Is it wise to start real estate in California?
Member since 2024 · 10 posts · 16 votes
Is it wise to start real estate in California?
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Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes
2yQuote from @Remington Lyman:
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Most California investors buy in cheaper markets like Ohio so they can get cashflow
17 Replies
- 2yJordan RayBusiness MemberReal Estate Agent · Memphis, TN · Member since 2023 · 642 posts · 331 votes
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Hey Gladys! Congratulations on starting your journey as a real estate investor and looking into other markets to see your options! I know alot of out-of-state investors are looking into other market for reasons like cash flow, section 8, lower price point, landlord laws, higher ROI's and all the other factors you could imagine that would make real estate investing seem like a great idea! Personally, I invest in Memphis, TN for 2 reasons: 1) I believe it is the best market for real estate investors for all the factors mentioned above. 2) I live here and if investing in my own backyard of Memphis is a great idea, why would I go anywhere else?... I definitely have a biased opinion on our market here. I would love to have a chat with you on the pros & cons of investing in Memphis and why I see it this way, feel free to reach out! Talk soon!
Jordan Ray - eXp Realty5112 Reviews - 2yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 713 votes
There are many people that make money in real estate in CA. It takes more capital and you can get more margin dollars on the exit with the compounding appreciation. Some of the challenges are tenant friendly laws and high costs of construction and maintenance. Any market will have challenges. There are many threads about the downsides of the Midwest or any market.
- 2yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Most California investors buy in cheaper markets like Ohio so they can get cashflow
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes2y
Being a KC guy I help a lot of Californai people invest here in multifamily and they come here for cash flow, landlord friendly laws, tenant laws, no rent control, lower property taxes, protection from style of governing.Hope that helps!
- Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes2y
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Is it wise? That's subjective and depends on liquidity, risk tolerance, strategy and many other factors. Believe it or not there are CA residents that invest in CA. You'll have to develop your own business plan and strategies. FWIW I'm not advocating for either. Remember to "trust but verify" every decision you make.
- Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes2yI have a lot of friends in California who are real estate investors. None of them buy in Ohio......
Quote from @Remington Lyman:
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Most California investors buy in cheaper markets like Ohio so they can get cashflow
- 2yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
Quote from @Eric Gerakos:
I have a lot of friends in California who are real estate investors. None of them buy in Ohio......Quote from @Remington Lyman:
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Most California investors buy in cheaper markets like Ohio so they can get cashflow
I may have worded that wrong. The California investors that do invest in markets like Ohio typically invest there because they can get more cash flow than if they were to buy in CA
- 2yAlfath AhmedBusiness MemberReal Estate Agent · Columbus, OH · Member since 2022 · 1k+ posts · 1k+ votes
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
I have family that own properties in the bay area and san diego. Their biggest complain is about the rent to price ratio. Properties are always cash flowing negative and the landlord-tenant laws aren't amazing.
Most investors that I work with are also from california and they invest in the midwestern markets like ohio or Indiana and buy into appreciation and cashflow.
ReafCo | Ahmed Group 530 Reviews - 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Depends on your long term outlook. CA is definitely a great place for flipping and long term appreciation. Rentals may be tricky considering the strict state laws.
LuxePrivate Investments LLC 572 Reviews - Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes2y
Quote from @Erik Estrada:
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Depends on your long term outlook. CA is definitely a great place for flipping and long term appreciation. Rentals may be tricky considering the strict state laws.
Shhh
- 2yJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
Hi Gladys! A lot of my out-of-state clients are choosing to invest in Columbus OH because there is a lot of opportunities for flips, BRRRRs, and buy and holds. With how many major companies moving and developing out here (Intel, Google, Amazon, Honda, etc.), the macroeconomics has been great resulting to population growth and job growth. My clients from California are able to find deals with positive cashflow and meet the 1% rule at a cheap price point - $120k-$180k. Happy to connect and answer any questions you may have.
Jimmy Lieu, Red 1 Realty4.9120 Reviews - 2ySamuel DioufBusiness MemberReal Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
I personally think out-of-state investing is a top choice because you can invest in any market, selecting the ones that you believe are seeing the most growth, and do it from anywhere. Once you get your systems down, you have a real estate business model that you can take to any market and be still be successful.
Read this article on the "core 4". It explains the team that you should develop to have a strong foundation under you while investing remotely.
https://www.biggerpockets.com/blog/core-four-real-estate-team
Reafco - Samuel Diouf528 Reviews - Rental Property Investor · Member since 2018 · 826 posts · 810 votes2y
@Gladys Villa one important investment principle is diversification, and it’s hard for most people to diversify with CA investments because of the higher barrier to entry. If you don’t have a large amount of starting capital, then I wouldn’t suggest staring in CA.
- New to Real Estate · San Diego, CA · Member since 2024 · 16 posts · 14 votes2y
Gladys,
It is interesting that I ran into this post today, seeing as I just closed on a triplex in San Diego three days ago. To make matters even more interesting, this is my first investment property! Well, excluding the single family home that I am planning to rent out in NC in the next week which started as my primary home, this truly is my first multifamily home purchase with an intent to invest.
Now, to answer your question, is it wise? I believe it depends on your goals and strategy. As mentioned above me by many other investors, CA is a very tricky market. There's a lot of laws to navigate, the market is excruciatingly expensive, and the properties you purchase may not cash flow immediately. Let me explain to you why I chose CA as well as my goals and strategy.
For starters, I'm active duty military, and this has given me access to a VA home loan which gives me better leverage to easily purchase a property with zero down. Second, my goal is to grow my net worth through equity and appreciation. I view mortgage payments as a "savings." Essentially paying down my principle puts more equity in my pocket for when I want to tap into this resource. Next, I plan to house hack my my triplex. If I break even on mortgage payments and don't cashflow I count it as a win. If I don't break even, so long as my out of pocket expenses on a mortgage don't exceed $2000, I still count it as a win because where can you find rent for less than $2000 in San Diego? Plus, once again, that's $2000 more equity I pay to myself. On another note, rent will continue to rise, and through both forced and standard appreciation, my property will continue to grow. There will eventually be a time where rent will cause me to cashflow. Let's not forget how awesome it'll be once I am able to do a cash out refinance on the home.
All in all, it depends on you. The first year or two might not be the best, but I believe CA is a long term waiting game to invest in. Higher prices, higher risk, but higher return if you play your cards right and make the numbers work. Bonus points if your property can facilitate the construction of ADUs for extra income.
- Real Estate Agent · Union city · Member since 2023 · 50 posts · 27 votes2y
Quote from @Gladys Villa:
Hello all! I have heard a lot of investors investing out of state like Ohio, Memphis, Texas, Seattle, etc, but rarely they say they have apartments and anything similar in nature, in California. I live in California, and I know property prices are very high. Is it not smart to start in California because of this? Why do investors not consider CA in their investing? Where can I get information about investing out of state and learning the differences and advantages?
If you're interested in out-of-state investing, I can provide insights into the Louisville, Kentucky market. I currently manage two single-family rentals, each generating 10% gross cash flow. My investment strategy focuses on long-term, low-maintenance SFRs in high-demand areas, aiming for cash flow rates above 7%.The market dynamics can vary significantly from state to state, and even from block to block within a city. Let me know if you want more detailed information or have specific questions!
shervinrealtor.com
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
I see a lot of responses from OOS realtors extolling their market. I recommend everyone start local whether it being low appreciation, high cash flow Midwest market or a high appreciation, low cash flow coastal city.
Here are some things to consider. I suggest you verify any of these statements you desire
Reading BP can provide a misleading slant on many things. In particular I refer to where RE investors are investing in residential RE. Ca has the highest percentage of investor own SFH in the nation. Ohio is near last in nation despite what posts on BP may lead you to believe. do you think the investors who invest in CA do not know what they are doing?
I would never do a rehab for a flip or brrrr in a low cost market. The upgrades do not add enough value. I just completed a rehab in mission beach. You may know the area. Guess what statistically a half bath adds in value in that zip code? A: ~$50k. In low cost market it may not even add $5k of value. I guarantee the cost of adding a half bath is not 10x the cost of a low cost market. I suspect it may not even be 2x higher cost.
Last I looked The coastal Ca cities (San Jose, San Francisco, San Diego, LA, OC, etc all had at least a 8/10 neighborhoodscout appreciation rating for this century with most having 10/10.
Case shiller used to release best residential Investment market for this century based on total return (appreciation, cash flow, expenses, etc). I have not seen it for a few years (not sure if they still release it or if it is just I have not had it emailed to me but I suspect they no longer do it because I still receive their market updates). The top 3 large cities in total residential return for this century at the last one I saw was San Francisco, Los Angeles, and San Diego. I suspect San Jose would beat all 3 but is too small for their list.
My market and I suspect most Ca coastal cities have near lowest vacancy, late payment, missed payment, and evictions in the country.
Prop 13 that caps prop tax increase at 2% annually is long term investors best friend. We have properties that are taxed at less than 20% of their tax if purchased today.
We have invested OOS and our San Diego investments performed much better. I have made a lot of money in San Diego RE (I expect to make (total return after expenses) 7 digits this year and have for maybe the last 4 or 5 years). This does not mean there is no truth to the other market posts. I will address the challenges of my market. San Diego is expensive to Purchase, maintenance and cap ex is expensive, property tax at purchase is expensive in terms of dollars (average SFH prop tax at purchase is ~$1k/month in San Diego), new retail (MLS) purchases are negative cash flow when allocating properly for expenses, it is tenant friendly in terms of regulations but this is largely due to the big advantages LL have due to crazy low vacancy rates. So the negatives mostly are accurate but not usually impactful for a long term hold.
I recommend you (and virtually everyone) start local. I have provided a lot of advantages of you investing local to your market.
Note I am Not a real estate agent, lender, etc. I have nothing to gain by you investing in your market. This places me in the minority of the responses in this thread.
Good luck
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