I'm new to the real estate, I heard a few people saying since the taxes are higher in California its advisable to move out of Cali or do business with someone / find a partner in other state. I'm not able to make up the decision whether i should move out of Cali or do business while staying in Cali itself. Can someone please guide me through pros and cons of doing real estate while staying in California ?
I'm new to the real estate, I heard a few people saying since the taxes are higher in California its advisable to move out of Cali or do business with someone / find a partner in other state. I'm not able to make up the decision whether i should move out of Cali or do business while staying in Cali itself. Can someone please guide me through pros and cons of doing real estate while staying in California ?
Hi Jay - Your profile states that you want to get into wholesaling. So here is my advise: don't put the cart before the horse... Instead of spending your time worrying about where you *would* pay the most taxes *if* you would make money, start making some **** money!:) Once money starts pouring in and you find yourself paying a lot of state taxes then decide if you want to move elsewhere.
Now I know this sounds a bit harsh but try to see it as encouragement; the advise here is: get busy. I see people on here that have done ZERO business. Yet they are worrying about things like; start an LLC or not, what tax structure to use, what logo to use, business cards, stationary, do they need to get a separate phone for business, should they get an S-corp, will the be able to deduct part of their mortgage expenses for their home office etc. etc. etc.
All of these can be valid questions, however from my observation all these details are often used as escapism for people who are, for some reason or another (fear mostly), not willing to commit and do some business (wholesaling, flipping, land-lording etc.). It becomes a pleasant distraction that keeps them from doing what they know they need to do; jump in.
And the worst thing is that by bogging themselves down into all the details they will never jump, and miss out on a great thing! Do whatever has the lowest threshold for you first. Get your feet wet.
So I am not saying don't cover your basics, but get busy instead of worrying about stuff that is (for now trivial). Remember that a marginal income tax rate of 13.3% calculated over $0 in deals is still.... Zero dollars! :) See if you can move to Nevada, Texas, Tennessee etc. for $0...:)))
I've personally made the decision to stay in the state as it has higher wages and my roots are already planted family-wise. I'm not sure that San Jose has any areas within a few hours drive, but there should always be alternative areas that the numbers would work better. For us in SoCal, there is the Inland Empire to look into.
I have been investing in Stockton and Elk Grove. You can cash flow neutral with a 25% down in those areas and have the added bonus of appreciation.
I have been investing in the Sacramento area for 16 years. The prices are up towards previous highs again and the returns aren't worth it for me compared to other states. My opinion is you can wait for the appreciation here or take the cash flow back east.
I am currently starting sell off my properties here and purchase back in Tennessee as the returns are higher. Gloria says she has neutral cash flow with 25% down. I earn 13% back east. To me it's better to take the 13%.
If you want to buy in Elk Grove I have a few half plexes in a great part of town. The tenants have been in the homes for more than 2 years. Price about $200k, rents are $1,250. Last turnover had a week of vacancy between tenants. It's a cheaper pocket in an area with $300k+ neighbors. Let me know, it's not what I would be looking for if you want to invest in the Sacramento area it may work for you.
I'm new to the real estate, I heard a few people saying since the taxes are higher in California its advisable to move out of Cali or do business with someone / find a partner in other state. I'm not able to make up the decision whether i should move out of Cali or do business while staying in Cali itself. Can someone please guide me through pros and cons of doing real estate while staying in California ?
Hi Jay - Your profile states that you want to get into wholesaling. So here is my advise: don't put the cart before the horse... Instead of spending your time worrying about where you *would* pay the most taxes *if* you would make money, start making some **** money!:) Once money starts pouring in and you find yourself paying a lot of state taxes then decide if you want to move elsewhere.
Now I know this sounds a bit harsh but try to see it as encouragement; the advise here is: get busy. I see people on here that have done ZERO business. Yet they are worrying about things like; start an LLC or not, what tax structure to use, what logo to use, business cards, stationary, do they need to get a separate phone for business, should they get an S-corp, will the be able to deduct part of their mortgage expenses for their home office etc. etc. etc.
All of these can be valid questions, however from my observation all these details are often used as escapism for people who are, for some reason or another (fear mostly), not willing to commit and do some business (wholesaling, flipping, land-lording etc.). It becomes a pleasant distraction that keeps them from doing what they know they need to do; jump in.
And the worst thing is that by bogging themselves down into all the details they will never jump, and miss out on a great thing! Do whatever has the lowest threshold for you first. Get your feet wet.
So I am not saying don't cover your basics, but get busy instead of worrying about stuff that is (for now trivial). Remember that a marginal income tax rate of 13.3% calculated over $0 in deals is still.... Zero dollars! :) See if you can move to Nevada, Texas, Tennessee etc. for $0...:)))
The answer to higher taxes is: Make more money.
Problem solved. Now you don't have to move to some sucky state with crappy weather and ugly people.
A few quick thoughts:
1. There are few places better than CA for creating wealth through flipping or wholesaling.
2. Few people are successful when they operate from a mindset of scarcity.
3. There are a lot of people that make a lot of money in CA real estate every year. Why not you?
4. If you do go out of state you need enough scale to make it worthwhile. A 10-15% return on a $50k rental isn't very exciting in real dollars.
5. When it comes time to exit your investments do you want to be selling properties in CA to a future homeowner or do you want to be selling a portfolio of $50k pigs to another investor?
While I agree the market in CA is high for buy and hold investors, there are still deals to be had if you are willing to work a little bit and uncover off market deals.
@Jay P. I couldn't agree more with @Chris V. on this one.
I see a lot of people trying to plan out the next 5 years when they haven't started yet. Get started and I can guarantee you after a deal or two your whole perception will change because you've gained a little experience. Your 5 year plan will change with time and experience too.
Moving out of state is a very big decision, I am assuming. Try doing some real estate investing from where you are at now (be it in or out of state) to ensure you're in it for the long haul.
CA RE and business climate is generally very healthly and the most profitable in nation for many reasons. Realize investing elsewhere you are most likely taking money out of the world's 6th-7th largest economy growing at 4% and trading for a less profitable location. Many good investments exist all over but if you are not there physically the chances of you getting a good one go way way down. So it makes sense to be located where you invest as you would be able to source and know a good deal when you see one. Not sure if that answers any of the pros or cons though. Good luck!
I'm new to the real estate, I heard a few people saying since the taxes are higher in California its advisable to move out of Cali or do business with someone / find a partner in other state. I'm not able to make up the decision whether i should move out of Cali or do business while staying in Cali itself. Can someone please guide me through pros and cons of doing real estate while staying in California ?
I live in California and have many coworkers on Houston. They always say they would never move here because of the income tax. Funny thing is the wages here are much much higher and they get crushed by real estate taxes.
I'll gladly pay 10% income tax on tens to hundreds of thousands of dollars more income every year.
@Chris V @Sophia Morris I 100% agree with you guys on not wasting my time, I'm not trying to escape and not willing to commit. In-fact I'm a proponent of the lean startup way of working https://goo.gl/8um8dv What led me to think about moving out of California is because other than reading books and podcasts I'm not making any progress /learning here. Almost everybody on BiggerPockets podcasts is doing their investments in other states. In the book "Investing In Real Estate with No (and Low) Money Down" by Brandon Turner he says "its better to live at cheaper place if you want to go into real estate".
As opposed to not making mistakes, I believe in doubling your mistakes if you wanna see more progress - but in real estate mistakes can be very expensive so I'm looking for a mentor before I can do it myself. In short me If moving out of Cali increases my probability of me becoming successful in real estate I'm down for that.
I think you've got some good input above.
It really depends upon what you want to do. I am a buy and hold rental type and I no longer can make rational deals in CA since prices are just too high relative to rents. What I have in CA is going absolute gang busters, but can't add any more. So I am investing in a really nice upscale spot in Ohio between Dayton and Cincinnati. Just closed a pretty good deal in June. However, I already had one property there (OH) and all the infrastructure in place so that was immensely helpful and not sure I would have done it without that already in place.
I would think flipping is still an option here in CA. I personally don't do that yet (and may never), but I don't see that hindered by the current high prices of properties. I don't think I would make a decision based upon taxes being too high in CA. That to me would at most be a secondary or tertiary factor to consider.
Good Luck with whatever you decide.
Yes, you need to move out of CA. There are absolutely no real estate investment opportunities here anywhere in the state. That is why there are no wealthy real estate investors here. Our property taxes are really high too. Besides, the state will probably fall off into the ocean next year anyhow. Nothing to see here, move on.