Two words that don't go together: California and Cashflow

Buying & Selling Real Estate
6yFollow

Two words that don't go together: California and Cashflow

Jordan Futch
New to Real Estate · Santa Barbara, CA · Member since 2019 · 20 posts · 9 votes

Where in California are people having the most luck finding cashflowing properties? I'm in the central coast and it seems as the costs are simply too expensive to make the numbers work.

-jordan

2Reply
124 views

Most Popular Reply

Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y

@Jordan Futch

San Francisco, Los Angeles, San Diego, Santa Barbara, OC, San Jose.  You may think I am joking but I am not.

There is initial cash flow (those cities do poor on this), projected cash flow (depending on rent appreciation used (how conservative are the estimates) those cities do OK on this), and actual cash flow (those cities do near top of nation on the actual cash flow).  The actual cash flow is the cash flow obtained over the holding period of the RE.  Those cities I am confident have either the best or near best actual cash flow in CA over the last 10 years, the last 20 years, the last 30 years, the last 40 years, the last 50 years.  Do you note a trend?

As RE appreciates, the rent appreciates. A year ago June (June 2018), I had looked at the average SFR rent increase for San Diego over the previous 3 years. The average SFR rent had increased ~$500 over those 3 years. I suspect if I did the exercise today the numbers would be close to the same. I invite you to do the exercise for any of the cities that I listed. I realize some of the areas have had rent control and all of the areas will have rent control starting soon but I expect you will see numbers similar to the San Diego numbers.

What does this rent appreciation imply?  It implies that the cash flow increases at a quick rate.  A purchase that in San Diego from June 2015 that was $250 negative cash flow at purchase would have close to positive $250 cash flow in June 2018.  By June 2019 I expect the cash flow would be positive ~$400 but have not actually looked at city wide rent increases in that time (I know all of my tenants got rent increases).

The higher appreciating cash flow area will always catch a slower appreciating cash flow area given enough time (it is simple math).  This is why those cities have been great to RE investors.

15Reply
See this reply in the discussion

38 Replies

Jump to latestLatest
  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    6y

    Bakersfield and Santa Maria still has some opportunities.

    [email protected]
    4Reply
  • Eryka Santoyo
    Realtor · San Luis Obispo, CA · Member since 2019 · 22 posts · 28 votes
    6y

    Hey Jordan! I run an RE Investor meetup in Santa Maria and there a few folks who invest in CA who share what they do and how they make the numbers work. We'd love to have you join us if you're interested. We meet next on Tues. Oct. 22nd. I'll message you the details!

    7Reply
  • Storm S.
    Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
    6y

    @Jordan Futch every property cash flows with a big enough down payment.

    8Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Storm S.:

    @Jordan Futch every property cash flows with a big enough down payment. 

    Exactly.. its too bad that the definition of cash flow on BP means minimum down maximum debt.

    that can bury people. when markets change a little bit.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    8Reply
  • Alex G.
    Eastern Mass & Central Maine · Member since 2009 · 252 posts · 135 votes
    6y

    In hot markets, property price appreciation comes at the expense of cashflow.   You might want to look for locales characterized by stagnating or declining prices.

    1Reply
  • Alex Schredl
    Member since 2019 · 23 posts · 10 votes
    6y

    I keep getting pointed in the direction of Lancaster and Palmdale. A lot of folks commute from those areas the Los Angeles. From my recollection, they were also planning on building on a rail system for ease of transportation as well.

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    @Jordan Futch

    San Francisco, Los Angeles, San Diego, Santa Barbara, OC, San Jose.  You may think I am joking but I am not.

    There is initial cash flow (those cities do poor on this), projected cash flow (depending on rent appreciation used (how conservative are the estimates) those cities do OK on this), and actual cash flow (those cities do near top of nation on the actual cash flow).  The actual cash flow is the cash flow obtained over the holding period of the RE.  Those cities I am confident have either the best or near best actual cash flow in CA over the last 10 years, the last 20 years, the last 30 years, the last 40 years, the last 50 years.  Do you note a trend?

    As RE appreciates, the rent appreciates. A year ago June (June 2018), I had looked at the average SFR rent increase for San Diego over the previous 3 years. The average SFR rent had increased ~$500 over those 3 years. I suspect if I did the exercise today the numbers would be close to the same. I invite you to do the exercise for any of the cities that I listed. I realize some of the areas have had rent control and all of the areas will have rent control starting soon but I expect you will see numbers similar to the San Diego numbers.

    What does this rent appreciation imply?  It implies that the cash flow increases at a quick rate.  A purchase that in San Diego from June 2015 that was $250 negative cash flow at purchase would have close to positive $250 cash flow in June 2018.  By June 2019 I expect the cash flow would be positive ~$400 but have not actually looked at city wide rent increases in that time (I know all of my tenants got rent increases).

    The higher appreciating cash flow area will always catch a slower appreciating cash flow area given enough time (it is simple math).  This is why those cities have been great to RE investors.

    15Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    6y

    California and *immediate* cashflow don’t generally go together. Coastal CA is a long play move.

    0Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    The words do go together...........now if you're in A, B or C neighborhoods you generally have to put the word negative infront of cash flow :-)   

    Anyway...as other posters have indicated...there are areas.........I bought a duplex in a D Neighborhood in East Oakland and although it is not even a 1% rule, it is still positive cashflow. I also bought a condo in Concord in a C Neighborhood....again, not 1% rule but still positive cashflow........and they were both Zero Down. Yes I am a veteran so the VA Loan was very helpful.

    4Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    All properties cash flow.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    2Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Dan H.:

    @Jordan Futch

    San Francisco, Los Angeles, San Diego, Santa Barbara, OC, San Jose.  You may think I am joking but I am not.

    There is initial cash flow (those cities do poor on this), projected cash flow (depending on rent appreciation used (how conservative are the estimates) those cities do OK on this), and actual cash flow (those cities do near top of nation on the actual cash flow).  The actual cash flow is the cash flow obtained over the holding period of the RE.  Those cities I am confident have either the best or near best actual cash flow in CA over the last 10 years, the last 20 years, the last 30 years, the last 40 years, the last 50 years.  Do you note a trend?

    As RE appreciates, the rent appreciates. A year ago June (June 2018), I had looked at the average SFR rent increase for San Diego over the previous 3 years. The average SFR rent had increased ~$500 over those 3 years. I suspect if I did the exercise today the numbers would be close to the same. I invite you to do the exercise for any of the cities that I listed. I realize some of the areas have had rent control and all of the areas will have rent control starting soon but I expect you will see numbers similar to the San Diego numbers.

    What does this rent appreciation imply?  It implies that the cash flow increases at a quick rate.  A purchase that in San Diego from June 2015 that was $250 negative cash flow at purchase would have close to positive $250 cash flow in June 2018.  By June 2019 I expect the cash flow would be positive ~$400 but have not actually looked at city wide rent increases in that time (I know all of my tenants got rent increases).

    The higher appreciating cash flow area will always catch a slower appreciating cash flow area given enough time (it is simple math).  This is why those cities have been great to RE investors.

     Dan I wish I could upvote your post 100 times.

    I usually refer to how most people think as 2 dimensionally...focusing on the here and now, but those with a better education in finance and investing think 4 dimensionally, looking at how the asset performs over time. Without fail my favorite REI metric is rent growth. My rents in the DC suburbs average $100 a month increase every year. I make far more cash flow than the guys who actually invest for cash flow.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    10Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Russell Brazil:

    All properties cash flow.

    I think some of Morris invest victims may not agree with this.. :)

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y

    Listen to the podcast episode with guest Saj Shah. All cashflow, all SF Bay Area, almost all purchased current market cycle, and he's still actively buying.



    https://anchor.fm/sean-pan/episodes/33---Why-Investing-in-Your-Backyard-is-the-Best-Strategy-with-Saj-Shah-e3d249?fbclid=IwAR0eZ-wL-Plb00UjP_NIYQ4eSUn-gC26J60yrcKtPSqqOF1qgBHPnX_sjgg

    7Reply
  • John Cornelius
    FL · Member since 2019 · 73 posts · 54 votes
    6y
    Originally posted by @Jordan Futch:

    Where in California are people having the most luck finding cashflowing properties? I'm in the central coast and it seems as the costs are simply too expensive to make the numbers work.

    -jordan

    Hey Jordan,

    Nice to meet you! I lived in CA for 13 years. For 2-3 years I looked tirelessly for any sort of cash-flowing property. Then I woke up one morning and realized this was all but futile. I decided to move back to Florida for a year or two so I can seriously look at investment properties on a daily basis. 

    If you're able to "move" to a more attractive area for a year, it's seriously worth looking into. The good news is that most of your competitors (investors in CA looking for cash-flowing properties) are NOT willing to take major steps in their investing career. 

    1Reply
  • Mahavir Gill
    Realtor · Bakersfield, CA · Member since 2018 · 9 posts · 3 votes
    6y

    @Eryka Santoyo Please can you share the info for the meet up ?

    0Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Russell Brazil:

    All properties cash flow.

    I think some of Morris invest victims may not agree with this.. :)

    It's true, Jay. All properties cash flow. It just might not be flowing the way you want it to . . . 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Sylvia B.:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Russell Brazil:

    All properties cash flow.

    I think some of Morris invest victims may not agree with this.. :)

    It's true, Jay. All properties cash flow. It just might not be flowing the way you want it to . . . 

    Yup and there is a lot more to attaining wealth in real estate than cash flow alone.. appreciation is where the big money is made for the average investor.  UNLESS you can scale the cash flow doors to a significant number.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    6y
    Originally posted by @Russell Brazil:

    This is why your successful. This is what most professional shops focus on. Rent growth is the most important thing in REI. You don't make your money by speculating on a terminal cap rate. You make it on successfully picking strong rent growth markets & submarkets.

    3Reply
  • Lee Bell
    Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    6y

    UNLESS you can scale the cash flow doors to a significant number.

    There are a lot of medium to large apartment buildings here. I don't see their numbers, but they gotta cash flow or why own them? This is close to me.

    For sale Camelot Apartments, a value-add 20-unit garden-style building located in the San Fernando Valley neighborhood of Reseda. The property is priced well below replacement cost at $272 per square foot and offers immediate upside as the rents are below market and the building is not rent controlled. At the asking price of $5,200,000, the current cap rate is 4.65% with a GRM of 12.6. We estimate that if a buyer were to spend roughly $20,000 per unit in upgrades, the buyer would achieve a 5.21% cap rate "all in", including the renovation costs. Built in 1987, the property features a desirable unit mix of 18 two-bedroom units and two one-bedroom units averaging almost 900 square feet per unit. The building has gated garage parking with at least one space per bedroom. Units are separately metered for gas and electricity and feature central heat and air conditioning.


















    UNITS BEDSBATHSGARAGE FURNISHED?ACTUAL RENTTOTAL RENT PRO FORMA
    1:211Unfurnished$1,580$2,650$3,160













    2:1822Unfurnished$1,950$31,260$35,200



    0Reply
  • Jordan Futch
    OP
    New to Real Estate · Santa Barbara, CA · Member since 2019 · 20 posts · 9 votes
    6y

    @Eryka Santoyo yeah shoot me the details! I'd love to come through!

    0Reply
  • Bjorik Mutize
    Real Estate Broker · Minneapolis, MN · Member since 2016 · 530 posts · 398 votes
    6y
    Originally posted by @Storm S.:

    @Jordan Futch every property cash flows with a big enough down payment. 

    This statement is so key. Sustainable leverage and a bit of time.

    0Reply
  • Jordan Futch
    OP
    New to Real Estate · Santa Barbara, CA · Member since 2019 · 20 posts · 9 votes
    6y

    @Jay Hinrichs @Jo-Ann Lapin @Dan H. @Brian Garlington @Russell Brazil

    Thanks guys, really appreciate everyone's thoughts and insight.
    @Russell Brazil@Jay Hinrichs@Jay Hinrichs

    0Reply
  • Mahavir Gill
    Realtor · Bakersfield, CA · Member since 2018 · 9 posts · 3 votes
    6y

    @Jordan Futch

    What is the cap rate that you are trying to get in California ?

    0Reply
  • Ezichi Oha
    Wholesaler · North Hollywood, CA · Member since 2016 · 72 posts · 31 votes
    6y

    Inland empire, Bartow, victorville, hesperia all cash flow 

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Lee Bell:

    UNLESS you can scale the cash flow doors to a significant number.

    There are a lot of medium to large apartment buildings here. I don't see their numbers, but they gotta cash flow or why own them? This is close to me.

    For sale Camelot Apartments, a value-add 20-unit garden-style building located in the San Fernando Valley neighborhood of Reseda. The property is priced well below replacement cost at $272 per square foot and offers immediate upside as the rents are below market and the building is not rent controlled. At the asking price of $5,200,000, the current cap rate is 4.65% with a GRM of 12.6. We estimate that if a buyer were to spend roughly $20,000 per unit in upgrades, the buyer would achieve a 5.21% cap rate "all in", including the renovation costs. Built in 1987, the property features a desirable unit mix of 18 two-bedroom units and two one-bedroom units averaging almost 900 square feet per unit. The building has gated garage parking with at least one space per bedroom. Units are separately metered for gas and electricity and feature central heat and air conditioning.




    That seems crazy to me. About 2 years ago I bought a 113 unit for under $4m. Property brings in $60k/month+ consistently. it's older, ugly, not sexy, but stays full and brings in much more $ for much less. And in terms of appreciation, well I just did a refi with a reasonable 75% LTV to get a 4.1% fixed 10 year loan. The new value, even at 75% LTV and almost no capex, exceeded my purchase price 2 years ago.

    So yeah Cali can cash flow if you want to put down 50%, or wait 10 years, but there are plenty of markets that give you cash flow and appreciation if you buy right. 

    3Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free