage? I think staying local is a good strategy so you can check on the properties.

    2Reply
  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    2y
    As someone who does DSCR loans in 46 states, I'll say this: CA is the worst state in the country for cash flow.
    0Reply
  • Steven Zagaris
    Real Estate Agent · Modesto, CA · Member since 2013 · 33 posts · 8 votes
    2y
    Quote from @Sahil Rajput:

    Hello BP community. 

    I am a newbie to real estate investing and located in the bay area. I am looking for my first deal around Freno, CA area (want to start local). I have spoken to few realtors. 3/2 SFHs are priced around 400k and rents are around 2.5k. I am looking at numbers and cant seem to have any cashflow unless I do a ~75% down payment. Is this the reality or I am missing something? For those who say we can still find cash flowing deals in Fresno, what are those strategies?


     Its the peak of the Real Estate market and rents are dropping. How is this surprising? 

    1Reply
  • AJ Singh
    Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes
    2y

    @Sahil Rajput

    check 1-4 multifamily deals in Fresno area. You will generate cashflow once you move the units to market rent which is the key to making cash flow in Ca. 

    you wont make money in OOS unless you scale your portfolio fast. otherwise you will earn meagre amount and one maintenance work order away from cash flow negative.

    All the investors who are happy being OOS are ones with ten plus rentals or moved to the out of state market and became professional flippers and investors. 

    2Reply
  • Joe Bertolino
    Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
    2y
    Quote from @Becca F.:

     I invest in the Bay Area and Indianapolis metro are but my CA properties were acquired pre-2013. My Indy house in a nice suburb with excellent schools is appreciating and cash flowing but the CF is getting smaller with the property tax increases (17% with the recent assessment). I used to live in Indiana and moved back to the Bay Area, which I chose this Midwest market.

    I know investors buying in the Bay Area but they're house hacking, adding an ADU to an existing property or doing mid-term or short term rentals. I also looked into the Sacramento market - if I do a combination of LTR and STR on each side of a duplex I might be able to cash flow.

    There are OOS investing challenges. I had to call my Indiana property manager because of recent storm to check on hail damage. There are also winter issues (e.g frozen pipes possibly bursting and having to crank up the heat to prevent that) that we don't deal with in CA. I bought 2 affordable Class C homes (built in 1920 but renovated) in Indianapolis in 2023 at 6.99% and 7.625% interest rates. On paper SFH#1 was supposed to cash flow but I've been losing money - it seems to have stabilized now and no more repairs called in by tenant (so far). SFH#2 isn't rented out yet. The first year of owning the property is rough

    If I were to do OOS over, I would have bought in Nevada or Arizona. Property tax rates are much lower, below 1% and appreciation is higher, also a shorter flight there than the Midwest. My Indiana property tax rates are 2.77% and 2.78%. I think this is high and they're not appreciating as much as  Texas properties. 

    I don't know much about Fresno market. I briefly looked at Turlock, which was suggested by my local agent. I personally wouldn't put 75% down on a property. I know people paying cash in multiple states so theoretically it "cash flows" but I'm not a fan of paying cash

    Can you do MTR or STR in Fresno to traveling medical workers or corporate professionals so you have less negative CF vs. LTR? Would you plan to self manage? I think staying local is a good strategy so you can check on the properties.


     Might want to look at Yuba City.  

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    @Sahil Rajput the coasts in general are more difficult to buy cashflowing rentals.

    Demand drives up prices faster than rents and low interest rates are no longer available to compensate.

    What investors get in exchange is higher appreciation, relative to the national market.

    So, it's a tradeoff - if you can cover the negative cashflow until rents appreciate enough, or you sell.

    Otherwise, you'll want to check out the Midwest. Just BE CAREFUL!

    Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

    If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

    So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

    Here’s our OPINION for the Metro Detroit market (always verify each area for yourself!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

    Class A Properties:
    Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% the more recent norm.
    Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

    Class B Properties:
    Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
    Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

    Class C Properties:
    Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
    Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
    Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

    Class D Properties:
    Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
    Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
    Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

    Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

    What else can we assist you with?

    Logical Property Management4.9454 Reviews
    WebsiteView Page
    0Reply
  • Bradley BuxtonBusiness Member
    Real Estate Agent · NV · Member since 2023 · 1k+ posts · 714 votes
    2y

    @Sahil Rajput

    There are lots of ways to invest and if you buy all cash your property will most likely cash flow because borrowing costs are really high right now it cuts into the cash flow. Gone are the gold rush days of 3% interest and 5% down payments. The strategy to wealth building changed fast and many people made money that way. There is still plenty of cash flow to be made in CA you just have to have more cash to invest initially and many people are still making money in CA. I'm in the Tahoe Reno, NV area market which is technically out of state from CA but only a few hours from SF or LA. There are good cash flowing properties with 30% down without the headaches of actually investing in CA. Landlord friendly and lower property taxes that don't reassess with the sale.  Everyone's investing journey is different based on their own situation and looking at all the factors like time, energy, life situation, and the raw numbers will guide your decision on the best investment for you. 

    0Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    2y

    California is beginning to become a wasteland for anything economy wise. I don't see that changing. You really should look into the midwest, upper midwest and even states like Idaho, South Dakota and Wyoming. Great deals. Great properties. Low taxes and regulations. 

    0Reply
  • Scott ScovilleBusiness Member
    Real Estate Agent · Sacramento, CA · Member since 2019 · 497 posts · 272 votes
    2y

    It really depends on your goals. You could buy in the midwest and get more cashflow, but that $40k house will still be worth $40k in 10 years. True wealth is built through appreciation and the west coast is going to provide the most opportunity for appreciation. I'm mostly focusing on value add deals, adding square footage, beds, baths, etc. Forced appreciation, high rents, debt paydown, price and rent appreciation, tax benefits, etc. There is a higher barrier to enter to invest in CA, but it's not going anywhere and they're not making more land in CA:-) Dealing with tenant laws in CA is just the cost of doing business. Invest for the long term, and you'll win everytime. 

    [email protected]415-933-2202
    Scoville Realty & Investments LLC
    WebsiteView Page
    1Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    2y
    Quote from @Scott Scoville:

    It really depends on your goals. You could buy in the midwest and get more cashflow, but that $40k house will still be worth $40k in 10 years. True wealth is built through appreciation and the west coast is going to provide the most opportunity for appreciation. I'm mostly focusing on value add deals, adding square footage, beds, baths, etc. Forced appreciation, high rents, debt paydown, price and rent appreciation, tax benefits, etc. There is a higher barrier to enter to invest in CA, but it's not going anywhere and they're not making more land in CA:-) Dealing with tenant laws in CA is just the cost of doing business. Invest for the long term, and you'll win everytime. 

     2 of my colleagues run the Midwest Monster Program. It's all appreciation plays. It's all Upper Midwest. Carolinas and now Georgia. The 40K house doesn't exist in what they do. They help people with a 700 FICO buy up to 50 rental properties. All cash flow. They help with the acquisition, down payment and rehab. It is a solid deal. 

    California is a dead wasteland. It will only get worse. 
    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y

    haha i like both pro-CA and anti-CA from CA and non CA realtors.

    thing is both of their argument are correct LOL

    CA is toxic-failure wasteland but real estate appreciating  lot , in fact it's the hottest toxic market in the world.

    2Reply
  • Scott ScovilleBusiness Member
    Real Estate Agent · Sacramento, CA · Member since 2019 · 497 posts · 272 votes
    2y

    Value add will help get you closer to your cash flow needs in CA. I'm adding square footage, beds, baths, etc., where possible and force appreciating. Also, we've built a few ADU's. The cost to enter CA real estate is high, and you'll need to be creative in how you build your portfolio in CA. However, with price and rent appreciation, you won't find many places in the country that offer a steadier stream of appreciation historically. Wealth is created by holding properties over the long term and you'll look like a genius if you buy and hold every time.

    [email protected]415-933-2202
    Scoville Realty & Investments LLC
    WebsiteView Page
    1Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    2y

    The Leaving California facebook group has over 200,000 people in it. People are flocking to the midwest. Better schools, lower crime, quality of lie. 

    When people like Gene Simmons. Mark Wahlberg and Sly Stallone are leaving you know it's time as well! 

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Nate Marshall:

    The Leaving California facebook group has over 200,000 people in it. People are flocking to the midwest. Better schools, lower crime, quality of lie. 

    When people like Gene Simmons. Mark Wahlberg and Sly Stallone are leaving you know it's time as well! 


     problem with non-CA is that their food selection is not good and not many high pay job offering compare to CA, the latest part is actually what drives CA home price price to the sky.

    0Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    2y

    Outside of Silicon Valley and Hollywood there is no other industry producing wealth and opportunity. Crime and drug infestation. 

    1Reply
  • Taylor Bauer
    Member since 2024 · 5 posts · 0 votes
    2y
    Quote from @Nate Marshall:

    California is beginning to become a wasteland for anything economy wise. I don't see that changing. You really should look into the midwest, upper midwest and even states like Idaho, South Dakota and Wyoming. Great deals. Great properties. Low taxes and regulations. 

     What about the south?

    0Reply
  • Jessie Dillon
    Investor · Hopedale, MA · Member since 2021 · 321 posts · 212 votes
    2y

    putting down 75% ain't bad, but if you're dead set on investing in your backyard, oftentimes it's just not an area that cashflows. if cashflow is more important to you than having your rentals be a stone's throw away, consider another market.

    0Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes
    2y
    Quote from @Taylor Bauer:
    Quote from @Nate Marshall:

    California is beginning to become a wasteland for anything economy wise. I don't see that changing. You really should look into the midwest, upper midwest and even states like Idaho, South Dakota and Wyoming. Great deals. Great properties. Low taxes and regulations. 

     What about the south?


     The south can be good. A lot of people like the Carolinas. Georgia even. Oklahoma isn't the south but is solid. 

    0Reply
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