Cash Flow States out of California

[Amby Bhagtani]

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

[Bjorn Ahlblad]

The LL tenant laws are out of whack in CA today. I made a lot more money with non cash flowing properties in Ca than I ever made with cf properties elsewhere. Cash flow can make you rich; appreciation can make you wealthy!

[Amby Bhagtani]

Thanks for responding. Why do you think CA will always appreciate? I know historically it has and I personally have made money off it but what would cause this market to keep going up? 

[Eliott Elias]

Texas, specifically Killeen 

[Garrett Crosby]

Hi @Amby Bhagtani - hope you're doing well. Thanks for the post!

So like you, I started looking out of state when first investing because as a fellow Californian (based out of LA), I felt like there were no options available here for me to cash flow. I found some great luck investing in Fayetteville, NC and ended up buying three homes there that each cash flow $400+ per month. 

Then, when I started looking at the numbers, I realized that I was handling CA real estate investing incorrectly. Buy and Hold is not great for cash flow here in CA. Sure appreciation is great - but for actual cash flow, the key is finding great STR markets and investing in those. I have found some great options that I pursue all the time now and have found even higher returns than I expected.

CA is also great for flipping or wholesaling real estate as well. 

Always happy to connect if you're looking for more information or brainstorming. :) 

[Dan Heuschele]

Quote from @Amby Bhagtani:

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

 RE markets are efficient.  Typically, the best initial cash flow is in the cheapest markets.  Why?  Because if the market had good appreciation outlook and good rental increases it would not be a cheap market.  The good initial cash flow is to compensate for lower future outlook for return.

The reality is historically Coastal CA has produced the best cash flow for long term holds.  Here are average detached home prices for some coastal CA counties from the year 2000: San Diego $279K, Los Angeles $221K, Orange County $322K.  What do you think detached homes rent for in each of these markets today.  I suspect each would be approaching the 2% rent to cost ratio.  Without extracting equity out, these markets would have cash flow far in excess of the cheap markets that initially had better cash flow but historically have rent increases that may not even keep up with inflation.

In general, when property appreciates the rents increase.  Similarly, the low appreciation market (i.e. the cheap markets) typically have rent increases that strongly correlate to the property value increase. 

Initial cash flow has a terrible correlation to actual cash flow over a long hold.  This is because the market it efficient and prices reflect total return outlook.  Therefore, the properties that have poor initial cash flow have the poor initial cash flow because their cash flow outlook and appreciation outlook are superior.

We have basically done BRRRR and have been fairly good at it. We only have one property that we did not extract our initial investment out via a refinance. Why is this relevant to the subject? It is because someone could point out that due to higher price point in coastal CA there is less opportunity to purchase volume. However, if you can acquire Coastal CA RE with zero cost (what we have accomplished), the initial price does not limit the properties that can be purchased.

In summary, coastal CA has historically been a great market for cash flow and appreciation for long term holds.

Good luck

[Ruchit Patel]

Yes, prices in California have killed cash flow for many years now. For people starting out, it's almost impossible to invest in a highly competitive market. Cash buyers are paying the full market price to beat up houses!! 

I started investing out of state for cash flow in the summer of 2021 and it's going great. Message me and we can connect and I will share my experience. 

[John Morgan]

Texas has good cashflow and is landlord friendly. But most importantly has a big housing shortage already and has 1,000 people a day net increase in the population. Mostly Californians and Fortune 500 companies moving here so demand for housing will be crazy for the next decade or two. Buy where people are moving and you’ll be set.

[Bob Stevens]

Quote from @Amby Bhagtani:

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

OH , 10% or better (based on cash purchases )  net caps are to be had. Used to be 25- 30% NET but pricing has doubled tripled or more . I am referring to the Cleveland markets  

All the best  

[Eric Gerakos]

Quote from @Amby Bhagtani:

Thanks for responding. Why do you think CA will always appreciate? I know historically it has and I personally have made money off it but what would cause this market to keep going up? 

 Supply and demand. 

[Robin Simon]

I think Idaho medium and long-term will have good deals if you are looking not to stray to far from the West Coast - obviously some markets have been oversaturated like Boise last couple of years where cash flow could struggle, but could be more opportunities with pricing coming down to cash flow again pretty easily, especially on 2-4 units

[Billy Daniel]

We're still seeing some good cash flow here in Arkansas.  They aren't just laying around, but they can be found!  Shoot me a message if you'd like to discuss it some more.

[Simon Ashbaugh]

Quote from @Amby Bhagtani:

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

 Look at Ohio! Columbus its a great hybrid of cashflow and appreciation and Cleveland cashflows like crazy!

[Amby Bhagtani]

Quote from @John Morgan:

Texas has good cashflow and is landlord friendly. But most importantly has a big housing shortage already and has 1,000 people a day net increase in the population. Mostly Californians and Fortune 500 companies moving here so demand for housing will be crazy for the next decade or two. Buy where people are moving and you’ll be set.

 Thanks where in Texas would you recommend?

[Carlos Ptriawan]

Quote from @Amby Bhagtani:

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

 Few.

OH,AL,WI,IN,MS

[Carlos Ptriawan]

Quote from @Amby Bhagtani:

Thanks for responding. Why do you think CA will always appreciate? I know historically it has and I personally have made money off it but what would cause this market to keep going up? 

 I dont think CA will keep appreciating in the next 10 years as it's reached a 1-2-3 cap rate zone. In last 6 months, AL already exceeded CA appreciation.

The strongest market is not CA, but HI

[Sam McCormack]

@Amby Bhagtani

Amby, I highly recommend OH. I am an agent in Cincinnati, let me know how I can help you find your next investment!

[Aj Parikh]

Hi Amby, I have found value investing in Cleveland, OH because it is home to Cleveland Clinic, lot of good neighborhoods, landlord friendly laws, stable appreciation and good cash flowing properties. There are also abundant opportunities for small multi family and SFH. I have been able to scale up to 12 doors in 2 years so definitely recommend this area. Feel free to reach out and we can discuss.

[Patrick Drury]

@Amby Bhagtani
A lot of people are looking in the Midwest which is a great place to start for cash flow. From there, just narrow in on a market and build a team. I would recommend checking out Cleveland OH. It's a great cash flow market. 

[Dan Heuschele]

Quote from @Carlos Ptriawan:

Quote from @Amby Bhagtani:

Thanks for responding. Why do you think CA will always appreciate? I know historically it has and I personally have made money off it but what would cause this market to keep going up? 

 I dont think CA will keep appreciating in the next 10 years as it's reached a 1-2-3 cap rate zone. In last 6 months, AL already exceeded CA appreciation.

The strongest market is not CA, but HI

 Core logic lists San Fran as highest big city increase since 1990, 2000, 2010, and 2020.  The CA coastal large cities all rank high appreciation since 2020, 2010, 2000.  Neighborhood scout has virtually every coastal CA city as 10/10 nationally for appreciation since 2000. 

In 1990 many people viewed these coastal Ca cities as expensive.  Same for 2000, 2010, and 2020, yet they continue to appreciate at near top of nation rates and have done so for decades.  They always had poor cap rates and it has yet to affect the price.  

I have seen a national compression of cap rates recently.  This implies in comparison to historical cap rate spread, coastal Ca cities have better cap rate (not necessarily higher, but higher in comparison to other markets) than in the past.

If cap rates stay constant but rent goes up close to 20% (which is close to correct for SFH in city of San Diego for the last year (source Core logic: from $3734 to $4430)) the value keeps climbing.

Not sure what you are basing Hawaii as top markets but I admit most of the Hawaii cities likely are too small to be included in the core logic list.  Also not sure what your time frame is.  I saw a recent stat that Cleveland has appreciated more than San Diego over the last 5 years (San Diego RE values have declined ~10% since May).  5 years is very short time frame for buy and hold investors and the long term appreciation in Cleveland has not kept up with inflation.  I reference it as an example how short term numbers can be deceiving. 

My point is your cap rate rationale does not hold up to scrutiny.  Coastal Ca has had low cap rates for decades and continues to appreciate at near top of nation rates.  Rents continue to rise at a crazy rate.  The cap rate spread has narrowed, which implies the low cap rates of the coast CA cities are not as low compared to other markets as in the past.  

by the way for the OP: Core logic shows Los Angeles average SFH rent has increased from $4948 to $5550 over the last year. What do you think that $600/month average rent increase does to your cash flow? Imagine what 5 or 10 years of average rent increases do to your cash flow. Reality is LA has historically been a great market for cash flow for long term hold.

[Bruce Woodruff]

Quote from @Dan Heuschele:

Core logic lists San Fran as highest big city increase since 1990, 2000, 2010, and 2020.  The CA coastal large cities all rank high appreciation since 2020, 2010, 2000.  Neighborhood scout has virtually every coastal CA city as 10/10 nationally for appreciation since 2000. 

In 1990 many people viewed these coastal Ca cities as expensive.  Same for 2000, 2010, and 2020, yet they continue to appreciate at near top of nation rates and have done so for decades.  They always had poor cap rates and it has yet to affect the price.  

I have seen a national compression of cap rates recently.  This implies in comparison to historical cap rate spread, coastal Ca cities have better cap rate (not necessarily higher, but higher in comparison to other markets) than in the past.

If cap rates stay constant but rent goes up close to 20% (which is close to correct for SFH in city of San Diego for the last year (source Core logic: from $3734 to $4430)) the value keeps climbing.

Not sure what you are basing Hawaii as top markets but I admit most of the Hawaii cities likely are too small to be included in the core logic list.  Also not sure what your time frame is.  I saw a recent stat that Cleveland has appreciated more than San Diego over the last 5 years (San Diego RE values have declined ~10% since May).  5 years is very short time frame for buy and hold investors and the long term appreciation in Cleveland has not kept up with inflation.  I reference it as an example how short term numbers can be deceiving. 

My point is your cap rate rationale does not hold up to scrutiny.  Coastal Ca has had low cap rates for decades and continues to appreciate at near top of nation rates.  Rents continue to rise at a crazy rate.  The cap rate spread has narrowed, which implies the low cap rates of the coast CA cities are not as low compared to other markets as in the past.  

by the way for the OP: Core logic shows Los Angeles average SFH rent has increased from $4948 to $5550 over the last year. What do you think that $600/month average rent increase does to your cash flow? Imagine what 5 or 10 years of average rent increases do to your cash flow. Reality is LA has historically been a great market for cash flow for long term hold.

 All that being said (and I never met a number/chart/graph that I trusted), there are still a large number of investors heading out of state. Just read these forums, it's literally a weekly question. Some just with their money (buying OOS) and quite a few personally physically leaving and taking their $$ with them to spend elsewhere. 

Whether it is a smart move or not is barely relevant....it is happening, and happening a LOT. That alone can cause the self fulfilling prophecy effect.

You should be happy though, there will be more for you to snap up :-)

[Dan Heuschele]

Quote from @Bruce Woodruff:

Quote from @Dan Heuschele:

Core logic lists San Fran as highest big city increase since 1990, 2000, 2010, and 2020.  The CA coastal large cities all rank high appreciation since 2020, 2010, 2000.  Neighborhood scout has virtually every coastal CA city as 10/10 nationally for appreciation since 2000. 

In 1990 many people viewed these coastal Ca cities as expensive.  Same for 2000, 2010, and 2020, yet they continue to appreciate at near top of nation rates and have done so for decades.  They always had poor cap rates and it has yet to affect the price.  

I have seen a national compression of cap rates recently.  This implies in comparison to historical cap rate spread, coastal Ca cities have better cap rate (not necessarily higher, but higher in comparison to other markets) than in the past.

If cap rates stay constant but rent goes up close to 20% (which is close to correct for SFH in city of San Diego for the last year (source Core logic: from $3734 to $4430)) the value keeps climbing.

Not sure what you are basing Hawaii as top markets but I admit most of the Hawaii cities likely are too small to be included in the core logic list.  Also not sure what your time frame is.  I saw a recent stat that Cleveland has appreciated more than San Diego over the last 5 years (San Diego RE values have declined ~10% since May).  5 years is very short time frame for buy and hold investors and the long term appreciation in Cleveland has not kept up with inflation.  I reference it as an example how short term numbers can be deceiving. 

My point is your cap rate rationale does not hold up to scrutiny.  Coastal Ca has had low cap rates for decades and continues to appreciate at near top of nation rates.  Rents continue to rise at a crazy rate.  The cap rate spread has narrowed, which implies the low cap rates of the coast CA cities are not as low compared to other markets as in the past.  

by the way for the OP: Core logic shows Los Angeles average SFH rent has increased from $4948 to $5550 over the last year. What do you think that $600/month average rent increase does to your cash flow? Imagine what 5 or 10 years of average rent increases do to your cash flow. Reality is LA has historically been a great market for cash flow for long term hold.

 All that being said (and I never met a number/chart/graph that I trusted), there are still a large number of investors heading out of state. Just read these forums, it's literally a weekly question. Some just with their money (buying OOS) and quite a few personally physically leaving and taking their $$ with them to spend elsewhere. 

Whether it is a smart move or not is barely relevant....it is happening, and happening a LOT. That alone can cause the self fulfilling prophecy effect.

You should be happy though, there will be more for you to snap up :-)

I have sat the sidelines since last December (but purchased >$4m worth in December) and currently will only enter for a great deal or great value add.  I do not need more, but both acquiring wealth and acquiring RE are enjoyable to me so I suspect I will not sit the sidelines forever.  

>You should be happy though, there will be more for you to snap up :-)

I am in a position that I could benefit from a RE price decline, but I hope for others that there is not a huge fall in RE values.  I used to have a different mindset that did not take into account the big negative impact that many suffer when RE values falls.

This does not imply that I would not be purchasing in such an event, but I do not hope for it even though i am in a position to benefit financially.  

I am fortunate to be in a position that I would do great regardless of which direction the RE market takes.  If RE appreciates, my RE holding goes up.  If RE declines in value, I have the means to add some choice properties to our RE holdings.  If the values hold steady, I have my cash flow (small for the size of holdings, but not small (I have hope of $1m rent next year)) and equity pay down that provides plenty for us to live our best life. 

Hope everyone had a great thanksgiving and has a great holiday season.

[Bruce Woodruff]

Quote from @Dan Heuschele:

Hope everyone had a great thanksgiving and has a great holiday season.

You too my friend!

[Carlos Ptriawan]

Quote from @Dan Heuschele:

Quote from @Carlos Ptriawan:

Quote from @Amby Bhagtani:

by the way for the OP: Core logic shows Los Angeles average SFH rent has increased from $4948 to $5550 over the last year. What do you think that $600/month average rent increase does to your cash flow? Imagine what 5 or 10 years of average rent increases do to your cash flow. Reality is LA has historically been a great market for cash flow for long term hold.

 So we know from 2010 to 2021 the biggest appreciation is perhaps CA, followed by HI.
But things started to change from May 2022 to now. HI still going up. CA went down by 13 % before a rebound. Even Alabama perform better than CA since May 2022.

So if we use 2010 to 11/2022, Hawaii is winning over CA in term of appreciation.
You could just use Zillow to display this.

I guess, things started to change when some CA cities approached 1 or 2 cap rates, there're a few expensive cities where prices just go south as price it's too expensive, especially in 2 mils. dollar house zip code.

I guess we're at an inflection point. The migration out of CA started to be felt + tech recession, although it's not crashing the market.

[Dan Heuschele]

Quote from @Carlos Ptriawan:

Quote from @Dan Heuschele:

Quote from @Carlos Ptriawan:

Quote from @Amby Bhagtani:

by the way for the OP: Core logic shows Los Angeles average SFH rent has increased from $4948 to $5550 over the last year. What do you think that $600/month average rent increase does to your cash flow? Imagine what 5 or 10 years of average rent increases do to your cash flow. Reality is LA has historically been a great market for cash flow for long term hold.

 So we know from 2010 to 2021 the biggest appreciation is perhaps CA, followed by HI.
But things started to change from May 2022 to now. HI still going up. CA went down by 13 % before a rebound. Even Alabama perform better than CA since May 2022.

So if we use 2010 to 11/2022, Hawaii is winning over CA in term of appreciation.
You could just use Zillow to display this.

I guess, things started to change when some CA cities approached 1 or 2 cap rates, there're a few expensive cities where prices just go south as price it's too expensive, especially in 2 mils. dollar house zip code.

I guess we're at an inflection point. The migration out of CA started to be felt + tech recession, although it's not crashing the market.

 2 years is nothing.  Cleveland RE has appreciated more than San Diego RE over the last 5 years.  Does that imply that the long-term appreciation of Cleveland is likely to be better than San Diego.  

San Diego after losing ~10% since May, is still up ~13% year over year.  This is because in May the YOY appreciation was near 25%.  I look at the ~10% decline as the interest rate increases accomplishing their intent and reverting some of the crazy recent appreciation. I also am not forecasting significant near term appreciation.  However, over a long duration, I expect Coastal CA cities will continue to have appreciation that places it near top of nation.

My point is I would not use a duration as short as 2 years (or even 5 years) to be an indication of anything long-term related to RE.

[Carlos Ptriawan]

Quote from @Dan Heuschele:

Quote from @Carlos Ptriawan:

Quote from @Dan Heuschele:

Quote from @Carlos Ptriawan:

Quote from @Amby Bhagtani:

My point is I would not use a duration as short as 2 years (or even 5 years) to be an indication of anything long-term related to RE.

This is the problem with many investors as folks things the market will behave the same forever.
I see this as an indication of tiredness in the CA market. Nothing crashing, but it seems the growth would be much slower as well.
But is okay, in 2030 we will know which market would perform better from 2022.