California vs. Texas

Buying & Selling Real Estate
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California vs. Texas

Jason Mak
Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes

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)

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Guy Gimenez
Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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In Texas, I get to buy and hold my Sig Sauer 40 cal.  I have to include that in the "return on investment" category.  

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  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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. 

    3Reply
  • Derek W.
    Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
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    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. 

    1Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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 :). 

    1Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    I have a feeling this thread will be interesting. 

    :)

    0Reply
  • Jimmy Wilson
    Flower Mound, TX · Member since 2014 · 33 posts · 17 votes
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    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?

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  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
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    @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

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  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
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    @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".  

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  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
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    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! 

    1Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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. 

    1Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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. :)

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  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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.

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  • Account Closed
    Residential Real Estate Broker · Austin, TX · Member since 2014 · 146 posts · 21 votes
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    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.

    1Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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.

    0Reply
  • Derek W.
    Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
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    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. 

    2Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    what part  derek? 

    0Reply
  • Derek W.
    Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
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    Riverside county and Kern county. 

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
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    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! 

    2Reply
  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
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    Contractors have a stronghold on lisencing and permitting so everything is 1x 2x 3x as expensive as Texas...and our Liberals are outnumbered statewide.

    1Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    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. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @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...

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    4Reply
  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    Yes good points, Jay, thanks. 

    0Reply
  • Joe Moore
    Rental Property Investor · Los Angeles, CA · Member since 2010 · 804 posts · 230 votes
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    Also Texas being landlord friendly is a big and refreshing point to a CA investor.  The landlord has the better hand.

    2Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
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    @Joe Moore  you can say that again!

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  • Hattie Dizmond
    Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
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    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!  :-)

    5Reply
  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
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    Thanks for input on the Dallas area and good to know that there is plenty of growing industry beyond O&G.  Is it just as hot on the commercial side (multifamily, office, retail)?

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