Cannot find cash flowing deals in CA

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

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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Gene Jung
Member since 2024 · 16 posts · 10 votes
2y
Quote from @Steven Zagaris:

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?
I love your honesty. Matches what I am seeing/feeling as a newbie investor.
0 Reply
Diane F.
New to Real Estate · Santa Cruz, CA · Member since 2020 · 20 posts · 17 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.

I agree with you on this one. I can't even make sense of buying and investing in properties here without having to shed huge money up front. The only areas that are somewhat affordable are in Sacramento or close to the desert and yet, the mortgage is still more than the rent. Although I live here in CA, it's definitely a "yes" for me to invest in the Midwest.
0 Reply
Taylor Bauer
Member since 2024 · 5 posts · 0 votes
2y
Quote from @Nate Marshall:

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.

Any thoughts on Tennessee, Louisiana, Texas?
0 Reply
Sahil Rajput
OP
Sunnyvale, CA · Member since 2015 · 7 posts · 13 votes
2y
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.
Interesting approach Kurt. Thanks for the suggestion
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Sahil Rajput
OP
Sunnyvale, CA · Member since 2015 · 7 posts · 13 votes
2y
Thanks folks for commenting on my posts. There are strong arguments both in favor and against investing in CA. I need to digest the info and make up my mind. Reading all the comments, I am feeling its more important for me to just START investing, where doesn't matter. If it turns out to be a mistake, it will be a learning. Thanks a lot again!
0 Reply
Jon Schwartz
Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
2y
Quote from @Nate Marshall:

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

Outside of two of the largest sectors on planet earth, there's no opportunity!
0 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @Nate Marshall:

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

very true indeed LOL
0 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @Jon Schwartz:

Quote from @Nate Marshall:

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

Outside of two of the largest sectors on planet earth, there's no opportunity!

and it's slowly moving to India (and China) anyway .... this is serious as silicon valley is not sustainable too.

and hollywood movie is also replaced by Bollywood and Japanese/Korean movie so ....
0 Reply
Sam YinPro Member
Los Angeles, CA · Member since 2021 · 584 posts · 738 votes
2y
@Sahil Rajput
There are deals everywhere. You just need to look. Every state has their high end and low end. Every state has OOS investors.
200,000 people on a facebook forum about a topic is less than 1% of the US population. That kind of number should not be a justification for an argument point. But I do respect people's sentiment, even though I do not think people took the time to understand CA.
I still buy in CA. It cash flows at COE. It is purchased with 20-30% DP and financed by local banks. That cash flow is generally 5% or higher at COE, factoring in vacancies, maintenance, management, and reserves.
Think about it... Seriously... If there were no deals here, how and why is the market so hot and still going? Why are investors still buying in CA? Are all the listings just sitting on the market and expiring or is it flying off the shelves before you can get your finances together. It's all relative and a matter of perspective. I do feel it's pretty even everywhere when you way out each locations pros and cons. It's just smarter to buy local when you start, but that's just my opinion.
1 Reply
Jon Schwartz
Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
2y
Quote from @Carlos Ptriawan:

Quote from @Jon Schwartz:

Quote from @Nate Marshall:

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

Outside of two of the largest sectors on planet earth, there's no opportunity!

and it's slowly moving to India (and China) anyway .... this is serious as silicon valley is not sustainable too.

and hollywood movie is also replaced by Bollywood and Japanese/Korean movie so ....
Right, all those Japanese, Korean, and Bollywood global hits this past summer. They really put Barbie and Oppenheimer to shame!

Also, for how long has Silicon Valley been unsustainable? I’m old enough to remember that claim from the 90s.
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @Jon Schwartz:

Quote from @Carlos Ptriawan:

Quote from @Jon Schwartz:

Quote from @Nate Marshall:

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

Outside of two of the largest sectors on planet earth, there's no opportunity!

and it's slowly moving to India (and China) anyway .... this is serious as silicon valley is not sustainable too.

and hollywood movie is also replaced by Bollywood and Japanese/Korean movie so ....
Right, all those Japanese, Korean, and Bollywood global hits this past summer. They really put Barbie and Oppenheimer to shame!

Also, for how long has Silicon Valley been unsustainable? I’m old enough to remember that claim from the 90s.

This one is serious , most Silicon Valley company actually being operated from India , in the 90s we don’t have fast internet yet …. If you see massive layoff here in valley , they hire in India or Dominican Republic lol
0 Reply
James Davis
Member since 2024 · 5 posts · 0 votes
2y
They're nearly impossible to find. This is why we started to invest out of state. There are awesome resources on BP to start... happy RE hunting!
0 Reply
Jo-Ann LapinPro Member
Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 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?

value add is the name of the game in California and right now they are really trying to make additional units accessible to the California real estate market .
[email protected]
1 Reply
V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y
Quote from @Jon Schwartz:

Quote from @Carlos Ptriawan:

Quote from @Jon Schwartz:

Quote from @Nate Marshall:

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

Outside of two of the largest sectors on planet earth, there's no opportunity!

and it's slowly moving to India (and China) anyway .... this is serious as silicon valley is not sustainable too.

and hollywood movie is also replaced by Bollywood and Japanese/Korean movie so ....
Right, all those Japanese, Korean, and Bollywood global hits this past summer. They really put Barbie and Oppenheimer to shame!

Also, for how long has Silicon Valley been unsustainable? I’m old enough to remember that claim from the 90s.
That gap is tightening as the world is becoming more globally integrated. It may seem like a slow process, but when adaption happens it can be quick & sudden. (Post) covid has shown that and has done that. If you go check how most of these tech companies are currently restructuring you'll see the international exposure. Some 3rd world countries will be the lowest bid for work, yet be some of the brightest. It's a dangerous combination for the above average, but not super elite, US tech employee.
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
2y
Quote from @V.G Jason:

Quote from @Jon Schwartz:

Quote from @Carlos Ptriawan:

Quote from @Jon Schwartz:

Quote from @Nate Marshall:

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

Outside of two of the largest sectors on planet earth, there's no opportunity!

and it's slowly moving to India (and China) anyway .... this is serious as silicon valley is not sustainable too.

and hollywood movie is also replaced by Bollywood and Japanese/Korean movie so ....
Right, all those Japanese, Korean, and Bollywood global hits this past summer. They really put Barbie and Oppenheimer to shame!

Also, for how long has Silicon Valley been unsustainable? I’m old enough to remember that claim from the 90s.
That gap is tightening as the world is becoming more globally integrated. It may seem like a slow process, but when adaption happens it can be quick & sudden. (Post) covid has shown that and has done that. If you go check how most of these tech companies are currently restructuring you'll see the international exposure. Some 3rd world countries will be the lowest bid for work, yet be some of the brightest. It's a dangerous combination for the above average, but not super elite, US tech employee.

people outside silicon valley just do not know that the silicon valley has been very dependent to India and China these day that even if the entire silicon valley has only 10 people, company can still operate because they have thousand engineer in India and China.
This is very different environment than compare even 2015 where US is still having bargaining position.
Lot of American tech product has been swapped by similar Chinese product , especially in Latam and Asia.

The threat in CA is also rising because cost of business is rising a lot, so for company that can't strategically move to India they have to move operation and other thing to Texas or Midwest.
1 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ 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?

Simple solution. Do what 100s of other investors have been doing for many years, buy rentals OOS. I live in FL and do all my biz in OH, . YES it's that simple
All the best
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y
Quote from @Bob S.:

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?

Simple solution. Do what 100s of other investors have been doing for many years, buy rentals OOS. I live in FL and do all my biz in OH, . YES it's that simple
All the best
Too obvious.
1 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y
Quote from @Sam Yin:

@Sahil Rajput
There are deals everywhere. You just need to look. Every state has their high end and low end. Every state has OOS investors.
200,000 people on a facebook forum about a topic is less than 1% of the US population. That kind of number should not be a justification for an argument point. But I do respect people's sentiment, even though I do not think people took the time to understand CA.
I still buy in CA. It cash flows at COE. It is purchased with 20-30% DP and financed by local banks. That cash flow is generally 5% or higher at COE, factoring in vacancies, maintenance, management, and reserves.
Think about it... Seriously... If there were no deals here, how and why is the market so hot and still going? Why are investors still buying in CA? Are all the listings just sitting on the market and expiring or is it flying off the shelves before you can get your finances together. It's all relative and a matter of perspective. I do feel it's pretty even everywhere when you way out each locations pros and cons. It's just smarter to buy local when you start, but that's just my opinion.
5% return tells you nothing of value. The only thing that is of value when analyzing a deal for cash flow (anything actually) are the resulting "dollars". That means in this case you would need to translate that "5" into actual dollars of cash flow per month, then multiply by 12 for the year.
Now divide the cash you put in (actual cash, not the percentage) and that will tell you how long it will take you to recover your cost, and where that "cash flow" is now real, and not just a recovery of cost.
So, on these cash flow deals (especially the ones you put in 30% of the purchase price), how long will it take you before you recover your cost (the cash you put in,...the DP)?
I've seen CA deals where they CF, but it takes them over 20 years to recover their cost. That's terrible. Think about how many times during that period of recovery there are CAPEX, or vacancy, etc... Those are out of pocket (spelled C..A..S..H) expenses, which are a cost that adds to the remaining recovery cost, and extends the recovery period.
REI isn't about percentages, and it isn't simply about CF. It's about how that CF translates to recovery of cost. The faster the better. My line in the sand is 2 years,...3 at the most.
2 Reply
Sam YinPro Member
Los Angeles, CA · Member since 2021 · 584 posts · 738 votes
2y
Quote from @Joe Villeneuve:

Quote from @Sam Yin:

@Sahil Rajput
There are deals everywhere. You just need to look. Every state has their high end and low end. Every state has OOS investors.
200,000 people on a facebook forum about a topic is less than 1% of the US population. That kind of number should not be a justification for an argument point. But I do respect people's sentiment, even though I do not think people took the time to understand CA.
I still buy in CA. It cash flows at COE. It is purchased with 20-30% DP and financed by local banks. That cash flow is generally 5% or higher at COE, factoring in vacancies, maintenance, management, and reserves.
Think about it... Seriously... If there were no deals here, how and why is the market so hot and still going? Why are investors still buying in CA? Are all the listings just sitting on the market and expiring or is it flying off the shelves before you can get your finances together. It's all relative and a matter of perspective. I do feel it's pretty even everywhere when you way out each locations pros and cons. It's just smarter to buy local when you start, but that's just my opinion.
5% return tells you nothing of value. The only thing that is of value when analyzing a deal for cash flow (anything actually) are the resulting "dollars". That means in this case you would need to translate that "5" into actual dollars of cash flow per month, then multiply by 12 for the year.
Now divide the cash you put in (actual cash, not the percentage) and that will tell you how long it will take you to recover your cost, and where that "cash flow" is now real, and not just a recovery of cost.
So, on these cash flow deals (especially the ones you put in 30% of the purchase price), how long will it take you before you recover your cost (the cash you put in,...the DP)?
I've seen CA deals where they CF, but it takes them over 20 years to recover their cost. That's terrible. Think about how many times during that period of recovery there are CAPEX, or vacancy, etc... Those are out of pocket (spelled C..A..S..H) expenses, which are a cost that adds to the remaining recovery cost, and extends the recovery period.
REI isn't about percentages, and it isn't simply about CF. It's about how that CF translates to recovery of cost. The faster the better. My line in the sand is 2 years,...3 at the most.

Hello there Joe. How's the weather where you are at? How's business? Hope all is well.
This is very true. I knew that if you came on you would call me on it Joe. I was trying to keep it short. Glad to see that you don't miss a beat.
Here is a recent example with some actual rounded numbers. Location: SoCal. Final price $965K. Down payment about $290k (30%). NOTE: That money came from a 1031x that used $30k savings for down payment in a $300k SFR live-in fixer a few years prior, which sold for $600k. Loan about $675k. Cash flow at COE was $15k.
Rent increase notice to all 10 tenants immediately. 60 days later, cash flow projected to $27k. One tenant refused rent increase, booted her out immediately at end of 30 days and renovated unit (cost $10k) and rerented $800 higher (from $700 to $1500). Another unit booted out as well, rehabbed (5k), rerented $700 higher ($800 to $1500). Now projected rents are about $38k. Added locking mail box to apt (found on OfferUp for $40, usually $2700) and installed lock from Postmaster for the mailman. I poured the foundation myself using quickset cement ($30 plus my time). I was going to get rid of a few more tenants and bump them up $700 more per unit... But before I could, people had been keeping an eye on what I was doing and offered $1.35M. that all happened in about 4 months of ownership.
I took the offer and closed escrow 45 days later, and worked with our resident 1031 expert (Dave F.) on BP as the QI. 1031x to 16 unit townhome stye B class building in B class neighborhood (CA) at $1.855M, which closed escrow at $35k cash flow. After some rent increases, currently cash flowing about $60k... But I'm probably going to exchange that at around $2.2M or higher. This one is about as passive as can be, I haven't seen it in a year and only had a few texts from the tenants in the last year.
in summary, my initial $30k that I saved from working/side hustles now controls a $2M+ 16 unit building tht cash flows over $60K but will likely net another $400k+ in a sale/1031x to something else.
As you can see, the other side of my strategy is how it all ties together. You are right, the cash flow % does not tell the whole story, but nor does the buy and hold to recoup funds, in my case. This was only one of six similar deals that I did in CA in the last 2+ years. The cash flow between them was enough to purchase 2 other deals outside of 1031 that totalled 23 units and some vacant land, all in SoCal.
if I told you my latest one from a few months ago, it would knock a few socks off those CA nay Sayers.
there are still deals to be had in CA. I still believe in it. But I do understand that some may not have the same risk tolerance I do and probably do not want to be as active as I am. I also focus on operation efficiencies, thus now I only put in about 4 hours/month and can still grow... but that's a different topic. I feel that for beginners/newbies like me, this is the best way to scale and grow. I may try other strategies and OOS later, but staying local but the foundation to do so.
4 Reply
Sahil Rajput
OP
Sunnyvale, CA · Member since 2015 · 7 posts · 13 votes
2y
Quote from @Sam Yin:

I still buy in CA. It cash flows at COE. It is purchased with 20-30% DP and financed by local banks. That cash flow is generally 5% or higher at COE, factoring in vacancies, maintenance, management, and reserves.

Hi @Sam Yin

Do you mind sharing the type of properties and location you are investing that cash flows 5% at COE with 20-30% down?

EDIT: Never mind. I saw your example. Thanks!
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y
@SAM YIN
That works, but it was the flip that did it. Adding the rehab to the initial DP would make the recovery a little longer than I would like,...but, nice job...on the flip
1 Reply
Sam YinPro Member
Los Angeles, CA · Member since 2021 · 584 posts · 738 votes
2y
@Joe Villeneuve
I think CA has a bad rap, but if people give it a try, and put in some actual time, they may realize it's not as bad as they think. I do understand that people all have their biases and advocate for their investment markets. May be I'm one of the few that advocate for CA. Non the less, it's the strategy that really makes money. The market will determine the strategy and vice versa.
The strategy I used has allowed me to live off the cash flow and achieve FI. I always buy with long term hold underwriting, but I work to be able to exit within a year or two. I only spend just enough to pay basic bills, the rest gets reinvested for more cash flow. Either into more real estate, stocks, start up companies, etc.. It's not for everyone, but it worked for me.
0 Reply
Ruchit Patel
Bay area, CA · Member since 2021 · 383 posts · 306 votes
2y
My two cents:
I tried for 6 months to find something worth investing that would not become a liability for me in California. Guess what, I invest out of state now :))
0 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Quote from @Ruchit Patel:

My two cents:
I tried for 6 months to find something worth investing that would not become a liability for me in California. Guess what, I invest out of state now :))

Smart, I know dozens from Ca that have been and are still buying OOS
1 Reply
Lisa Layne
Member since 2023 · 1 post · 1 vote
2y
Quote from @Bob S.:

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?

This is why 100s of investors from Ca have been buying in the Midwest for many years, 10% net caps ( used to be 25- 30% ) are to be had. I live in FL and do all OOS,

There are deals to be found everywhere, but even in the Midwest we are having to work hard for them. People here are even saying there are no more deals.
1 Reply

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