If you are buying when unemployment is 4%, you are buying trouble

192 Replies

Originally posted by @Nate Reed :

I guess if I lived in California I would worry about more than just the RE market. I'd worry about jobs leaving for places like Texas, for example. Toyota Financial just moved its HQ and thousands of high-paying jobs to Dallas, and a bunch of other companies are moving, too.

California is super-leveraged. When things are going well, property prices shoot up, bkut they will come crashing down in a liquidity crisis. The first things people will want to get rid of in a downturn are high-end homes and negative cash-flow properties. Your economy is so tied to debt and tech sector speculation. Amazon is so much cheaper now at 259 times earnings than it was during the last crisis, but that's because investors expect it to show a profit, lol.

If I was the "typical" person there, with a tenuous job situation and a huge mortgage on one or more properties, I think I would have some sleepless nights.

I used to live in L.A. and remember when everything abruptly contracted in 2008-2009. I left for Texas in 2010 and didn't look back. Plentiful work (in tech), affordable housing, cash-flowing RE. It's nirvana, except we have no beaches and the weather is not nearly as nice. :p

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. Some locations will give them the edge on that front. The hardest hit locations last time were mostly the lessor areas still we can understand. It will also be very interesting where Amazon locates hq2. My best guess is San Diego. 

Originally posted by @Diane G. :

@ Mark radford - look, i understand whenever it gets into economic outlook and political landscape, everyone has a different view, and I am NOT looking to convenience anyone....

For me, I have some cash from my severance package when I got laid off in 2015 when Abbvie bought the company i was at... I am going to hold onto it, waiting a better opportunity in stock and RE markets... I feel pretty sure stock will clapse soon enough, in 2018 or 2019 or could be 2017....

 This is what I am talking about.  we bought a house in 2015, I believe that house has since doubled in value.  EVEN if there is a 30% decline in the housing market, then we have done well by being invested.

Originally posted by @Matt R. :

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. 

That's what Cali is - a two tiered society with a small and shrinking affluent upper middle-class having to shoulder the burden of a high-tax welfare state, and a massive and growing underclass.

So they kept a few designers but moved all the back-office work, the kinds of jobs that can sustain middle-class families to Dallas. I would assume that highly-compensated executives moved as well.

Meanwhile TX companies continue to add STEM jobs every year. There are all kinds of software and engineering jobs where I am and the pay is lower than in CA but adjusted for cost of living affords a better lifestyle than I could ever hope for in CA.

I would not overly focus on the macro economic statistics.  In a year, they can change.  Real estate is a long term investment.    So focus on the overall trajectory of the local economy.   The Bay Area is great.  Some small midwestern towns are losing population.  And have marginal employment prospects.

Lots of things can change in the coming year that are risks:   Will interest rates creep up?   In many hot markets, the vacancy rate is creeping up.   Will there be a stock market correction?  Are prices at an all time high - making dimming future appreciation?

Rental units are somewhat recession proof.   Home buying is far more sensitive to the statistic that you gave than rental units.  When home buying tanks, then rentals become more filled.  So your correlation is more complicated.  

From Dallas Morning News:

 About 4,000 Toyota employees in California, Kentucky and New York have been asked to move next year, and the company has said it expects about 70 percent to accept -- an unusually high proportion, likely driven by generous relocation benefits.

Plus, the company expects to hire over 1,000 more for high-paying jobs in finance, quality engineering and sales, among other areas.

Ouch, Torrance lost 3000 employees, and that's got to be a significant loss for the state and local tax base, too. 

As a result there is a massive investment in Toyota's North Texas campus and the housing market in Plano and North Texas is red hot.

And this is just one example. Company after company is announcing moves like this.

Originally posted by @Nate Reed :

From Dallas Morning News:

 About 4,000 Toyota employees in California, Kentucky and New York have been asked to move next year, and the company has said it expects about 70 percent to accept -- an unusually high proportion, likely driven by generous relocation benefits.

Plus, the company expects to hire over 1,000 more for high-paying jobs in finance, quality engineering and sales, among other areas.

Ouch, Torrance lost 3000 employees, and that's got to be a significant loss for the state and local tax base, too. 

As a result there is a massive investment in Toyota's North Texas campus and the housing market in Plano and North Texas is red hot.

And this is just one example. Company after company is announcing moves like this.

>Ouch, Torrance lost 3000 employees, and that's got to be a significant loss for the state and local tax base, too.

Ca population increased 3rd most in 2016.  The coastal areas are some of the most dense locations in the US.  3000.   The population of Los Angeles county is almost 10,000,000.  So 3000 jobs is 0.03%.   I suspect that as those 3000 jobs left more than 3000 came to Los Angeles county.  

>Company after company is announcing moves like this.

Yet the state’s population continues to increase even with very little coastal property left.  Companies leave, companies come.  State keeps getting more people every year.  

@Nate Reed I dunno.....you keep touting how great TX is, but all I know is that a lot (A LOT) more RE investors in CA are multimillionaires than in TX. Coastal CA creams TX in appreciation over the last 3+ decades, no contest. Every time CA reaches new highs people b*tch and moan, move out, etc.  Guess what? Plenty of other people take their place. And when there is a national recession, people of more modest means come rushing back in. I agree that there is a disparity in rich/poor in CA, but TX has the same thing, except your thresholds on both of those is lower. Plenty of very poor people in TX barely surviving as well. They just have less political capital than here (given CA's liberal bend.)

The discussion diverged a bit, as we somehow got on the topic of comparing California and Texas economies. California is slow growth and its coastal property is scarce. As a result, the relatively small % population increases in California outpace job creation and housing supply, with low growth in payrolls. Texas on the other hand has lots of cheap land and companies have been moving here in droves. Job growth in TX outpaces that in CA. Forbes did a good article that touches on all these points.

My original point was that I wouldn't personally feel comfortable holding highly-leveraged property CA on the basis of expected appreciation, as I am not independently wealthy (yet - haha) and cannot sustain a hit to both my W2 income and the value of properties that are highly economically sensitive. CA property has appreciated over time but it's more volatile than property in TX. As one famous investor once said (I'm paraphrasing): The market can stay irrational longer than I can stay solvent.

"Coastal CA creams TX in appreciation over the last 3+ decades, no contest." That's nice. I'm investing for cash flow and all the millionaire apartment owners I know are investing in TX, although we have some people doing stuff in Sacramento, where the numbers make more sense.

Are you suggesting that people should buy coastal real estate because it appreciates, regardless of its ability cash flow? Personally I don't consider that investing, that's speculation. Are you counting people who owned their residences in California and saw them appreciate as "investors"? 

It's a personal story, but I never felt comfortable getting on the "property ladder" when I was living in LA, as I could never get comfortable with the idea of 50% or more of my take home pay going to service debt. Everyone is different, though. 

Total newbie to BP (but not a newbie to REI) so a big hello to all. As a Bay Area native, I think about this often and this thread is definitely thought provoking. I'd bring forth the following:

1. The 4% rate is a national average while RE is often hyper local. I am not sure what the stats are for SF or the Bay Area in general but they ought to be really solid employment stats at this point

2. The SF BA (which is where I live) always typically slows down in September and October. I have observed this for 4 years now.

3. There are other dynamics in SF that impact RE beyond employment and interest rates. Overseas cash being one. The propensity of companies to go IPO or get bought out being another one.

4. For sure 2017 has not been a banner year for private companies with valuations being very tough to justify. That is often a huge wealth creator in the area.

5. Don't forget that bonus and stock vesting season in Big Tech names is not happening until end of Q1 next year

So while employment and interest rates are at great levels, they alone won't pull the market up or down in SF. They will no doubt be big fundamental drivers but If you were to ask me, the one that concerns me most is #3, which is the amount of "fluff" in the private company values and their inability to really make it big versus just talk big! These "companies" are not making profits, have employed young people at lower than average salaries but given then equity which is not going anywhere for now. This is causing a stealth affordability gap which might gradually make its way into rent rates and into housing demand.

@Diane G if you are so sure about change in political arena , I would think your focus is in a wrong area. The ones that rule market stocks especially are not politicians but banks and financial organisations. What information you have on them?
You shouldn’t base your decisions on just one factor. People will always need roof above their head. You as an investor probably want big bucks. As many other said before if it is cash flowing investment it is good investment regardless of the market or area.
My opinion.

Hello All.

I'm a newbie on this forum, but this last post from Clint Earnest caught my attention. We have a LARGE 3800sf rehab down to the studs right now. We are having plans drawn to build a 10 room senior care facility. The CAP rate is great. Based on the projections for demand for baby boomer housing we think if we build it some care provider will lease it. We don't want to run a senior care facility but would like to lease it to a care provider. Any thoughts about this?? Is it sounding like a good idea? We are currently looking and trying to find a lessee before construction is complete. Thoughts, ideas?

In REI it is all about the numbers, not solely, but it is a dominant aspect. So, if you think that prices are inflated and set to go down you may be right. But it is in direct corelation with the other number mentioned. Intetest rates. Now, depending on how you finance your properties this is key to your strategy. Don't just look at the face/purchace price. If you are financing this you would be stupid not to lock in a low rate. Especially on a long term investment. For example, if you lock in a 4% rate on a $220,000 property on a 30 yr loan you will pay approx. $378,000 by the end. Assuming ofcoarse you pay it as such. Now plug in a relatively cheap rate by historical standards of 6%. The same house is now $474,000. At 6% the house price would have to drop to $175,000 to match our original example.

So, when/if we see rates trend higher, prices should come down. So I suppose you are corect in this sense. But this will only affect those who are short term holders, flippers, and those who are not leveraged. But if you are leveraged at these rates and are holding long. You WILL make money.

It is all about the numbers in the end. And beginning. So one must adjust with the market. You can't predict the future and those who don't take on some risk don't make money. Today's high prices and low interest rates supports a buy and hold strategy.  But in a few years we may see opportunity to do some flips and short term holds. I can't say. 

Another thing to consider is new home construction and baby boomers. It isn't profitable for builders to build low and mid-priced homes right now. So, millennials are stuck buying high priced homes. The supply just isn't there. Lucky for them they get a low interest rate. Also, babyboomers are not moving out of their homes and into smaller places in different locations. Another restriction on supply. Who knows how this will all play out. Don't try and predict it. 

Don't stay out of the game because of fear. Just adjust your strategy. There is opportunity all the time. Right now it is low rates and a high demand for renters. Just make sure the deal works for you and the numbers add up. Tomorrow you may be buying properties dirt cheap. Or maybe not. Either way. I bet if you buy now you will be glad you stayed in the game 10 years from now.

Originally posted by @Nate Reed :
Originally posted by @Matt R.:

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. 

That's what Cali is - a two tiered society with a small and shrinking affluent upper middle-class having to shoulder the burden of a high-tax welfare state, and a massive and growing underclass.

So they kept a few designers but moved all the back-office work, the kinds of jobs that can sustain middle-class families to Dallas. I would assume that highly-compensated executives moved as well.

Meanwhile TX companies continue to add STEM jobs every year. There are all kinds of software and engineering jobs where I am and the pay is lower than in CA but adjusted for cost of living affords a better lifestyle than I could ever hope for in CA.

 I have actually seen some reports that suggest the pay isn't lower, or not lower when compared to cost of living in Texas than it is in California.  

Originally posted by @Bart H. :
 I have actually seen some reports that suggest the pay isn't lower, or not lower when compared to cost of living in Texas than it is in California.  

I ran a cost of living calculator and it implied I would need something like 2 or 3 times my current salary in Austin working as a software engineer to live as comfortably in SF/Bay Area. While there might be a handful of superstars that get that, I highly doubt the average ones working in my industry make anywhere near that.

Surveys of salaries for cities in tech "bang for the buck" (avg. salaries adjusted for COL) showed Austin at or near the top and SF at the bottom.

To clarify, @Diane G. winter is coming to the bay area or you mean other metro areas as well?

SF growth appears to be rank 22 combined stats area nationwide.

RankCombined.Statistical.Area2015 EstimateCumulative Change
1Cape Coral-Fort Myers-Naples, FL1,059,28712.66%
2Houston-The Woodlands, TX6,855,06912.11%
3Orlando-Deltona-Daytona Beach, FL3,129,30811.04%
4Raleigh-Durham-Chapel Hill, NC2,117,10310.68%
5Denver-Aurora, CO3,418,87610.61%
6Dallas-Fort Worth, TX-OK7,504,36210.08%
7Nashville-Davidson?Murfreesboro, TN1,951,6449.13%
8North Port-Sarasota-Bradenton, FL977,4918.96%
9Charlotte-Concord, NC-SC2,583,9568.77%
10Salt Lake City-Provo-Orem, UT2,467,7098.63%
11McAllen-Edinburg, TX906,0998.42%
12Boise City-Mountain Home-Ontario, ID-OR756,0618.39%
13Des Moines-Ames-West Des Moines, IA782,3908.32%
14Oklahoma City-Shawnee, OK1,430,3278.16%
15Miami-Fort Lauderdale-Port St. Lucie, FL6,654,5657.91%
16Atlanta-Athens-Clarke-Sandy Springs6,365,1087.70%
17Seattle-Tacoma, WA4,602,5917.67%
18Las Vegas-Henderson, NV-AZ2,362,0157.59%
19Columbus-Auburn-Opelika, GA-AL504,8657.57%
20Savannah-Hinesville-Statesboro, GA532,0487.32%
21Jacksonville-St. Marys-Palatka, FL-GA1,573,6067.01%
22San Jose-San Francisco-Oakland, CA8,713,9146.87%

Looking at smaller area of MSA, we see there are 16 metros that grow faster than any metro in California. The year on year growth are a pale 2%-4% but this gives a metro growth of over 40% over 15y.

RankMetropolitan Statistical Area2015 Estimate2010-2015 yoy2000-2010 yoyCumul Change
1Austin-Round Rock-San Marcos, TX2,000,8603.90%2.83%60.10%
2Raleigh-Cary, NC1,273,5683.19%3.17%59.78%
3Cape Coral-Fort Myers, FL701,9823.43%3.01%59.22%
4Greenville-Mauldin-Easley, SC874,8696.97%1.10%56.24%
5Provo-Orem, UT585,7991.61%3.68%55.48%
6Las Vegas-Paradise, NV2,114,8012.54%3.09%53.72%
7McAllen-Edinburg-Mission, TX842,3043.00%2.47%47.91%
8Boise City-Nampa, ID676,9092.45%2.58%45.62%
9Ogden-Clearfield, UT642,8503.88%1.85%45.23%
10Orlando-Kissimmee-Sanford, FL2,387,1383.05%2.25%45.15%
11Houston-Sugar Land-Baytown, TX6,656,9473.05%1.96%41.17%
12Phoenix-Mesa-Glendale, AZ4,574,5311.33%2.79%40.67%
13Charlotte-Gastonia-Rock Hill, NC-SC2,426,3631.82%2.49%39.99%
14Nashville-Davidson--Murfreesboro--Franklin, TN1,830,3453.37%1.69%39.53%
15San Antonio-New Braunfels, TX2,384,0753.25%1.73%39.28%
16Riverside-San Bernardino-Ontario, CA4,489,1591.75%2.37%37.92%

So you are saying that some markets are priced to perfection? I would just advise to look at the numbers and buy if the margin of safety is sufficient.

Originally posted by @Nate Reed :
Originally posted by @Matt R.:

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. 

That's what Cali is - a two tiered society with a small and shrinking affluent upper middle-class having to shoulder the burden of a high-tax welfare state, and a massive and growing underclass.

So they kept a few designers but moved all the back-office work, the kinds of jobs that can sustain middle-class families to Dallas. I would assume that highly-compensated executives moved as well.

Meanwhile TX companies continue to add STEM jobs every year. There are all kinds of software and engineering jobs where I am and the pay is lower than in CA but adjusted for cost of living affords a better lifestyle than I could ever hope for in CA.

 This is the current trend where as the majority who left CA made less than 50k and the majority who moved in make 100k plus. A sort of state wide gentrification we can observe. 

Job growth and new business creation has still been pretty solid and accounting for 1/3 of new jobs recently nationwide. I am not sure I would count CA down for the count yet:)

Originally posted by @Matt R. :
Originally posted by @Nate Reed:
Originally posted by @Matt R.:

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. 

That's what Cali is - a two tiered society with a small and shrinking affluent upper middle-class having to shoulder the burden of a high-tax welfare state, and a massive and growing underclass.

So they kept a few designers but moved all the back-office work, the kinds of jobs that can sustain middle-class families to Dallas. I would assume that highly-compensated executives moved as well.

Meanwhile TX companies continue to add STEM jobs every year. There are all kinds of software and engineering jobs where I am and the pay is lower than in CA but adjusted for cost of living affords a better lifestyle than I could ever hope for in CA.

 This is the current trend where as the majority who left CA made less than 50k and the majority who moved in make 100k plus. A sort of state wide gentrification we can observe. 

Job growth and new business creation has still been pretty solid and accounting for 1/3 of new jobs recently nationwide. I am not sure I would count CA down for the count yet:)

 August was negative in California.  And texas has a higher NET number of jobs being added year over year than California.

http://www.deptofnumbers.com/employment/california/

Originally posted by @Bart H. :
Originally posted by @Matt R.:
Originally posted by @Nate Reed:
Originally posted by @Matt R.:

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. 

That's what Cali is - a two tiered society with a small and shrinking affluent upper middle-class having to shoulder the burden of a high-tax welfare state, and a massive and growing underclass.

So they kept a few designers but moved all the back-office work, the kinds of jobs that can sustain middle-class families to Dallas. I would assume that highly-compensated executives moved as well.

Meanwhile TX companies continue to add STEM jobs every year. There are all kinds of software and engineering jobs where I am and the pay is lower than in CA but adjusted for cost of living affords a better lifestyle than I could ever hope for in CA.

 This is the current trend where as the majority who left CA made less than 50k and the majority who moved in make 100k plus. A sort of state wide gentrification we can observe. 

Job growth and new business creation has still been pretty solid and accounting for 1/3 of new jobs recently nationwide. I am not sure I would count CA down for the count yet:)

 August was negative in California.  And texas has a higher NET number of jobs being added year over year than California.

http://www.deptofnumbers.com/employment/california...

This is an article from the Houston Chronicle from June 2017 that covers some of the growth differences. YOY economic growth CA was 2.9% and TX was .04%. They both could be good at job growth still. 

In the Texas vs. California rivalry, California is winning.

http://www.houstonchronicle.com/business/texanomics/article/Gov-Abbott-keeps-bashing-California-but-Texas-11202452.php

Updated about 2 years ago

typo, Texas economy grew yoy at .4% not .04.

Real Estate investing; are you looking for appreciation.....go to California and become a speculator.  Looking for cash flow come to Texas and become an investor.  People in California who owned investment real estate before 2008 lost their shorts.  Just look at the foreclose rate in that state compared to Texas.   The speculative market is dependent on market movement in your desired direction.  Cash flow market is not that tied to the market. A smart cash flow investor will look for communities growing in population, properties that cash flow day one (1% rule or better), and rents generally $1200 and below.  The current environment is crazy good for an investor located in Texas.  

I'm not concerned at all with the direction of interest rates.  We are at 40 year historic lows and we have been on a down trend or sideways moment for about 5 years.  Here is a tip if your concerned about interest rates; watch the 10 year Treasury number, currently it is 2.37%.  That my friends is low, but don't be surprised if it dips below 2%.  The government is aiding in keeping rates low and will continue to do so.  Whats all this means?  If your a speculator the risk is more regionally located and a whole lot higher than a cash flow investor.  

If you are a cash flow investor and you see rents dropping 50% and McDonalds are going out of business then we cash flow investors are in trouble.  However, in my 62 years of living in TEXAS I haven't remotely seen this happen, especially for properties that typically rent for $1200 or below.  Two people working at McDonalds can afford my duplex rents, and as long as that is the case, cash flow investors have little to worry about in Texas.

Originally posted by @Matt R. :
Originally posted by @Nate Reed:

I guess if I lived in California I would worry about more than just the RE market. I'd worry about jobs leaving for places like Texas, for example. Toyota Financial just moved its HQ and thousands of high-paying jobs to Dallas, and a bunch of other companies are moving, too.

California is super-leveraged. When things are going well, property prices shoot up, bkut they will come crashing down in a liquidity crisis. The first things people will want to get rid of in a downturn are high-end homes and negative cash-flow properties. Your economy is so tied to debt and tech sector speculation. Amazon is so much cheaper now at 259 times earnings than it was during the last crisis, but that's because investors expect it to show a profit, lol.

If I was the "typical" person there, with a tenuous job situation and a huge mortgage on one or more properties, I think I would have some sleepless nights.

I used to live in L.A. and remember when everything abruptly contracted in 2008-2009. I left for Texas in 2010 and didn't look back. Plentiful work (in tech), affordable housing, cash-flowing RE. It's nirvana, except we have no beaches and the weather is not nearly as nice. :p

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. Some locations will give them the edge on that front. The hardest hit locations last time were mostly the lessor areas still we can understand. It will also be very interesting where Amazon locates hq2. My best guess is San Diego. 

I am guessing Amazon will choose Minneapolis for access to retail talent. Target and Best Buy are located there, giving them a large experienced retail talent pool. Combine with that lower cost of living, lower expansion cost and central location, it just makes more sense. San Diego cost of living is crazy high, so it seems pretty illogical for a low-price leader like Amazon to invest in CA.  But maybe Jeff Bezos is looking for a warmer climate that is on the west coast. It will be interesting to see what they choose.

Originally posted by @Joe Splitrock :
Originally posted by @Matt R.:
Originally posted by @Nate Reed:

I guess if I lived in California I would worry about more than just the RE market. I'd worry about jobs leaving for places like Texas, for example. Toyota Financial just moved its HQ and thousands of high-paying jobs to Dallas, and a bunch of other companies are moving, too.

California is super-leveraged. When things are going well, property prices shoot up, bkut they will come crashing down in a liquidity crisis. The first things people will want to get rid of in a downturn are high-end homes and negative cash-flow properties. Your economy is so tied to debt and tech sector speculation. Amazon is so much cheaper now at 259 times earnings than it was during the last crisis, but that's because investors expect it to show a profit, lol.

If I was the "typical" person there, with a tenuous job situation and a huge mortgage on one or more properties, I think I would have some sleepless nights.

I used to live in L.A. and remember when everything abruptly contracted in 2008-2009. I left for Texas in 2010 and didn't look back. Plentiful work (in tech), affordable housing, cash-flowing RE. It's nirvana, except we have no beaches and the weather is not nearly as nice. :p

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. Some locations will give them the edge on that front. The hardest hit locations last time were mostly the lessor areas still we can understand. It will also be very interesting where Amazon locates hq2. My best guess is San Diego. 

I am guessing Amazon will choose Minneapolis for access to retail talent. Target and Best Buy are located there, giving them a large experienced retail talent pool. Combine with that lower cost of living, lower expansion cost and central location, it just makes more sense. San Diego cost of living is crazy high, so it seems pretty illogical for a low-price leader like Amazon to invest in CA.  But maybe Jeff Bezos is looking for a warmer climate that is on the west coast. It will be interesting to see what they choose.

 Never been there and hear it is a fine city. I am trying to imagine the conversation " honey pack your bags...we are moving to Minnesota" vs " Honey, pack your bags, we are moving to the beach in California. "

Originally posted by @Matt R. :
Originally posted by @Joe Splitrock:
Originally posted by @Matt R.:
Originally posted by @Nate Reed:

I guess if I lived in California I would worry about more than just the RE market. I'd worry about jobs leaving for places like Texas, for example. Toyota Financial just moved its HQ and thousands of high-paying jobs to Dallas, and a bunch of other companies are moving, too.

California is super-leveraged. When things are going well, property prices shoot up, bkut they will come crashing down in a liquidity crisis. The first things people will want to get rid of in a downturn are high-end homes and negative cash-flow properties. Your economy is so tied to debt and tech sector speculation. Amazon is so much cheaper now at 259 times earnings than it was during the last crisis, but that's because investors expect it to show a profit, lol.

If I was the "typical" person there, with a tenuous job situation and a huge mortgage on one or more properties, I think I would have some sleepless nights.

I used to live in L.A. and remember when everything abruptly contracted in 2008-2009. I left for Texas in 2010 and didn't look back. Plentiful work (in tech), affordable housing, cash-flowing RE. It's nirvana, except we have no beaches and the weather is not nearly as nice. :p

 I get your point. A Toyota plant did bail LA for Texas and guess what they left behind...all the highest paying jobs, designers etc in LA. Some depts for these bigger corps are still most concerned with being able to attract and keep higher dollar talent. Some locations will give them the edge on that front. The hardest hit locations last time were mostly the lessor areas still we can understand. It will also be very interesting where Amazon locates hq2. My best guess is San Diego. 

I am guessing Amazon will choose Minneapolis for access to retail talent. Target and Best Buy are located there, giving them a large experienced retail talent pool. Combine with that lower cost of living, lower expansion cost and central location, it just makes more sense. San Diego cost of living is crazy high, so it seems pretty illogical for a low-price leader like Amazon to invest in CA.  But maybe Jeff Bezos is looking for a warmer climate that is on the west coast. It will be interesting to see what they choose.

 Never been there and hear it is a fine city. I am trying to imagine the conversation " honey pack your bags...we are moving to Minnesota" vs " Honey, pack your bags, we are moving to the beach in California. "

You could buy a house on the lake in Minnesota and have your own beach. I am not sure how many people can afford beach houses in California. Median house prices in San Diego are double Minneapolis. If you are willing to commute, maybe you can do better, but who wants to spend 2-4 hours in the car every day. 

No debate that San Diego has one of the best climates in the US, but there are other factors people consider. But you are right about the weather. It seems Austin or Dallas would make more sense given that Amazon has stated the two key criteria are technical talent pool and business friendly environment. 

Originally posted by @Joe Scaparra :

Real Estate investing; are you looking for appreciation.....go to California and become a speculator.  Looking for cash flow come to Texas and become an investor.  People in California who owned investment real estate before 2008 lost their shorts.  Just look at the foreclose rate in that state compared to Texas.   The speculative market is dependent on market movement in your desired direction.  Cash flow market is not that tied to the market. A smart cash flow investor will look for communities growing in population, properties that cash flow day one (1% rule or better), and rents generally $1200 and below.  The current environment is crazy good for an investor located in Texas.  

I'm not concerned at all with the direction of interest rates.  We are at 40 year historic lows and we have been on a down trend or sideways moment for about 5 years.  Here is a tip if your concerned about interest rates; watch the 10 year Treasury number, currently it is 2.37%.  That my friends is low, but don't be surprised if it dips below 2%.  The government is aiding in keeping rates low and will continue to do so.  Whats all this means?  If your a speculator the risk is more regionally located and a whole lot higher than a cash flow investor.  

If you are a cash flow investor and you see rents dropping 50% and McDonalds are going out of business then we cash flow investors are in trouble.  However, in my 62 years of living in TEXAS I haven't remotely seen this happen, especially for properties that typically rent for $1200 or below.  Two people working at McDonalds can afford my duplex rents, and as long as that is the case, cash flow investors have little to worry about in Texas.

 Thanks for generalizing 35,000,000 people, calling us speculators who don't cash flow. Plenty of us cash flow just fine (I average $500/door), and of course the appreciation beats all other markets. 

Many of us owned real estate prior to 2008 and didn't lose our shorts. Was the 2008 foreclosure rate in CA 100%? 

Perhaps we prefer to live in a state where it doesn't feel like you're walking into a hair dryer 6 months of the year. 

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