There is so much misinformation on this site it is crazy.
Here are the facts;
For total profits, cash flow plus equity since 2009 the top 3 locations are San Francisco, San Jose and LA.
Since 2000, that is LA, SF and San Diego.
For the sake of discussion... why do you think that is the case?
@Matt R. I'll take a stab at answering the question as to having the highest total profits....
Any area that has something unique to offer that people want will have high appreciation because of basic laws of economics. Add to that many of those areas were hit pretty hard with the 2008 crash, and therefore had a tremendous opportunity to rebound. As such they had incredible gains in that period of time since then in both appreciation and rental growth. I believe going forward coastal towns will still always provide the greatest appreciation opportunities due to the fact that there is a very limited supply of coastal properties. History has proven that even pre crash.
To @David Faulkner 's point(s) - I don't think it's that people are appreciation haters, I think people go after the cash flow (and the areas that provide cash flow) because purchase prices are lower and they can move quicker along the path. They are looking for financial freedom in the shortest window, not just net worth on a balance sheet. I doubt I could have obtained financial freedom in under 7 years given a very meager starting position if I were investing in LA and San Fran; mainly because the amount needed for down payments and not having the cash on cash return to immediately funnel back into the machine.
If financial freedom is the goal and you're an average investor starting with say just $25k, cash flow on cheaper properties is the way to go. LA/San Fran/etc is out of reach. $25k isn't going to get you anywhere in those markets. They'd have to diligently save for another several years just to get one property. However; if you are looking for long term wealth building and net worth growth, those types of areas are definitely where you want to be in.
Now that I have reached my goal of financial freedom, I don't know that I'll be investing my own money in these plays much going forward. My plan is to begin stockpiling some cash reserves over the next few years. Then the next time one of those types of markets takes a hit hopefully I can pick up a house or two and get some awesome appreciation and net worth building and be able to be a part of getting the highest total profits. But even with all I have that will take quite some time of saving up to get even one decent property then.
Landlords don't look for equity as a means of their profit, equity is only profit that is gained on exit, which is normally not used as profit because they 1031 it into a larger portfolio to make profit off the rental cashflows. A landlord will go broke playing that game if there is no positive cashflow to support the business over such long periods of time.
Landlords don't look for equity as a means of their profit, equity is only profit that is gained on exit, which is normally not used as profit because they 1031 it into a larger portfolio to make profit off the rental cashflows. A landlord will go broke playing that game if there is no positive cashflow to support the business over such long periods of time.
Right on. This maybe a function of the exact location for sure. Some landlords may not consider equity in those locations where equity declines when inflation is factored. Other locations it may be hard to ignore. As far as realizing trapped equity there could be alternative ways to use that equity. With that these locations mentioned have insane cash flow with rent appreciation as many have tripled or at least doubled rents since 2000.
There is so much misinformation on this site it is crazy.
Here are the facts;
For total profits, cash flow plus equity since 2009 the top 3 locations are San Francisco, San Jose and LA.
Since 2000, that is LA, SF and San Diego.
For the sake of discussion... why do you think that is the case?
You stated there is so much misinformation on this site, can you prove this as a fact or is this simply your opinion?
And if there is so much misinformation on this site why ask the opinion of the users on this site if it is filled with misinformation?
Trap equity is not trapped profit. If you refi or lean on it, your just borrowing money, that's not a profit as it has to be repaid.
Once you take out equity in your formula, and insert downpayment capital needed to cashflow, the locations you mentioned are possibly the worst places to be invested for cashflow. If the equity refi game everyone is playing at them location even flatten out, everyone is going to get squeezed as the market comes short and they can refi up for more cash. Rents tapping out will likely force this to happen at some date in the future as the tech empire starts to splinter and move away for the region.
Your facts also skip the fact that there was a housing bubble from 2000-2008, and while that region, along with a limited number of other locations in America managed to almost skip the crash, it can not be ignored.
The fact is the best property is a property that cashflows from rents with zero cash invested.
There is so much misinformation on this site it is crazy.
Here are the facts;
For total profits, cash flow plus equity since 2009 the top 3 locations are San Francisco, San Jose and LA.
Since 2000, that is LA, SF and San Diego.
For the sake of discussion... why do you think that is the case?
You stated there is so much misinformation on this site, can you prove this as a fact or is this simply your opinion?
And if there is so much misinformation on this site why ask the opinion of the users on this site if it is filled with misinformation?
Good point. This source is Zillow senior editor for the since 2009 portion and CoreLogic NYSE symbol CLGX for since 2000.
Trap equity is not trapped profit. If you refi or lean on it, your just borrowing money, that's not a profit as it has to be repaid.
Once you take out equity in your formula, and insert downpayment capital needed to cashflow, the locations you mentioned are possibly the worst places to be invested for cashflow. If the equity refi game everyone is playing at them location even flatten out, everyone is going to get squeezed as the market comes short and they can refi up for more cash. Rents tapping out will likely force this to happen at some date in the future as the tech empire starts to splinter and move away for the region.
Your facts also skip the fact that there was a housing bubble from 2000-2008, and while that region, along with a limited number of other locations in America managed to almost skip the crash, it can not be ignored.
The fact is the best property is a property that cashflows from rents with zero cash invested.
Good point. It may be part of the confusion. Cash flow and profits and not exactly the samething. One might have great initial cash flow and still lose money upon exit or when the equity is factored. Those folks might be fooling themselves that cash flow alone equates to total profits. Hedge fund managers know this but do mom and pop investors know this...likely no.
Ok, still no takers on why these total max profit locations exist. I was hoping for some deeper insights versus debating already known investment facts. I am semi convinced the most profitable landlords are not posting on BP with their free time☺.
Over paid Idiots for the most part.
The primary reason CA has such high appreciation is because there are so many high income people that do not value money and are financially retarded. They don't care about market pricing because they believe the trend will continue for ever.
Over paid Idiots for the mosdirection
Good point. That is an interesting take. How many decades can you go back to support that? Or how many decades are you applying to the future? Since the first part of my question is rhetorical the answer is currently zero as rents ( partially cash flow ) has factored in a tripled/doubled. Forever does not exist in investment stuff, at least in our lifetimes, so it is difficult to measure in away we can understand. Is the last 50 years applicable? This is the one cool thing about location, sometimes it just does not change in overall direction that quickly.
Oh man ... here come all the appreciation haters! You are a brave man Matt for starting this post ... keep fighting the good fight and don't let the haters get you down ... we "speculators" will just keep on laughin' all the way to the bank. LOL. Seriously, though, providing an alternate and unpopular POV in a public forum is a good service to this community, even if most everyone disagrees ... BP would be such a boring place if everyone was always in agreement.
The primary reason CA has such high appreciation is because there are so many high income people that do not value money and are financially retarded. They don't care about market pricing because they believe the trend will continue for ever.
Over paid Idiots for the most part.
Everyone that doesn't think, act, and invest like you is an idiot ... how very open minded and enlightened of you. LOL.
Ok, still no takers on why these total max profit locations exist. I was hoping for some deeper insights versus debating already known investment facts. I am semi convinced the most profitable landlords are not posting on BP with their free time☺.
If you really want to spark a debate and ultimately get to the heart of the answer IMO, let's invert the question. Why are the so called cash flow markets so cheap, and consistently so over decades? What makes them cash flow so well on day 1 and what effects do those causes have on the long term of the investment? Answer that question, and you will have also solved Matt's riddle IMO ... but first you will need to open your mind up to some fairly unpleasant realities that most people don't want to hear and will deny to the end.
BTW, I'm a horrible landlord with nothing better to do with my free time than tostart trouble here on BP :)
@Matt R. I'll take a stab at answering the question as to having the highest total profits....
Any area that has something unique to offer that people want will have high appreciation because of basic laws of economics. Add to that many of those areas were hit pretty hard with the 2008 crash, and therefore had a tremendous opportunity to rebound. As such they had incredible gains in that period of time since then in both appreciation and rental growth. I believe going forward coastal towns will still always provide the greatest appreciation opportunities due to the fact that there is a very limited supply of coastal properties. History has proven that even pre crash.
To @David Faulkner 's point(s) - I don't think it's that people are appreciation haters, I think people go after the cash flow (and the areas that provide cash flow) because purchase prices are lower and they can move quicker along the path. They are looking for financial freedom in the shortest window, not just net worth on a balance sheet. I doubt I could have obtained financial freedom in under 7 years given a very meager starting position if I were investing in LA and San Fran; mainly because the amount needed for down payments and not having the cash on cash return to immediately funnel back into the machine.
If financial freedom is the goal and you're an average investor starting with say just $25k, cash flow on cheaper properties is the way to go. LA/San Fran/etc is out of reach. $25k isn't going to get you anywhere in those markets. They'd have to diligently save for another several years just to get one property. However; if you are looking for long term wealth building and net worth growth, those types of areas are definitely where you want to be in.
Now that I have reached my goal of financial freedom, I don't know that I'll be investing my own money in these plays much going forward. My plan is to begin stockpiling some cash reserves over the next few years. Then the next time one of those types of markets takes a hit hopefully I can pick up a house or two and get some awesome appreciation and net worth building and be able to be a part of getting the highest total profits. But even with all I have that will take quite some time of saving up to get even one decent property then.
I don't have a bias here and don't doubt your numbers (although a lot of the numbers I find on Zillow are questionable for current on-market properties - their historical data may be right on). I think if I could fund holding properties through a downturn, I would seek appreciation more. I try to buy in less volatile (lower appreciation markets) because I need the cash flow to continue to grow. I have seen some appreciation but not the meteoric kind possible in more cyclical markets.
I would assume the numbers that combine cash flow and appreciation look good because the appreciation is so great that it overcomes meager cash flow??
Just to take the counter argument, what would the data show if we were measuring total profits but we were in 2008 looking back?
I just think it takes deeper pockets than I have to play that game. I don't dislike the premise though. Timing seems important and knowing when to sell.
Not sure I added value but just my perspective.
I'm so sick and tired of the it is too expensive excuse ... you don't think that many of us that started investing in CA started with very little? And rather than looking to those that have built up something and trying to figure out how you start with very little and build it up to something, they use the excuse that they can't afford it and can't get started because it is too expensive.
That to me is almost as funny as calling somebody who is many times wealthier than you a complete idiot because they spend more money on their properties rather than try to figure out how it is that they got to be that wealthy in the first place and why do they choose to spend their money in that manner. I'm not talking about me here with that statement ... I am a nobody, a minnow in an ocean of really big fish, mostly by design, but I'm at least open minded enough to think that maybe there is something to be learned from those really big whales.
Which brings me back to my original question ... why is it so expensive here? Why is it so cheap other places? Does being cheaper mean that it is lower risk and the profits will be higher?
I keep tabs on what's going on in the SF, LA & SD markets as a leading indicator for my market. History tells me as those go, so goes Seattle 6 months later. So goes my area 3-6 months after Seattle. It's like having a crystal ball!
Other than that, even little areas like mine can see a lot of appreciation. Not massive like CA or HI or Boston or Seattle, but I used to could buy for cash-flow just a few short years ago. Hardly worth looking here for that anymore.
Over time appreciation is definitely where the real wealth is built I am finding. I'm close to not even having debt on most anymore. Gotta figure out what to do next!
At first I thought appreciation would just be gravy on the biscuit. Now I'm seeing it IS the biscuit. Cheers!
I'm so sick and tired of the it is too expensive excuse ... you don't think that many of us that started investing in CA started with very little? And rather than looking to those that have built up something and trying to figure out how you start with very little and build it up to something, they use the excuse that they can't afford it and can't get started because it is too expensive.
That to me is almost as funny as calling somebody who is many times wealthier than you a complete idiot because they spend more money on their properties rather than try to figure out how it is that they got to be that wealthy in the first place and why do they choose to spend their money in that manner. I'm not talking about me here with that statement ... I am a nobody, a minnow in an ocean of really big fish, mostly by design, but I'm at least open minded enough to think that maybe there is something to be learned from those really big whales.
Which brings me back to my original question ... why is it so expensive here? Why is it so cheap other places? Does being cheaper mean that it is lower risk and the profits will be higher?
A cash flow guy trying to throw the appreciation guy a bone... even saying I want to/plan to invest in those markets in the future...
I don't know why you poop on the cash flow guys so much. Maybe it's because so many of them poop on the appreciation guys. I understand the market. I understand the numbers. I understand there are countless ways to make money in real estate. That's what is great about real estate. Wherever you're at, whatever your circumstances, there is a path.
I also know that if I were starting at the same point in time, with the same money, it would have been much more difficult to be retired in under 7 years if I were investing in LA vs here as a buy and hold guy. Would it have been possible in LA? Yes. Would it have been as easy? No. Spending $400k to get $2500 in rent is a lot tougher to move along in a fast manner then spending $100k to get $1500 in rent.
I'm so sick and tired of the it is too expensive excuse ... you don't think that many of us that started investing in CA started with very little? And rather than looking to those that have built up something and trying to figure out how you start with very little and build it up to something, they use the excuse that they can't afford it and can't get started because it is too expensive.
That to me is almost as funny as calling somebody who is many times wealthier than you a complete idiot because they spend more money on their properties rather than try to figure out how it is that they got to be that wealthy in the first place and why do they choose to spend their money in that manner. I'm not talking about me here with that statement ... I am a nobody, a minnow in an ocean of really big fish, mostly by design, but I'm at least open minded enough to think that maybe there is something to be learned from those really big whales.
Which brings me back to my original question ... why is it so expensive here? Why is it so cheap other places? Does being cheaper mean that it is lower risk and the profits will be higher?
A cash flow guy trying to throw the appreciation guy a bone... even saying I want to/plan to invest in those markets in the future...
I don't know why you poop on the cash flow guys so much. Maybe it's because so many of them poop on the appreciation guys. I understand the market. I understand the numbers. I understand there are countless ways to make money in real estate. That's what is great about real estate. Wherever you're at, whatever your circumstances, there is a path.
I also know that if I were starting at the same point in time, with the same money, it would have been much more difficult to be retired in under 7 years if I were investing in LA vs here as a buy and hold guy. Would it have been possible in LA? Yes. Would it have been as easy? No. Spending $400k to get $2500 in rent is a lot tougher to move along in a fast manner then spending $100k to get $1500 in rent.
Thanks for throwing me a bone. LOL. I try not to poop on cash flow. I love cash flow. All my stuff cash flows very well, and more and more with every year. I always try to emphasize that knowing your market and knowing the numbers (all of them, not just some of them) is key, regardless of what type of market you are in. All I'm doing is asking very simple and fundamental questions ... and in response to these simple questions ... crickets ...
The same reason they were one of the worst markets to buy in during 2007. Thousands, and yes millions were buying properties in 2006 to 2007 and were making a lot of money on paper, then lost it all in 2008 to 2011. The big money really is made in property appreciation. Most of that money is made by folks who were lucky on the timing. Not that many folks can predict the future markets well enough to time them. Some folks do. By and large when prices are rising fast and folks buy they look very smart, when they buy and prices suddenly drop they look like idiots. Neither description would likely be true. I had the chance to buy a 10 unit in a rapidly appreciating market about about 8 years ago and did not because I was worried about the possibility of a price drop. For 5 years I kicked myself as I would have seen a 10% plus appreciation value and rent nearly every year. A year and a half ago the properties took about a 30% to 50% drop and rents even more. Investing for appreciation is great when it works. So far my buying at the right time has been as much luck as intelligence. I would like to buy in that market now, but still have problem finding cash flow properties.
The same reason they were one of the worst markets to buy in during 2007. Thousands, and yes millions were buying properties in 2006 to 2007 and were making a lot of money on paper, then lost it all in 2008 to 2011. The big money really is made in property appreciation. Most of that money is made by folks who were lucky on the timing. Not that many folks can predict the future markets well enough to time them. Some folks do. By and large when prices are rising fast and folks buy they look very smart, when they buy and prices suddenly drop they look like idiots. Neither description would likely be true. I had the chance to buy a 10 unit in a rapidly appreciating market about about 8 years ago and did not because I was worried about the possibility of a price drop. For 5 years I kicked myself as I would have seen a 10% plus appreciation value and rent nearly every year. A year and a half ago the properties took about a 30% to 50% drop and rents even more. Investing for appreciation is great when it works. So far my buying at the right time has been as much luck as intelligence. I would like to buy in that market now, but still have problem finding cash flow properties.
You make some good points, and I will not argue that timing is important yet notoriously difficult to predict for appreciation in the short term. Forced appreciation is the only kind of appreciation in the short term that is easily predicted, and that is a great strategy in any market IMO.
However, I would also like to distinguish between short term appreciation and long term appreciation. Long term average appreciation, over long hold periods spanning multiple RE cycles is much, much easier to predict in some markets, not that you will necessarily know WHEN the appreciation will occur, only that you can get a good idea of what it will be on average over long hold periods in certain markets. Appreciation trends that are above the national average and above inflation have been going on in many parts of CA for DECADES, so it is not like this is something new and out of the blue. Understanding the underlying supply and demand fundamentals that drives this appreciation, and if those drivers are temporary or persistent is also important. Yes, there was a bunch of volatility along the way,and there will continue to be volatility going forward, and there are methods of hedging your risks in the face of this volatility, but over the long haul, spanning multiple cycles and multiple decades, the appreciation trend is surprisingly steady and far easier to predict in some markets. Taking the long view on this, and having the ability to hedge my risks in the short term, I personally absolutely love the volatility, as it gives me some fantastic buying opportunities from time to time that I wouldn't otherwise have in a more linear market.
I'm not saying that this is the only way to invest, and that all other ways are stupid ... I'm saying this way works for me in my market, and no it is not all luck and speculation. I was invested in real estate in 2006 & 2007, and before then and after the crash, and I never took a loss in the form of negative equity or total return, either realized or unrealized ... if I'm a speculator, I'm one damn lucky speculator. I'm not saying that folks should ignore cash flow either ... cash flow is an important thing, but it is not the only thing ...