New Study Forecast: More Companies Will Leave California

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New Study Forecast: More Companies Will Leave California

James Park
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes

Irvine , CA
Thursday, January 07, 2016 

According to a new study of companies leaving California during the last eight years, the state's business climate will worsen because of a multitude of proposed tax hikes and new regulations – measures sufficient to motivate more company departures.

The study by Spectrum Location Solutions is critical of extending the "temporary" taxes in Proposition 30, escalating fuel and motor vehicle taxes, imposing a service tax on routine transactions, raising carbon-related cap-and-trade fees, and threatening to weaken Proposition 13's protections for business property owners.

"California's public officials come across as being uncaring about the damage they inflict on businesses, investors, employees and their families, and to the towns that lose jobs," said Joseph Vranich, the study's author. "With a growing number of California activists demanding higher taxes and more regulations, look for an increase in the number of companies seeking to leave the state."

The conclusions are contained in a report that shows Fortune 500 companies down to small family-owned companies relocating and expanding in out-of-California locations that offer more satisfying business and lifestyle outcomes....

The report ranks the Top 15 California Counties in the order starting with the worst losses, which are: (1) Los Angeles, (2) Orange, (3) Santa Clara, (4) San Francisco, (5) San Diego, (6) Alameda, (7) San Mateo, ( Ventura, (9) Sacramento tied with San Bernardino, (10) Riverside, (11) Contra Costa tied with Santa Barbara, (12) San Joaquin, (13) Stanislaus, (14) Sonoma and (15) Santa Cruz.

The Top 10 States in the order starting with those that gained the most are: (1) Texas, (2) Nevada, (3) Arizona, (4) Colorado, (5) Washington, (6) Oregon, (7) North Carolina, (8) Georgia, (9) Florida and (10) Utah tied with Virginia. Texas was the top destination each year during the eight-year study period.

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Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
10y

James,

As much as I dislike the taxes, politics and bureaucracy in CA, I can make an opposite argument for it. Birds of the same feather flock together. If you look at the wealth and the innovations came out from the Silicon Valley alone, they're more than all of those states combined. Rich people vote with their checkbook. Look at where VCs invest their money? Doesn't CA have been the number one state leading all other states by a mile?

When you're the king, others will try to dethrone you. Look at the people that come to the state and the people that leave the state.  Your article says the low and middle classes making $50k or less are leaving California.  It makes sense because they can't compete here. California has been the land of opportunity.  Talented people are getting handsomely rewarded.

It seems like a lot of couples in their late 20's and 30's here making a combined $250k-$350k are the norm here in the Bay Area.  It's sickening when I'm reviewing their rental application and see how much they make.  Andrew bought 3 homes from you. You saw his tax returns.  He and his wife are the norm in the Silicon Valley.  Ironically, these people consider themselves as middle class.  LOL!  Just put things in perspective.

My partner and I have been hanging out with a group of very successful business men and women.  Some of them don't even have a high school diploma, and they're making over $100k/month.  Yes, that's per month, not year.  They are some of the best and open-minded people with whom we have ever dealt. My little sister is the chosen one to be one of the partners in their biz.  She quit her W2 job to follow this path full-time. I'm investing in her now.  I'm quite sure it will pay-off at least in 10 folds.  

California is the land of dreamers and opportunists.  This is where dreams can become reality.  It's where people come to create the life that they want and desire.  It's not for the faint of heart. The sad thing is that you have all the politicians and government agencies who squeeze themselves in the middle of all these, try to justify their relevancy, and think they know better than all of us.  They're the ones that are sucking the Golden State dry.  Sigh....... 

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  • James B.Pro Member
    Investor · Monterey Area, CA · Member since 2011 · 150 posts · 81 votes
    10y

    Thanks for the thread @James Park

    This website should be valuable for those in the So Cal market:

    http://www.doctorhousingbubble.com/

    0Reply
  • Matt Mason
    Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
    10y
    Originally posted by @Mike Jury:

    Being a Texan, I wish you all would keep the people in California.  Not that Texas is hostile to people migrating from other states.  And we welcome a lot of corporate headquarters from other states.  Its just that after moving to this great state, people start trying to change Texas to be like "home".  And quite frankly Texas doesn't need changing. 

    LOL.  Good luck with that as the world doesn't work like that.  Being in Plano, you are going to get a lot more Priuses coming your way and a lot of people probably complaining about the lack of decent sushi and Japanese food in town until some new ones can open up as the area in SoCal where Toyota is like a suburban Little Tokyo.  If Texas is going to pursue global corporations and companies to move in from out of state, they are going to get the people and cultures that come with them just like any place would.

    2Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    10y
    Originally posted by @Amit M.:

    I think the turn key/out of state cash flow/2% rule/50% rule crowd should read very carefully what both @Martin Scherer and @Dan H. - they have experience with out of state and CA properties, and are both back to CA only RE.  Take heed- Valuable lesson folks!

    ...

    I am not stating that out of state is not a fine route for some people or that I have had a lot of out of state properties (We have had two - One Alabama Shores duplex that was hit by multiple hurricanes and had property tax go up faster by far than the rents only to have values plummet after the hurricanes and one Alabama SFR that is beautiful on a lake). Neither of these properties could you find an equivalent in So Cal. The Alabama Shores property was on the sand (completely on the sand: the driveway ran through the sand).

    Neither worked for us as well as our local properties.  Every So Cal property I bought more than 3 years ago has gone up at least $100K.  All but one property cash flows using a $300/unit per month cap expense rate (5% vacancy/5% maintenance) and the one that does not is unique because of a few reasons including we have our handyman in one of the units below market and we use a 2 car garage for the property management (stores paint, refrigerators, tools, spare parts (tile, fence planks, composite flooring, etc.).  The Alabama Lake front property has been owned maybe 10 years and I doubt it has gone up $100K.  It does cash flow but with the PM fees not by as much as my average So Cal unit.  So it has significantly underperformed my So Cal properties.

    The Alabama Shores duplex we owned about 5 years (we sold it about 5 years ago).  In those 5 years, even using a PM, it took more time than any other of our units (in part due to getting hit by multiple hurricanes and issues with contractors).

    I like investing in San Diego and my biggest issue is not finding cash flowing properties but to find the time to do anything about them.  We choose to have fun and are about the size we can handle without either cutting out some of the fun or brining on a PM for some of the local properties.

    I think going out of state with a turn key company and PM that can be trusted has a lower monetary entry and less commitment of time (spend the time finding people you can trust to do what you desire). So for many RE investors out of state REI is a good choice. I think my So Cal (San Diego) route will result in the higher return and I am very confident that over the last 5 years it has resulted in a higher return than virtually any out of state cheaper location.

    I think you can make money RE investing out of state and you can make money RE investing in So Cal.  I have done fine RE investing in San Diego (by far better than I have RE investing out of state).

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @James Park I suppose if we want get down to brass tacks. The top 3 areas in Cali for highest returns since 2009 are SF, SJ and LA. Since 2000 that is LA, SF and SD. All of those are tops for the nation as well. Will this change is the 64k question? If we go back to the 90s, 80s, 70s it is those same usual suspects. Is anyone actually surprised by this? This now begs the 

    question how and why does Cali overcome all these companies moving out?

    Note: These are SFH returns and equal cash flow plus equity gains.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    10y

    @Matt R. I believe it is supply and demand - simple economics.   San Diego has perhaps best weather in Continental US and maybe all of US.  However, It is constrained on south by Mexico, north by camp Pendleton, west by Pacific ocean and east by the harshness of the desert.  The supply is very constrained.  The demand keeps increasing. 

    In places like North Dakota (and many other locales) there is not as much variation between many properties 100 miles apart (there are few sweet spots).  There is so much similar property.  The cost there is largely the cost to build the home as there is no huge issue with supply and demand.

    I believe the entire California coast is similar but I also believe SF prices are high more because of its healthy tech industry than super climate (not that the climate is bad but it is not San Diego).  SF salaries are much higher than San Diego which allows the property prices to be higher.  San Diego property prices are real high compared to salaries because the demand so exceeds the supply.  San Fran prices are high in larger part because the salaries are high and again there is only so much supply.

    I suspect RE investing in any of SD, LA, SJ, or SF over last 7 years or 16 years would have done better than investing in 95% of the other locales including the central US turn key properties.

    Therefore I am a fan of So Cal RE investing (but past performance is not necessarily an indicator of future performance).

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  • James Park
    OP
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    10y
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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @Dan H. Definitely there are geographicical factors that limit supply. All three SF, LA and SD also have massive natural harbors in common. LA being the largest container port in the nation, employs nearly 900,000 people and moves over a billion a day in and out. I don't much about San Diego's numbers except I think it houses the largest naval fleet in the world. That has got to be a lot of jobs too. Perhaps then San Francisco Bay wins the most scenic prize. For sure SF is the largest and I think you can sail out of SF even far as away as Stockton.

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  • James Park
    OP
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    10y

    California High Speed Rail Costs Soar Again

    SACRAMENTO -- While much of the squabbling over California's high-speed rail project has focused on its huge construction price tag, the cost to taxpayers just to plan the bullet train is also soaring.

    California rail leaders said Tuesday it will cost an extra $97 million in office and field work to design the rail line, which has famously seen its construction cost double to $69 billion since voters approved it five years ago. The extra state and federal funds set aside for planning will wind up in the pockets of private consulting firms, including some that earn billions of dollars in annual revenue.
    http://www.huffingtonpost.com/2013/04/03/california-high-speed-rai_n_3005001.html



    This is very much like.....

    August 1997: Standard concrete viaduct with a cable-type suspension span but no bike lane or shoulders. (Cost $1.3 billion)
    May 2013: Inflation and delays associated with the complexity of fabricating and installing the massive steel decks, coupled with broken steel anchor rods in seismic stabilizers, continue to push the cost projections up, although not at the earlier rate. (Cost $6.4 billion)

    http://www.mercurynews.com/news/ci_23833906/new-bay-bridge-cost-climb-follow-money



    California owes $400 billion in debt and unfunded liabilities.

    http://www.sfchronicle.com/politics/article/California-s-400-billion-debt-worries-analysts-6812264.php

    Only 10 years late and 400% over projected cost. Probably in-line with most California public works projects. What do you guys think that the California's high-speed rail project will eventually cost? The spending is out of control.

    1Reply
  • James Park
    OP
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    10y

    Kiplingers rates California as the second worst state in the country for retirement.

    Source: http://www.kiplinger.com/tool/retirement/T055-S001...

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    James IDK enough about it and I have doubts it will ever get done. Elon Musk seemed to have another solution with his hyperloop and that could be done for much less. 

    0Reply
  • Kay Kay Singh
    Rental Property Investor · Fort Wayne, IN · Member since 2016 · 258 posts · 177 votes
    10y
    Thanks for passing on the good information so that we in Midwest be prepared.
    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @James Park I am sure there will be challenges along the way to another 300%. It is more like 100% every decade or so though. There might be some locations that hit the 300% and others sub 100%. The fact that we talking in the hundreds of percents could be telling as is. 

    Retiring in Cali is increasingly a luxury item that most will be not able to afford obviously.  Does that mean it is worth less maybe not not. The overall gentrification of the entire state might be the next story/study. If you look at the nation as a whole neighborhood. ..Cali might be the better hood it can be surmised. UCLA reports we are about half way into a historical bull LA RE market and 2022 would already be into the next cycle. Long term location is primary and fundamental and everything else might change except that part. 

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    @Dan H. it's interesting that you mention the max number of units that you guys want to manage personally, and still have a relaxed lifestyle. Your profile states that you guys manage 10 units in your area. Is that about the number you want to max out at?  How far is the drive to your properties, and are they clustered close to each other?

    I'm curious, because I recently went from 5 units to 13, and I'm definitely feeling the pain!  In all fairness these are recent acquisitions, so I'm turning over some tenants, remodeling, re-renting, so there is A LOT of added activity. Once I get the newer buildings to where I want them, activity should slow down. Still though, I'm seriously thinking of stopping with what we have. Once it's all optimized and stabilized we will get more than the cash flow we need. So why bother with more acquisitions, added risks, and hassles?

    Of course this calculus is personal to each individual, but I'm curious what your thinking is towards this issue. (Mind you, a very good problem to have ;)

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    10y

    @amit M. 

    We have 10 units and the family has an additional 7 units. All of our units are within 25 minutes. All but 1 of the family units are within 25 minutes; the family has one SFR out of state.

    I work full time as an engineer and the wife has a marketing business.  None of the units take much time but we keep our schedule full so in aggregate the time they require is significant. 

    But we still are looking but we are being way more selective than if we had more time to attend to running the properties.  My wife and I both like the hunt.  We are also in the process of trying to free the wife from her current employment as the properties have been more lucrative than her marketing work. 

    So we plan on adding at least one multiplex this year but are being quite selective. 

    0Reply
  • Kevin FoxPro Member
    Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
    10y
    Originally posted by @Joe Bertolino:

    People from other states latch onto the limited negative information because they are not here and they don't get it.  They likely never will.  With all of the negatives mentioned and companies leaving, blah, blah, blah... California led the nation in job growth over the past 12 months.  498k job which was almost 30% higher than the #2,  which was Texas.  When you track job migration we are losing lower tier jobs to cheaper states handing out huge tax incentives while CA is still attracting the brightest minds in the country and the world.  We lose call centers and processing plants with large body counts while companies like Salesforce are being created.   For every 100 Comcast call center jobs paying $42k a year that we lose... a company like Solarcity is adding 200 six figure jobs. 

    Facebook opened a little 5000 square foot satellite office near GA Tech to recruit and train.  It's not a sign that they are leaving the Golden State.  

    The media can and does latch onto a few negative items but the facts are that CA is breaking records for VC funding,  exports,  tourism and tech growth.  Negativity is much easier for simple minded people to understand so news sources lead with that.   

    Its not all roses with a shrinking middle class and large service class but as Minh said... Those with special talents (I'll add in tenacity) are handsomely rewarded.  

    If I could vote for this post twice, I would.  

    However, we do have to be mindful of the fact that there does come a point where the taxes/legislation become so burdensome that, economically speaking, it will become very difficult to justify keeping businesses here.  With that said, it is up to all of us to make sure that this paradise remains a hub for ingenuity and entrepreneurship.

    1Reply
  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    10y
    Originally posted by @Franklin F.:

    I just wonder how much more those people with "special talents" can take.  There may be some bright spots in Cali but imagine what it'd be like if they weren't running companies off and the free market economy were allowed to function.  I think it is very telling and gives a preview of what the whole country will look like after a socialist presidency.  Our system already looks very socialist and is getting worse.  And it can still get a lot worse.  Not to get into politics but socialism is the very antithesis to a free market economy.  When considering the monstrous socialists from history it scares me to death.  I shudder to think of the millions who've been killed in the name of "socialism" by Lenin, Stalin, Hitler, Mao, Pol Pot, Castro, Tito, etc.  Socialism is a very small step away from communism or fascism.  Am I over-thinking the situation with the control freaks on the left?  I don't think so.  

    Socialism is the opposite of Fascism.  I think you are believing too much of the rhetoric.  The country and our economy are significantly better than it was 7 years ago.  I was doing BPOs in 2010 and was told the housing collapse would last for 20 years.  It lasted 2 more years.  The people on BP wouldn't be here otherwise.  I think we should keep these forums to real estate though.

    Mark

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  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    10y
    Originally posted by @James Park:

    Kiplingers rates California as the second worst state in the country for retirement.

    Source: http://www.kiplinger.com/tool/retirement/T055-S001...

    James,

    I think CA is a great place to retire.  If you can afford a property in an area like Indio, they cap your property taxes.  CA has a problem with their taxes.  It starts with Prop 13 which allows property taxes to increase at a max rate of 2% per year.  Retirees can plan their costs better.  The rest of the state pays higher taxes on everything else.

    Mark

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  • Franklin F.Pro Member
    Investor · Crossville, TN · Member since 2016 · 58 posts · 27 votes
    10y

    @Mark Creason, I don't study, or believe in "rhetoric" but I do believe in understanding history and the lessons we can learn from it.  I choose to NOT stick my head in the "economic sand", OR judge another member here based on my misperception of their beliefs.  Like it or not, politics has a huge bearing on our economy and THUS our real estate investments' success or failure.  I wouldn't even broach the subject if we were looking at the prospect of a run-of-the-mill republican OR democrat president; we can all do well under either one.  However, a socialist president can, and probably will have a huge impact on all of our businesses, considering the extremely high tax rates that would be required to pay for social programs.  And how much more government bureaucracy would come our way?  I'm not trying to move anyone to a different political persuasion.  You misjudge.  I DO think a business owner will do well to consider the potential impact to his business of a given election outcome.  Should your experience with BPO's be an economic bellwether for ALL of us today? I don't think so.  Should we "keep the forums to real estate" as you say, or should I just be quiet because you think I believe differently than you?  Personally, I think we should discuss anything that may affect our businesses.  Socialism vs Fascism?  Who cares?  The first is really just an amoral version of the second.   They would both suck for the entrepreneur and free-market capitalism.  

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  • Mark Creason
    Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
    10y
    Originally posted by :

    Socialism vs Fascism?  Who cares?  The first is really just an amoral version of the second.   They would both suck for the entrepreneur and free-market capitalism.  

    Fascism is a form of that came to prominence in early 20th-century Europe. Influenced by , fascism during , in opposition to , , and . Fascism is usually placed on the within the traditional

    Hitler was a fascist not a socialist.  Just get your history right.

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  • Franklin F.Pro Member
    Investor · Crossville, TN · Member since 2016 · 58 posts · 27 votes
    10y

     Sorry Mark, nothing wrong with my history, NAZI is actually a German acronym for National SOCIALIST German Workers Party.  The schmuck Hitler was NOT a fascist.  But he did buddy-up with one, Mussolini.  Their other buddy emperor/dictator Hirohito was God-knows-what, but you missed my larger point and that is that NONE of us can afford extremism, whatever label you choose to put on it.  And if a socialist becomes Prez then there is real potential for extremism, much like what has been discussed here about  CA.  In my humble opinion there are numerous inescapable correlations.  The reason for focusing on the term "socialism" is the common theme of "equality" and "social justice", which has historically morphed into various forms of extremism like communism, fascism and/or dictatorships.  Those who forget their history are doomed to repeat it.  We should all be wary of what we're seeing these days.  Enough history, lets not bore everyone, heh Mark?   

    This subject of California has been a fascinating discussion for me.  Living in Prescott, AZ I have LOTS of friends and neighbors who emigrated from CA because of the many reasons stated here.  There is even a small airline here that goes exclusively back and forth to CA, carrying all of them.  Talk about supply and demand.  Most all of them state economic reasons for leaving and would have stayed otherwise.  I feel for them, but they are happy here in this beautiful place we call home.  It just boggles my mind to think what "could" be if CA were a little friendlier economically.  

    Also, having once owned several million $ worth of beach property in Orange Beach, AL, and having dealt with numerous hurricanes over the years, natural disaster is near and dear to me.  How do you CA guys factor in the potential for earthquakes?  Do insurance policies even cover it?  If so, the premiums must be huge.  I know our hurricane insurance premiums were bloated.  I guess that must be a big driver in rental rates and the resultant cost of living?   

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  • James Park
    OP
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    10y

    It looks like Carl's Jr is moving out of tax burdened California to tax free Nashville.  Apparently, they are offering their employees relocation packages.

    "The parent company of Carl’s Jr., founded in Anaheim 60 years ago, is relocating its California headquarters to Nashville, Tenn."

     

    and

    2Reply
  • Matt Mason
    Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
    10y
    Originally posted by @James Park:

    Kiplingers rates California as the second worst state in the country for retirement.

    Source: http://www.kiplinger.com/tool/retirement/T055-S001...

    I saw this too, but I think the answer really depends.  To pay that 13.3% income tax rate, you have to make over $1M a year and even then it is only the marginal rate over $1M.  I don't think all that many retirees make that much. 

    A more typical retiree couple that makes $150k a year plus $50k in social security wouldn't get hit too bad by income taxes in CA since the bottom rate starts at 1% and they wouldn't go into the top brackets.  They'd pay about 6% on the $150k and wouldn't pay any tax on the SS, which is not the case in some other states that actually tax social security.  If they live in a home that they have owned for a long time, their property taxes wouldn't be all that much so they could in theory be better off than they would in other states, but it depends.

    Property taxes are generally more important in retirement than income taxes.  Living costs are even more important and CA is expensive, although usually less so once you get away from the major employment centers.

    1Reply
  • Carrie Hiner
    Real Estate Agent · Austin, TX · Member since 2015 · 181 posts · 75 votes
    10y

    I'm an agent in Austin Texas and  can confirm the data.  90% of the investors I sold to last year are from California.  

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Carrie Hiner:

    I'm an agent in Austin Texas and  can confirm the data.  90% of the investors I sold to last year are from California.  

     Because Californians have the equity and higher paying jobs to do this.  Whether they are better off investing in Austin or CA can and has been debated here.  

    2Reply
  • James Park
    OP
    Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
    10y

    I saw that Texas' s #1 gateway city is California, then Nevada, Oregon, Arizona, Washington. For Georgia, the top gateway cities are New York, New Jersey, and Chicago similar to that of Florida. Why would Californians prefer to relocate to states like Texas, Nevada, Oregon, Arizona, Washington over Georgia?

    Couple things that come to mind is that Texas is much closer to California in proximity as Georgia is located on the opposite side of the country. 

    Perhaps the reason is that Californians can tolerate dry heat, but they dislike the humid weather that is prevalent in the south east?

    As a real estate broker in the north Atlanta, I can testify that there are not that many Californians relocating here. I had one relocation client from Los Angeles out of maybe a 100.

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