What does your ROI look like in California?

Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes

I'm an investor in California and have bought in Stockton and Elk Grove. I read the deals in other parts of America and we don't get anywhere near the ROI as other parts of the country. I typically get a cap rate of about 7% on a SFR. How are others doing in California? If you're doing better than 7% cap rate, what is your strategy.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

@Gloria Mirza I closed one today in fact and after paying my ground partner half of profit my return was 43.51% APR... I love Sacramento !! At least today I do..

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Sterling WhitePro Member
Rental Property Investor · Indianapolis, IN · Member since 2014 · 554 posts · 153 votes
10y
Great question @Gloria Mirza I am interested in this market and would like to hear others thoughts also. In Midwest achieving CAP rates 14%+, but of course appreciation is not nearly as lucrative as the CA market. So looking to potentially expand
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Jeremy Williams
Lender · Sacramento, CA · Member since 2013 · 84 posts · 10 votes
10y
The only example I have is from when the market was down and I purchased my primary at the time for 145k. Turned it into a student rental and according to the bigger pockets calculator as a student rental I'm getting a $581 Cashflow, 20% CoC ROI, 9.5% Cap.
if I convert it to a single family renting it I would be at $280ish cash flow, 10% CoC and around a 7% Cap.
I mainly invest in Florida now though and wouldn't imagine trying to invest in the Sacramento market with the new arena coming in and prices going crazy. Definitely would have to do your work in searching for something and fixing it up. Doubt there's much in the way of turn key around.
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Gloria Mirza
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Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
10y
Originally posted by @Jeremy Williams:

The only example I have is from when the market was down and I purchased my primary at the time for 145k. Turned it into a student rental and according to the bigger pockets calculator as a student rental I'm getting a $581 Cashflow, 20% CoC ROI, 9.5% Cap.
if I convert it to a single family renting it I would be at $280ish cash flow, 10% CoC and around a 7% Cap.
I mainly invest in Florida now though and wouldn't imagine trying to invest in the Sacramento market with the new arena coming in and prices going crazy. Definitely would have to do your work in searching for something and fixing it up. Doubt there's much in the way of turn key around.
Yeah, but that's more of an example of the appreciation in California. If somebody were to purchase the property at today's prices they would probably get a much lower cap rate. I'm purchasing a short sale in Sacramento right now and it's only going to have a cap rate of 7.6%. I think in this area you have to trade off cash flow for appreciation. I think in the long run it will work though. The areas I'm purchasing in like Sacramento and Stockton are still hit hard by the housing downturn (Stockton more so than Sac). If I were to invest in San Jose where I live, the cap rate would be closer to 5% and I would be well into the negative cash flow territory even with 25% down.
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Jo-Ann LapinPro Member
Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
10y
Stockton and Elk Grove have given my investors wonderful return. We closed on a Elk Grove flip for an investor a couple of years ago and she made the most any investor has made since we started our company. Cute area!!!
[email protected]
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Gloria Mirza I closed one today in fact and after paying my ground partner half of profit my return was 43.51% APR... I love Sacramento !! At least today I do..
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Gloria Mirza
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Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Gloria Mirza don't recall my partner brought it to me... I do these in 12 states and a lot of volume so I don't recall the nitty gritty.. although we rarely if ever buy from wholesalers
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Gloria Mirza although same partner just called and we have another one a sale fail ( listed property buyer could not perform..) go into contract tomorrow and close next Monday should be the same ROI or better...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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@Gloria Mirza that was unlevered COC return... with leverage it would have been very high pert near average for what we do
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
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Originally posted by @Gloria Mirza:

I read the deals in other parts of America and we don't get anywhere near the ROI as other parts of the country. I typically get a cap rate of about 7% on a SFR. How are others doing in California? If you're doing better than 7% cap rate, what is your strategy.
California has typically been more of an appreciation market than a heavy cash flow market. You say that we don't get anywhere near the ROI as other parts of the country, which is a true statement if you only count the operating cash flow and disregard appreciation and rent growth. Put those markets side-by-side with CA and factor in the rent growth and appreciation for each market and chances are that CA will produce a higher ROI even if the cap rate was lower.
But the system is rigged...it doesn't always work. A cash flow market is more predictable. Our market is less so--and the appreciation doesn't do you much good unless you sell (or in a limited sense, refinance). Timing can be an important element here. If you bought a rental in 1991 you would have waited six years to see even one dollar of appreciation (but then it really took off--quick). Had you bought in 2005 you'd still be waiting to be in the black. But if you'd have bought in 2011 you'd have done really well.
As an example of the power of CA and timing...I bought $15 million worth of houses in 2011-2013 at cap rates ranging from 6% to 14%. I've just started to sell. Judging by the initial sales, I'll probably be fully liquidated around $30 million. A $15 million gain on $7 million (the rest was financed) in five years is over 40% ROI (annually) -- and rents are up around 30% since acquisition. Try doing that in the markets you are comparing CA to...I'd bet they can't come close.
But that was history. Where are we today? I suspect that today looks a lot more like 1991 than 2011.
Thus is why cap rate isn't a good measure of investment performance. There is more to it than one number giving you all of the answers. But I digress...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Brian Burke YAHTZEE !!! can you say condo in Maui !! I think so .
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Gloria Mirza
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Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
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Originally posted by @Jay Hinrichs:

@Gloria Mirza don't recall my partner brought it to me... I do these in 12 states and a lot of volume so I don't recall the nitty gritty.. although we rarely if ever buy from wholesalers
You know you're a real estate investor when you can't remember how you got a deal because you have so much volume :-)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Gloria Mirza I am a capital partner not an investor investor to me means long term buy and hold of which I am not one of those.. Although I do invest in Paper which is my version of long term hold. I have a condition that is frequently described as burnt out landlord syndrome.. that happens when you are tired of tenants and tired of PM's sending you e mails requesting money.. It got to the point when I would get the shakes if I had an e mail from a PM... it was bad.. Doctor told me to sell it all.. and that's what I have done !.
Now I get to chase payors
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Gloria Mirza
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Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
10y
@Brian Burke Very well worded post. I started buying in 2013 and am still buying. I tend to believe that as long as we have short sales and foreclosures to clean up in the area, they will put downward pressure on home prices and make deals available. Another factor to consider is that for people with short sales on their record, which is most of the population in Elk Grove and Stockton, the 7 year period where the short sale stays on their record is expiring right around now. If the economy doesn't go to hell, it should create a whole new wave of buying.
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Joe Bertolino
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
10y
There are still great deals in Sacramento. You need to have cash and you need to hustle a little, but there are deals all over the place.
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
Originally posted by @Jay Hinrichs:

@Brian Burke YAHTZEE !!! can you say condo in Maui !! I think so .
Well not Maui but out the front yard/beach. Aloha, Mele Kalikimaka.
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
@Gloria Mirza true...if you can buy below market you can still do well and have a hedge against risk. I'm still buying, but only if I can get the property way below value. Areas such as Sacramento and Vallejo/Fairfield often have better cash flow than core markets yet are still close enough to employment centers and suffered badly in the downturn and haven't fully recovered. But even those areas are getting close to a plateau in pricing, I my opinion.
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Tom Moho
Pleasant Hill, CA · Member since 2014 · 1 post · 0 votes
10y
@Gloria Mirza Thank you for the post. I've been listening to BP podcast for a couple of years now but admit I'm new to the forums. This is a market I live near and considering so great to get all of the valuable knowledge from everyone.
@Brian Burke Also, thank you for your response. I've listened to you a few times and most recently on podcast 152, great stuff. From that interview I sensed that right now might not be the best time to be buy in Northern California. This might be a loaded question but - as someone who is relatively new to the area and looking for a duplex or single family in Sacramento and surrounding areas - How would I go about finding a decent deal?
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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
10y
That's the ten million dollar question, @Tom Moho. Good deals aren't falling from the sky like they were five years ago. It takes time and a lot of effort. I find them because I have several people looking, full time, and buy mostly on the courthouse steps. I can't recommend anyone but the most experienced investors who also happen to be title experts buy this way. For everyone else, it's the same old, same old...MLS, fixers, REOs, direct mail, door knocking, driving for dollars....
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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
10y
Originally posted by @Gloria Mirza:

I'm an investor in California and have bought in Stockton and Elk Grove. I read the deals in other parts of America and we don't get anywhere near the ROI as other parts of the country. I typically get a cap rate of about 7% on a SFR. How are others doing in California? If you're doing better than 7% cap rate, what is your strategy.
I wouldn't say you don't get anywhere near the ROI in CA as you do in the Midwest. You don't get anywhere near they ROI from cash flow but you need to consider your total ROI. I'm not a believer in counting on appreciation but CA has a long history of strong appreciation. Having said that however, appreciation in most CA markets is expected to cool significantly in 2016. It's all about timing and I think the appreciation train in CA has left the station for this cycle.
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Gloria Mirza
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Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
10y
Although in the long run, appreciation can be a powerful tool, the problem is that it takes some time to wait for appreciation (in home prices and rent) so that you DTI level can get back to a position where you can buy more properties. A rental that is cash flow positive from the beginning makes things easier.
I'm currently running into that point where DTI is too high to qualify for affordable loans. Of course there are other ways to get loans that don't rely on DTI as much but those cost more.
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Richard Dunlop
Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes
10y
Originally posted by @Account Closed:

Originally posted by @Jay Hinrichs:
@Brian Burke YAHTZEE !!! can you say condo in Maui !! I think so .
Well not Maui but out the front yard/beach. Aloha, Mele Kalikimaka.
Bob it must be Global Warming
This is what Winter is supposed to look like!
My Front Yard and Beach
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
I bought in '97 with a much lower GSI, but right now, my run rate is
1. PP ............DP.......... FA.......... GSI .........NOI.... GRM DSCR C/C ....... CR
1. $305,000 $95,000 $210,000 $68,400 $53,759 4.46 . 5.04 . 55.65% 17.63%
The original DSCR was 1.15 and we just squeaked in.
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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
Geez @Richard Dunlop I may use that for my Christmas cards. Very nice, but I spent my first 25 years in the Ohio River Valley so I know what that snow looks like on day 2. I also feel the pain of HVAC and large energy bills. And I could never feel comfortable with the paint mocking me every day.
But for all the people that DO have the sense to get out of the cold beware that nite temps are dipping below the 70's this week! It could very well be a white Christmas.
https://www.bing.com/search?q=honolulu+weather&for...
Now here's the Midwest property that I am coveting and I have publically offered the new buyer to swap my oceanfront condo for either Dec or Jan.
http://www.realtor.com/realestateandhomes-detail/5...
But if I am looking to brave the elements this will be the extent of my sacrifice...
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