California vs. Texas

60 Replies

Starting this thread after reading through the "Austin is Hot" thread.  After reading that thread, the Austin atmosphere looks similar to California.  I'm a California investor and certainly a dearth of deals out there due to high prices and influx of investor competition.  So my question is if this is any different from Texas?  I'm referring to the metro cities: Dallas, Austin, Houston 

Texas and California share many similarities from an investor profile:

- Growing populations and good demographics

- Nice metropolitan cities with strong industries

My general observation is that the cost of entry (i.e. price per square feet) is much lower in Texas, so it would make sense if you have less capital to go there, but does it make sense from an ROI point of view?

I've seen both sides of the argument.  I have friends exchanging buildings in CA and buying apartments for nicer cap rates in Houston but then also friends who have comment that TX doesn't have the appreciation that CA does. 

Anyone have experience in both states and care to comment?  I'm referring mainly towards the larger Metro areas (i.e. Austin and SF or Dallas and LA)

I live in TX and I love the RE market here. I have not invested in CA. I do very well with distressed homes in San Antonio on buy and holds. 

I like the high hispanic population here, great people with a strong work ethic. It isn't just oil and gas - most of my buyers are in the blue collar skilled trades. 

And the real estate is very reasonable. When you put together inexpensive property and strong demand for affordable homes, it's a good place to invest. 

I don't care about appreciation :). I just want ca$h flow. Let's see what the California investors say. 

i've invested in both places. Really didn't enjoy my Texas experience. Property taxes were really high and sucked away my return. I guess I also really like the crazy up and down swings California has. You can make silly money timing the market right. My Texas stuff hasn't moved much at all. 

Yeah I would expect you can make crazy appreciation out there. I like my steady money every month out of my little bitty 50,000 dollar houses :). 

I have a feeling this thread will be interesting. 

:)

Just to chime in a little here.  

Californians seem invest in RE heavily in Texas.  You can throw a rock here in DFW and hit 2-3 Californian owned rental properties.  However, I have never really seen Texans asking about investing in RE in California.    I wonder why that is?

@Derek W.  yes that is what I hear.  

Little to none appreciation in Texas investments (unless it is a value-add/forced appreciation deal.  But as @Account Closed  says, nice entry point with good cash flow.

In the end, this looks like a cash flow vs appreciation comparison

@Jimmy Wilson  I think this is because the price point is much lower in Texas so many Californians see TX real estate as a "good deal".  

Texas has MUCH higher property tax than California! Also as a rule (when you talk to locals) appreciation has a much lower affect on their house values. In some areas insurance can be high too because of insurance. 

We have found a great place to invest in Texas (small town) but haven't pulled the trigger because compared to small town California, it loses every time! Outside of very specific areas Texas just doesn't appreciate as well along with the high taxes, insurances, etc! 

yes of course, prop taxes are higher here absolutely. But I like no state income tax. But as jason said, it comes down largely to appreciation vs cash flow. The up and down nature of CA scares me personally, I like my money steady. 

Originally posted by @Jason Mak :

@Jimmy Wilson  I think this is because the price point is much lower in Texas so many Californians see TX real estate as a "good deal".  

 I literally have had people in CA shocked that you can buy an ok house here for 50k. It's pretty funny. :)

as far as ROI, Jason, I make 15-16% on my houses in TX, owner financed. To be fair, current cap rates are lower as prices are 30% higher, market has picked up a lot.

I agree with what everyone has said.  both areas are very very hot right now:  http://fortune.com/2014/10/23/hottest-real-estate-us/ most of the hottest markets are in ca or tx.  The cost of real estate is probably half in TX what they cost in CA.  That would be a benefit for me i think if i was looking at both areas.   I think that the thing that are driving the strong TX economy:  No state income taxes is huge and will continue drive the strong tx economy some time to come.  Wereas, the CA econonomy long-term is a big unknown.

Agree scott. I know from personal experience in my Texas city that this is a pretty steady, safe market. It doesn't go sky high but doesn't plunge either. We have done well in REI in up markets and down markets. I am able to sleep at night, and make a solid return. That's key.

I'm buying 30-50k houses in California. And with our appreciation and lower taxes, I'll take it every time over the rentals I own in Texas. 

what part  derek? 

Riverside county and Kern county. 

The historical returns are as different as the landscape.

Many Californians have realized the massive gains and have invested elsewhere. Starting years ago with Seattle, Denver, Portland, Phoenix, Vegas, Atlanta and now the Texas cities are the flavor of the month. That should bode great for Texas now.

Great opportunities exist in all of the above of course! 

Contractors have a stronghold on lisencing and permitting so everything is 1x 2x 3x as expensive as Texas...and our Liberals are outnumbered statewide.

Updated over 3 years ago

California contractors...you have to be licensed and the process keeps out competition so higher prices. Like unions.

That is not my experience where I am, Marian, we are able to get good prices on most work we do for rehabs. We do a light rehab of 5k usually, then owner finance it out. 

@Account Closed  

  lack of state income tax does not matter to a CA investor they are taxed in CA.

but it does help TX... Although its really somewhat misleading as your taxed in other areas that make up for the lack of income tax... Especially with sky high RE tax's  so renters make out they pay no income tax and no property tax.. good place to be a renter.

The property tax issue in Texas is one reason that the median price is so low along with limit less land to build on... And super cheap construction prices.. pretty hard to have values rise when you can buy brand new homes all in for 100 a foot in a major metro area and many times much less.

However that all said we enjoy what we do in Texas we just don't buy and hold...

Yes good points, Jay, thanks. 

Also Texas being landlord friendly is a big and refreshing point to a CA investor.  The landlord has the better hand.

@Joe Moore   you can say that again!

Originally posted by @Jason Mak :

@Derek W.  yes that is what I hear.  

Little to none appreciation in Texas investments (unless it is a value-add/forced appreciation deal.  But as @Account Closed  says, nice entry point with good cash flow.

In the end, this looks like a cash flow vs appreciation comparison

 Let's set the record straight.  The areas of high-desirability in the Dallas/Ft Worth area average 6% appreciation per year, as a whole.  Now, that doesn't compare to the ridiculous appreciation you find in CA, but you also won't find yourself having to "time" the market in DFW.  In CA you can buy a house for a "steal" and lose your but, because your rehab went too long and the "bubble burst".  If you are making an appreciation play, then it's the equivalent of day trading on the stock market.  There's nothing wrong with it, but it is inherently risky.  I view appreciation just like my annual bonus...a bonus.  I DO NOT consider it part of my base compensation or predicate my budget upon it.  If a deal is a deal only  if the property appreciates as you hope, then it's not really a deal, it's a bet.

I love Texas, particularly the economic diversity in the DFW area.  With that said, the good areas are not great plays for the buy & hold investor right now.  Rent to value is inverted in those areas.  They saw steep appreciation over the last 24-months, as they rebounded from the stagnation of the sub-prime crisis.  Tenants already in place means rents can't escalate at the same rate.  They will catch up and within the next 9 to 12 months, the buy & hold market in the highly desirable areas will improve.  In the meantime, flipping in those areas, assuming you can find property at a discount, is a slam dunk, because inventories remain ridiculously low.

The Far North Dallas area is on fire right now.  State Farm is in the 2nd stage of occupying their new HQ in Richardson, which will house 15,000 FTE.  Toyota just announced plans to dramatically increase the size of their original plan for the new North American HQ facility being built in Frisco.  Ratheon is building a new facility in Richardson.  Intuit is increasing their presence.  TI is expanding.  I could continue, but you get the point.  And, for the naysayers who are pounding the oil & gas drum, you will notice that none of those companies are related to O&G.  Dallas isn't an O&G economy.  It is incredibly diverse and it is unlikely to be impacted by continued decline in that segment.  

We welcome CA investors.  I personally work with several of them to identify properties.  Come on over!  :-)

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