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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  • DL Martin
    Rental Property Investor · Cincinnati, OH · Member since 2013 · 292 posts · 280 votes
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    Originally posted by @Jay Hinrichs:

    @DL Martin 

      number one in migration state from CA residence's was Oregon... has been that way for years.. No doubt some people move to texas from CA...

    for that matter I have had a few clients and friends Move from OR to TX.

     @Jay Hinrichs  (can't get @ to work...)

    I would bet that exactly zero % of those Californians moving to Oregon are renters. And I would bet that few of the people moving from CA to TX are long term renters. More than likely, if they have the gumption to move out of CA for Opportunity/Ambition, then they will not be renters in Texas for very long. 

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

      mixed bag coming to Oregon... large Hispanic work force... and then Brain drain from companies Like Intel  etc... they come up to the Silicon forest.

    Or a guy like me RE  dude

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  • DL Martin
    Rental Property Investor · Cincinnati, OH · Member since 2013 · 292 posts · 280 votes
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    Originally posted by @Eric Thomson:

    yeah, well, we have BBQ and you have gluten free seaweed quinoa wraps... Texas wins!

    Memphis has the BBQ.  CA has very, very generous EBT. (Electronic Benefit Transfer). 

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  • Jason Mak
    OP
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
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    @Eric Thomson what do you have against gluten free seaweed quinoa wraps?!?!?  

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  • Brett S.
    Investor · Kalamazoo, MI · Member since 2014 · 60 posts · 25 votes
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    As soon as a market is published as being "hot" I take it off my list.  You should too.  Once it's common knowledge enough that a publication picks it up all the good returns are gone, or soon will be.  Same logic as the stock market - once you read about it it's time to sell.

    I've looked at both markets for buy and hold in the past and decided against both.

    Compared to my primary market, Texas *would* be ok/comparable *if* I lived in Texas.  Texas rental returns are 10% lower than what I consider acceptable.  This is offset with no income taxes.  Being out of state though, I have to pay state income tax anyway, so no deal.

    Add in the fact that the oil and gas industry employs most of the state in one way or another (like auto does in Michigan) and that industry will be in the toilet for the next few years (with people leaving state for other jobs) and the demographics look scary too - no appreciation play to be had.  or at least not a good one.

    In my experience when I ran the numbers, California might as well be Manhattan.  Insulting, obscene, offensive, tax levels (among highest total tax bill in the country), overvalued properties, and average rents = poor returns vs pretty much anywhere else in the USA.  Your only valid play in either location is appreciation.  I believe in the Manhattan appreciation play due to foreign money.  Not so much California, except maybe in very specific areas (silicon valley).  It's no Manhattan.

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
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    Everyone is making some good points. And speaking of Calif inflow and outflow numbers there are some telling facts. 

    73% of folks who leave Cali make less than 50K.

    The new majority moving to Cali make over 100k. 

    Cali is losing its " poor people" at a quick pace. I expect this to continue. If you look at the nation as a whole neighborhood, Cali is quickly becoming the better hood generally with those above migrations noted. It does not mean you can not do well in any state with REI.

    At a certain point when thinking longer term you might ask yourself where is best known place to park and grow investments. To compare TX generally vs Cali generally it is not really comparable outside of Austin, TX. Nearly everywhere in Cali is like Austin, TX.

    For ongoing fun, go ahead and throw a dart and we can compare 10+ years later. I am bias in this regard but it is not an unwarranted bias historically. The only places in Texas I have been to are Houston and El Paso...I would say both are not going to be as good as Cali generally long term wise. Of course there will be many exceptions which you can post anytime. 

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

      its all relative if your living in Kokomo your living large on 50k  :)

    there was a lot of talk on one of the AUSSIE sites their version of BP about 3 to 4 years ago and it was Texas VS say Atl or Vegas  As there were many Texas turnkey guys pounding aussies pretty hard..   Along with the data that prices had remained stable throughout the GFC in Texas ( generally speaking)  And in Atlanta and Vegas price's got crushed.

    For me 3 years ago I choose Atl to buy 50 SFR's and by passed Texas all together.. And I would comment on the Aussie site is it better to buy Texas were things never fell or to buy that 150k home at the peak of the market in Atlanta ,, that got crushed and I just picked it up for 40k rents were the same.... Well of course the Texas guys were all about hey our values never fell... Atl could not counter... But if I look at what happened I made the right choice for sure... My Atlanta stuff doubled in 18 months ( Thank you Blackstone and other Hedges) and I sold to a hedge fund and pocket my profit. Texas would not and did not do that I would still be holding Texas if I had bought there.. But now values and rents are about the same in Texas and Atl... so the question now is what does the future hold.. I know what happened in the past... So same goes with the CA and Texas debate.

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
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    @Jay Hinrichs 

    Or you could just ride Jays coat tails and call it a day. 

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

      Im coming down to socal so you can teach me how to ride one of those paddle boards...!!

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
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    For sure Jay...it would be my pleasure!

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  • Vivek Sapre
    Investor · San Mateo, CA · Member since 2016 · 27 posts · 3 votes
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    Initially I was also alarmed with the Tax Rates in Texas however I learnt that Texas is non disclosure state, so if your from Cali and you are trying to apply the tax rate on your sales price then you can go wrong on your calculations. Please check with your realtor before you consider the tax amount to determine cashflow.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    Originally posted by @Vivek Sapre:

    Initially I was also alarmed with the Tax Rates in Texas however I learnt that Texas is non disclosure state, so if your from Cali and you are trying to apply the tax rate on your sales price then you can go wrong on your calculations. Please check with your realtor before you consider the tax amount to determine cashflow.

    bought a 200k property in Dallas and tax's were right at 6k a year.. I bought a 300k property in Vegas and tax's are 1600. and rents are about 10% or so higher in Vegas  and insurance and maintenance are less as well..  must run all the numbers 

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  • Vivek Sapre
    Investor · San Mateo, CA · Member since 2016 · 27 posts · 3 votes
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    @Jay Hinrichs

    ofcourse we need to run all the numbers but this was only in context of tax rate as I was going to walk away from TX only cos I was considering higher tax amount when it was not right. Many ppl from Cali won't know this is how taxes work in Tx since that is diff here and no1 tells us about this. 

    Other numbers are equally important and rent and appreciate rate are major factors but that will change for every house/neighborhood anywhere in each state.

    Thanks

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