Real Estate Investor · Member since 2008 · 340 posts · 34 votes
Okay, I have had enough of this CA investor talk in other posts. I am one of those investors who lives and invests in flyover country and I am scratching my head as to how you investors make money in a systematic, reproducible way in California. I'd like to know your system or how you cashflow on your properties. Here are the ground rules:
- You can't be a realtor, attorney, closer, contractor, etc., i.e. someone who makes their money through REI services.
- You made a ton of money flipping in 2004 and 2005. A monkey could have made money in that environment. I'm talking about a reproducible system, unless you are still doing it today with success. Kudos to that.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
17y
Matt,
I have one friend who seriously speculates in California. He started with millions in family money that was in a foreign currency and massive amounts of cashflow from other sources and buys outright for cash. He's on a level we're not even accustomed to. This spring he virtually disappeared for two months and I found out when he got back that he had created a group that bought half of a pacific island and wholesaled about 200 lots, making himself a profit of somewhere between 2-3 million (2 months profits).
He sees the longterm equity strategy in California which is why he buys there but he is not in a position where he needs the positive cashflow for the financing. He has to put his money somewhere so he's buying coastal property there and in Florida. Why he does it in these areas as opposed to certain flyover country areas that have a greater percentage of return is actually quite simple - he loves the ocean and likes to own property where he can "vacation" and check out his holdings.
That's a place you and I will be at in 5 years when cashflow is no longer an issue and we can afford to sit on fun, flatlining equity speculations. But like you say, it's speculation, it's not a repeatable system unless you can afford to repeat across decades, it does not profitably cashflow and is hardly the place for a first generation, tier 1 career investor.
P.S. Want to know how my friend is able to handle the cost of owning California property? He created his cashflow is boring little areas that no one pays attention to and cashflow like a freak...kinda like flyover country.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
17y
You know after I wrote that all out...I realized that my friend isn't even making cash in Califorina. It's all equity and speculation so to answer your original question Matt, not even this guy is doing it......
Los Angeles, CA · Member since 2008 · 557 posts · 70 votes
17y
Hey Matthew -
Seek out Aaron Norris here. I believe he is the son of Bruce Norris, and part of The Norris Group
The Norris Group does in fact sell REI products and services. But in this case, Bruce is a also a well known, well respected, active California investor and resident.
Through attending his last talk, and reading his newsletter, I believe he is flipping in the current market. Perhaps with both conventional sales and lease options to the end buyer. I don't know if he's holding any. Probably. He has the credibility and means to close fast, buy very low, and fix up very well. I think I also read that his next move once the market comes down more is to buy residential lots.
The general consensus I've been hearing is to buy and hold. That can actually be done with cash flow in some California areas.
I enjoyed your comment about no advice from a investors who only flipped from 2004-2005. I actually have the similar - yet wider parameters. I appreciate any advice. But there are plenty of California real estate 'gurus' who started armchair investing in 2002, bought until 2007 (until they saw prices dropping), and now they are selling products teaching the 'secrets' of investing.
It's funny for a while, except for when it is not any more. Now it's just old.
Altus, OK · Member since 2008 · 2k+ posts · 690 votes
17y
I hear people all the time making money even in poor market conditions. Market areas like California and Florida, 2 states that have been hit hard from this housing bubble burst, are still being bought and sold with lots of money being made.
You just got to know what you are doing and how to do it.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Many investors are utilizing a repeatable model in CA to make $ in RE. Cash flow from landlording is not the only method to making $ regardless of what others claim.
I personally know of several who buy at great price points, and flip to end users for profit. You can call it speculation, or whatever name you choose, but the end result is cash in the pocket and the abilty to repeat.
Real Estate Broker · Fresno, CA · Member since 2008 · 16 posts · 2 votes
17y
I found a sfr the other day that cash flows $97 a month using Mike's 50% rule in the Central Valley. I have looked at a lot of houses in my career and this is the first one that I have found. Plus it was built in 1991 and is in great shape, with a quick vaccuming and wipe down in the kitchen I could move into it. I would have never thought it would happen here, but I plan on getting as many as I can.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Originally posted by MikeOH:
In the entire time I've been on BiggerPockets, I've never seen anyone post that landlording is the only method to make money.
Flipping, wholesaling, rehabbing and retailing, speculation, etc are all examples of other businesses that can make money.
Mike
Again, you do not understnd what I was explaining. My point was that in a "landlording business", cash flow is not the only source of income. I did not imply that anyone on BP has ever stated that you could not make $ in the areas you listed, that would be ignorant.
Real Estate Investor · Member since 2008 · 340 posts · 34 votes
17y
Originally posted by John Pestorich:
I found a sfr the other day that cash flows $97 a month using Mike's 50% rule in the Central Valley. I have looked at a lot of houses in my career and this is the first one that I have found. Plus it was built in 1991 and is in great shape, with a quick vaccuming and wipe down in the kitchen I could move into it. I would have never thought it would happen here, but I plan on getting as many as I can.
Well, it is good to see that it has some cashflow, but what is the cash on cash return?
If I paid (using a loan and downpayment) and rehabbed a property for 15k total, 97 bucks cashflow is not paid. However, if I paid (using a loan and downpayment) and rehabbed a property for 150k total, 97 bucks cashflow is pretty poor.
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
17y
I think the most sure-fire way to generate cash-flow in California is through apartment buildings. The flipping market is dead. Sure, you could get some cheap property but you're not going to be able to quickly flip that property to the sum of a handsome profit (in most cases). The rental market, especially in popular, coastal areas, is as strong as its ever been. The key is to find under utilized and poorly managed properties and manage them correctly to optimize cash flow and property values. There's some leg work to be had, but its cut-and-dry, not speculative. As a mathematically minded person, that's what I look for.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
No question Kyle, great point. Many of the investors or want to be investors here are just getting their feet wet, so buying an apartment building is quite a large chunk to swallow.
What kind of true cap rates have you been able to purchase at here in CA?
The last I looked, they were still too low for my tastes.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
17y
Originally posted by Kyle Koller:
I think the most sure-fire way to generate cash-flow in California is through apartment buildings. The flipping market is dead. Sure, you could get some cheap property but you're not going to be able to quickly flip that property to the sum of a handsome profit (in most cases). The rental market, especially in popular, coastal areas, is as strong as its ever been. The key is to find under utilized and poorly managed properties and manage them correctly to optimize cash flow and property values. There's some leg work to be had, but its cut-and-dry, not speculative. As a mathematically minded person, that's what I look for.
Apartments in California are trading at a cap rate of 4-6.5% (especially 20+ units). So definitely no cash flow there.
As per Houses:
We are able to buy properties in Inland Empire California that would cash flow. REOs that need work. We are flipping right now, but most of the properties we are buying would cash flow as rentals. You are not going to find properties for cashflow in Orange County or most parts of San Fernando Valley though. But you probably don't need to go as far as San Bernardino either.
I think California is still correcting, so we are not ready to pursue the buy and hold model yet...
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
17y
On average, we've been seeing apartments going for 5.15% cap rates. We've actually recently found one at 7% which is pretty much unheard of in this market.
However, despite the low cap rates (they'll never get that high in So Cal), cucaloco, there is most DEFINITELY cash flow in apartments. Every property we acquire generates positive cash flow right off the bat; if they didn't, we wouldn't pursue them.
As for homes, in San Diego county, one would be hard-pressed to acquire a single family home that would cash flow as a rental. Maybe inland empire is a different story, but that's not my market. Apartments in San Diego County, however, are where the cash flow is.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Kyle,
I am interested in finding out how these units cash flow if you are buying at a 5 cap.
Would you post a recent purchase with the financials to lay out how this is accomplished?
Real Estate Broker · Fresno, CA · Member since 2008 · 16 posts · 2 votes
17y
Sorry I didn't see your question earlier. Some things have changed since then, but here you go. And not in Fresno. 2 bed 2 bath 1000+-sf, built in 1991. I have turned down an offer for 60k and have a sec 8 tenant wanting to move that currently lives across the street in the same floor plan paying $895/mo rent.