Buying in Norther California
Napa, CA · Member since 2013 · 11 posts · 3 votes
Buying in Norther California
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ voteson another thread one poster asked how to amass wealth or great wealth, with great wealth being described at net worth of 5 to 10 million.
The point the CA investor makes is that it is wholly possible to get to the 5 million mark buy buying Passive CA neutral gear to slight negative gear properties. My point that I made was what I know growing up in Cupertino in the 60's and buying my very first home in Milpitas for 70k.. during the 60's and 70's you could buy a home for the same price in Palo Alto as you could in Kokomo Indiana or anywhere else in the mid west ( were Quote un Quote Cash flow homes are bought ) And if you say bought 5 of them in Palo Alto and kept them for rentals long term One they would have cash flowed like crazy after 10 years or so. And 2 they would be worth today 7.5 million for 5 of them and you paid 30k for them back in the 70's same with ?Cupertino.
Now you could have paid 30k for a home in KC, Memphis, Indy, virtually any of the soup de jour cash flow towns.. same time frame same price points. Well those homes today are worth... Yes maybe 60k and they would not have cash flowed over time anywhere near the CA properties.
So what I tried to point out is this is just regional and in a lot of ways was just luck and passive investing to the extreme.. Just happened to live in one of the greatest place's on earth and the market took you for a ride.
@Account Closed
Bob what would you have paid for a Honolulu home in the 70's that's worth 500 to 1.5 today... I know one of my bizz partners just bought a fixer for 1.5 over on the other side of Diamond head.. right across the street from that crazy Japanese billionaire that owns all those ocean front places that sit vacant.. I heard Baldwin bought all of that for 100 mil or so..
Out of state is fine for some but as Bob points out its not a big money game its a slow cash flow game and your cash flow can go backwards on you very quickly if you don't have the right teams in place. or you guy low end C property and live in CA and expect it to perform like A or B.
One thing about CA.. the market will take care of bad rental situations over time. Bad rental situations in the Mid west cash flow market ( IE bad tenant loss of value because of trashed home or what Ali described as she lost money getting her rentals straightened out) Can in many instances never be recouped.
One must always remember that in the foreclosure epidemic half of the foreclosures came from Land lords that failed... And logic only dictates why would a land lord fail... and let a property go.. 1. because its not performing ( biggest reason) 2. strategic default property so far underwater and rents don't cover the investor walks..
I know of one Terrible turn key outfit out of Salt Lake that I did a few HML with back in 05 and then saw what they were doing with the long term buyer and I stopped after 2 or 3 loans. But someone else funded it and the owner of the TK was also a mortgage broker and they did about 100 homes in this one town ( all in the lowest price ranges) Many never got rented all of them had conventional loans on them and ALL went to foreclosure over the ensuing years as investors just walked.
Out of area investors Need to proceed with Ultra caution and make sure those they work with have impeccable creds.. And then choose the high end of the market not the low end.. Low end is just plain tough and a Huge Risk in my mind.
56 Replies
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes12y
Investors look for rent growth and appreciation. Also, you'll rarely hear of a unit sitting vacant for any period of time like in the Midwest. Also the milder climate results in less maintenance. Wall furnaces are common and air conditioners not needed so you're not replacing multi-thousand HVAC's. You are getting higher rent per square foot/toilet. Think of all the expenses based on sf.
- 12yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@Kristi Miller I live in N CA also and agree with you that you can't get anything to cash flow here. In answer to your question, yes, a lot of people invest here for appreciation because CA does have a long history of strong appreciation. I'm a believer in cash flow which is why, like you, I like some of the Midwest cities like Indianapolis and Kansas City a lot. Where are you investing?
- Napa, CA · Member since 2013 · 11 posts · 3 votes12y
@Mike D'Arrigo - Hi Mike, thanks for your response. Its nice to know I am not the only one that thinks this. We moved from Des Moines, Iowa about three years ago, therefore we keep investing in property there. Appreciation does not happen like it does on the coast and the SW states, but cash flow is constant. In the midwest we can keep our numbers at $100 per door without a lot of tenant problems and the average purchase price for a 7 unit building is around 300K- turn key. There is just no a lot of inventory right now, so we are investigating other states. Maybe onto Omaha, NE next. :)
- Real Estate Investor · Des Moines, IA · Member since 2014 · 22 posts · 3 votes12y
Hello,
I'm actually from the Des Moines area so I set a keyword alert for Iowa and your post came up so I wanted to respond. I checked with my husband who is a realtor and he said that there's about 45 multi-family properties currently for sale. If you need any assistance, please let me know and I can have him send you some information.
Good Luck!!
Kelli
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Kristi the fact is that California investors drive a huge portion of mid west rental property purchases. along with Aussies Canadians and GB...
The whole turn key concept was born in LA and SF.. When properties in these areas just escalated in the last 80S...
@Account Closed
And as bob states Hvac issues are real in the mid west and in most cities its theft that you need to worry about.. Some cities like Memphis the thefts are just off he charts.. I was doing a closing in Atlanta last year and was at the closing attornies office and asked why it was so hot.. ( my condenser units were stolen last night) and this was a nice part of Atlanta not the hood at all....We just don't have those issues by and large on the west coast.. but to be fair and balanced I did have my first unit stolen in Oregon last year..
On a personal Note I lived at Silverado CC from 90 to 2001 and was and is one of the great places in the world to live.. Now Napa is far more congested than it was in those days but still Not many places in the entire WORLD can compete with living in the VALLEY... Enjoy your time there and good luck on your rentals.
- SFR Investor · Member since 2011 · 198 posts · 61 votes12y
I don't know if Napa is the same now but I used to live there for five years. I sold my 2000 square foot home in the Browns Valley area for 249,000, that could only buy me a 1,500 SF 3-2 condo in Danville.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes12y
It's the same down here in SoCal, I live in LA, and I only buy out-of-state. I've never understood why people say buying for cash in CA allows for cash flow...yes it does but the "returns" are still atrociously low. So it doesn't really meet my definition of good cash flow. The only thing to do in CA, in my opinion, is flip or play the appreciation game. Flipping is great out here, although I don't do it myself or want to, but the appreciation game is a different animal in itself.
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes12y
Originally posted by @Ali Boone:
It's the same down here in SoCal, I live in LA, and I only buy out-of-state. I've never understood why people say buying for cash in CA allows for cash flow...yes it does but the "returns" are still atrociously low.People that invest in CA are doing it to "make" money. If your definition of "returns" is a couple of hundred a month of cash flow then you are missing out on the couple of hundred of thousands of appreciation. Kind of penny wise pound foolish. What exactly is your definition of "returns"?
- SFR Investor · Member since 2011 · 198 posts · 61 votes12y
I purchased all of my rentals here in California when prices were at the bottom and no one was buying. Everything I own four years later is double what I paid for it. If you timed it like I did its easy to cash out and make millions very easy.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes12y
@Account Closed
Sorry, I used the wrong word when I said "returns"... I should have said "monthly cash flow".
That is great you banked nicely with CA investments. A lot of people do, and a lot of people will. Everyone has different investing preferences and styles and that's why it's great there are so many options for what people can invest in. There really is no 'one is better than another' because everyone is different and people resonate with different stuff. Not everybody wants to bank on appreciation, so it's great for them to go elsewhere. If you want to take advantage of appreciation, CA is excellent for that. All in preference, and nobody is wrong for any direction they choose to go in my opinion.
- Real Estate Investor · Berkeley, CA · Member since 2014 · 143 posts · 91 votes12y
@Kristi Miller I agree with the other members on this one. I have lived in Northern California all my life, and right now seems to be very difficult to make anything resembling good cash flow.
However as another member mentioned not everyone invests the same way. I bought in the bottom of the market a few years back for my personal residence and it has double in price since.
So, California has that allure of major appreciation. Some people are willing to sit it out and wait for that big payday.
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
on another thread one poster asked how to amass wealth or great wealth, with great wealth being described at net worth of 5 to 10 million.
The point the CA investor makes is that it is wholly possible to get to the 5 million mark buy buying Passive CA neutral gear to slight negative gear properties. My point that I made was what I know growing up in Cupertino in the 60's and buying my very first home in Milpitas for 70k.. during the 60's and 70's you could buy a home for the same price in Palo Alto as you could in Kokomo Indiana or anywhere else in the mid west ( were Quote un Quote Cash flow homes are bought ) And if you say bought 5 of them in Palo Alto and kept them for rentals long term One they would have cash flowed like crazy after 10 years or so. And 2 they would be worth today 7.5 million for 5 of them and you paid 30k for them back in the 70's same with ?Cupertino.
Now you could have paid 30k for a home in KC, Memphis, Indy, virtually any of the soup de jour cash flow towns.. same time frame same price points. Well those homes today are worth... Yes maybe 60k and they would not have cash flowed over time anywhere near the CA properties.
So what I tried to point out is this is just regional and in a lot of ways was just luck and passive investing to the extreme.. Just happened to live in one of the greatest place's on earth and the market took you for a ride.
@Account Closed
Bob what would you have paid for a Honolulu home in the 70's that's worth 500 to 1.5 today... I know one of my bizz partners just bought a fixer for 1.5 over on the other side of Diamond head.. right across the street from that crazy Japanese billionaire that owns all those ocean front places that sit vacant.. I heard Baldwin bought all of that for 100 mil or so..
Out of state is fine for some but as Bob points out its not a big money game its a slow cash flow game and your cash flow can go backwards on you very quickly if you don't have the right teams in place. or you guy low end C property and live in CA and expect it to perform like A or B.
One thing about CA.. the market will take care of bad rental situations over time. Bad rental situations in the Mid west cash flow market ( IE bad tenant loss of value because of trashed home or what Ali described as she lost money getting her rentals straightened out) Can in many instances never be recouped.
One must always remember that in the foreclosure epidemic half of the foreclosures came from Land lords that failed... And logic only dictates why would a land lord fail... and let a property go.. 1. because its not performing ( biggest reason) 2. strategic default property so far underwater and rents don't cover the investor walks..
I know of one Terrible turn key outfit out of Salt Lake that I did a few HML with back in 05 and then saw what they were doing with the long term buyer and I stopped after 2 or 3 loans. But someone else funded it and the owner of the TK was also a mortgage broker and they did about 100 homes in this one town ( all in the lowest price ranges) Many never got rented all of them had conventional loans on them and ALL went to foreclosure over the ensuing years as investors just walked.
Out of area investors Need to proceed with Ultra caution and make sure those they work with have impeccable creds.. And then choose the high end of the market not the low end.. Low end is just plain tough and a Huge Risk in my mind.
- Investor · Fort Wayne, IN · Member since 2012 · 276 posts · 77 votes12y
@Jay Hinrichs I think I know of the TK outfit you are talking about. They did their first deal here in Fort Wayne that they "turn-keyed" to our company for property management. I found out from the owner what they paid and was astonished. They paid at or above market for a property strictly off the numbers and i'm still scratching my head to figure out how they thought it was a "deal". It's sad to see that happen to people, but i just don't understand how someone would think it's a good idea to buy a property out of state from another out of state entity. If they don't have their "roots" here and haven't been in this market for anymore than a year how do they have any idea what a property is worth? I'll hop down off my soap box. It just really blows my mind when I see stuff like this happen. Granted we are all here to make money, but I think sometimes outfits like that are definitely part of why everything collapsed. A small cog, but still a cog!
- 12yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Kristi Miller:
Hello:
Although we live in Napa, CA, our real-estate portfolio is with properties in the midwest. We just understand that area the most. After looking at some multi-family properties here in Northern California I do not understand how anyone makes money investing here if you are a buy and hold person who prefers to buy properties already in good condition? The price of the property is much higher than the rents being paid. Any insight? Are most investors in CA paying cash for the property and investing for appreciation? as opposed to cash flow and high cash on cash return?
Investors, whether in California or not, are looking for different objectives and each calculates risk and reward in his or her own way. I network with a lot of California investors and they are no different than investors that I network with in Texas or New york, Hawaii, Illinois, Florida or an other state. Each is comfortable with the way they invest and why they invest. I have some really good friends who are buying everything they can in Manhattan Beach and Redondo Beach and others that are buying up San Diego if they can. Their budgets, timeframes and expected outcome allow them to do that. Then I also have friends who are buying properties with us in Texas and Tennessee and buying a lot. Then a good friend who worked in the IT field in northern Cal moved up to the Sacremento area and started a passive investment company there buying up dozens of properties a month to sell to other investors in a cash flow scenario. You can find Aaron Mazzillo on here out of southern Cal and he buys cash flow property in the inland empire. Im not 100% sure (because I have never asked him) if he could put a premium on top of those properties once he has stabilized them and sell them as a cash flow producing property to other investors. I bet he probably could and would find plenty of investors who would want that product right in the middle of the state of California.
Point is, each has their reasoning and plan, just as you have your reasoning and plan for why you prefer the Midwest. I think the important thing is that you have a plan for WHY you are buying property where and how you buy property and handle it from there. Some invest for appreciation and pay cash or leverage. It is going to depend on the investor and how they handle their money and credit. Still, others invest for a return on each dollar invested and they will seek to maximize that in number of houses they buy and by attempting to leverage every dollar. And then some invest for a mix of both. I think most investors could get any of those objectives in most any city around the country depending on what the objective was. And then.....
There are investors who simply buy somewhere because they are convinced that the green grass over there is going to be greener than the grass where they stand.
I think if you know EXACTLY WHY you prefer investing in the midwest then you don't need to change a thing. As long as you are earning the return and achieving the outcome you expected from the beginning, don't change your plan to multi-family properties
- 12yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@Jay Hinrichs I know of a similar situation. When I was doing mortgages I had a guy that was buying Phoenix rentals with 5/1 ARM's expecting to refinance them after they appreciated enough. This was in 05 and 06. Well guess what happened about 2 years later. He was under water and walked away.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes12y
As I said to Bob @Jay Hinrichs, everyone has preferences and not everyone asks about how to get to $5M-10M in net worth. If someone asks about monthly cash flow, I'm going to tell them not to buy in CA. If someone wants to work appreciation and/or are looking for a way to hit that kind of net worth, then I'll suggest CA all day long.
In this case, a specific question was asked (to which the answer is yes, people investing in CA are investing for appreciation only because cash flow is not feasible in most areas). Arguing markets, cash flow or no cash flow, or what methods to use for accumulating insane net worth wasn't what was asked. As I said, all investing options have pros and cons. Some people don't want to play the appreciation game, and if that be the case, so be it.
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes12y
Appreciation happens...until it doesnt. I bought my home in 2007 fir $620K. Two years later my neighbor sold his to a couple from LA for 550 K and left the area. Last year one on the same street in the same development sold for $680K. My new neighbor should be happy right? Not really. He is still far below his cost of the home he bought in LA before he moved here. All I am saying is appreciation is subject to timing. Sure, over a long enough time, in the Bay Area, prices will likely continue to rise. IF you want to buy with fixed mortgage and live with close to zero cash flow, you can take a chance on appreciation. For me, I have that built into my primary residence (and also my fiancees primary residence). But my goal is to replace my expenses with passive income. Appreciation does not get me to that goal. So I am building a portfolio of homes out of state that would generate enough income. After that I dont care about asset values as much. The goal is not maximize assets, but generate enough income. You may have other goals!
- 12yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Account Closed:
Appreciation happens...until it doesnt. I bought my home in 2007 fir $620K. Two years later my neighbor sold his to a couple from LA for 550 K and left the area. Last year one on the same street in the same development sold for $680K. My new neighbor should be happy right? Not really. He is still far below his cost of the home he bought in LA before he moved here. All I am saying is appreciation is subject to timing. Sure, over a long enough time, in the Bay Area, prices will likely continue to rise. IF you want to buy with fixed mortgage and live with close to zero cash flow, you can take a chance on appreciation. For me, I have that built into my primary residence (and also my fiancees primary residence). But my goal is to replace my expenses with passive income. Appreciation does not get me to that goal. So I am building a portfolio of homes out of state that would generate enough income. After that I dont care about asset values as much. The goal is not maximize assets, but generate enough income. You may have other goals!If we could all be so succinct and direct in our comments! I voted for your post because it shows someone who knows exactly why he is following his own plan without ill-will or disregard for anyone else's plan. Good stuff Anish.
- Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes12y
Thanks @Chris Clothier I forgot to mention that my neighbor from LA still owns his home there. He cant sell because he is underwater so he has rented but has negative cashflow because thats how the LA market is. He is not an investor per se but this is just to show that banking on appreciation can bite you the wrong way also.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes12y
Originally posted by @Kristi Miller:
Hello:
Although we live in Napa, CA, our real-estate portfolio is with properties in the midwest. We just understand that area the most. After looking at some multi-family properties here in Northern California I do not understand how anyone makes money investing here if you are a buy and hold person who prefers to buy properties already in good condition? The price of the property is much higher than the rents being paid. Any insight? Are most investors in CA paying cash for the property and investing for appreciation? as opposed to cash flow and high cash on cash return?Hi Kristi,
Ironically, I don't understand the Midwest market. Thus, I invest here in the Bay Area. I don't even have to go to Sacramento or the Central Valley to find positive cash flow properties. IMO, the return in the Bay Area is so lucrative to invest anywhere else. You can make an argument that I have cracked the code, but I'd say that I have barely scratched the surface of the Bay Area real estate goldmine.
Unfortunately, I understand why typical folks cannot get positive cash-flow here. It's because it's not a level playing field. The Bay Area is the land of the aristocracy. If you have an 8-figure net worth or higher, you can buy positive cashflow in the Bay Area all day long. I'm no where near having an 8-figure net worth, but I know those that have. It's sickening how much money they make.
I will let a bank regulator to fill you in on what I'm talking about because he's reviewing these files days in and days out. Right @J. Martin ?
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed
Your post is such such a foreign concept to those that do not live in the Bay area... and or understand that a 1950's 900 sq ft home in Palo alto is worth 1.5 million.. for that money in the mid west say Detroit that would buy you literally 100 homes that will rent ( if you can collect the rent) but I will just surmise you can.. for 700 a month and so cash flow would be 100k a month gross were in the bay area that same Palo Alto 1.5 mil home would rent for 5 to 7k a month again our MId west friends will gasp at those numbers.
So you can see why folks go East young man go east
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes12yThere were plenty of properties that cash flowed in Nor Cal fairly recently. There are 2/1's in Yuba City that were going for $45k and renting for $850. You can find similar deals all over the Central Valley.
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
for this reason Cental Oregon died on the vine.. K falls Bend area ( although bend is bouncing back) people would sell in CA and pay cash for Oregon properties. but then central valley and foothills properties devalued and why move to Oregon.. we have the highest state tax in the country and it rains all the frickin time.. Although Southern Oregon is more like N cal.
If your familiar with Yuba city and Beale airforce base you may be familiar with Hammaton Smartsville road that runs up the N side of Beale to intersect with Hwy 20 and then up to lake Wildwood and Nevada city Grass Valley,
Any way back In the late 80's I was project manager for a the subdivision just up from the base.. I was there last summer its all built out. but only a fraction of what we had approved..And phase 5 of Wildwood got built out as well..
- 12yJ. MartinPro MemberRental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
@Kristi Miller , appreciation is a much bigger part of the game here in the Bay, and to a lesser extent in Northern CA. As @Account Closed alluded to, if you have deep enough pockets, you can get rock-bottom variable-rate multifamily pricing near 3% in the market right now. So that helps a lot with the cash flow. And market appreciation is pretty hot.. Now, if you find buildings to improve, with below-market tenants, something that wasn't managed well, and/or in bad condition, you can turn around both the cash flow, and get a big increase in value, especially in this low-yield environment. But you probably won't find a lot of great condition properties at market rents for a deal, where you can get good cash flow. You have to be a little more active to make CF in a lot of places in the Bay..
@Jay Hinrichs , I just don't know if it's worth managing/fixing 150K sq ft of houses all around Detroit on thin margins when there's super tight vacancy, little buildable land, strong economy, and good future prospects here in the Bay.. But if I knew someone well enough that I could trust out of State, I wouldn't be against it. I just haven't got comfortable with handing over my success to someone in a location where I can't be there to hold them accountable.. Someday though..
- Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes12y
@Kristi Miller I think a lot of people in out of state investing might not always consider the 5-10 years from now. A lower cash on cash return property in a decent area where there are high barriers of entry in 5-10 years might be yielding more money than an initially higher cash on cash property.
States like CA and Oregon have property tax caps. The savings from this might not mean much in the first few years of ownership, but after ten years they can be pretty significant.
It doesn't have to be all appreciation or all cash flow. There is a medium spectrum too. Anyway my two cents.
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