California vs out-of-state

54 Replies

Hi all,

I've been an active follower of this forum for quite some time. I have a pretty simple question -- at this time, would you invest in a $400k condo in Walnut Creek, CA or a 2-4 plex in Austin, Texas? 

It's the ongoing debate on appreciation vs cash flow. I don't really prefer one or the other so just looking for general advice on markets and what ya'll would do? 

Cheers,

Jonathan

Originally posted by @Jonathan M. :

Hi all,

I've been an active follower of this forum for quite some time. I have a pretty simple question -- at this time, would you invest in a $400k condo in Walnut Creek, CA or a 2-4 plex in Austin, Texas? 

It's the ongoing debate on appreciation vs cash flow. I don't really prefer one or the other so just looking for general advice on markets and what ya'll would do? 

Cheers,

Jonathan

 I know Walnut Creek and I invest in Austin/Dallas so it depends on what you are looking for. 

If you want cash flow, you invest in Phoenix AZ, if you are hoping for equity growth you try Austin. CA and TX have high property taxes. AZ has low property taxes. There is net migration into both TX and AZ - outflow from CA. TX & AZ are landlord friendly. CA is tenant friendly.

Account Closed Bay area appreciation is very compelling but so is cash flow each month. I already own two condos in San Jose, so maybe it's time to diversify out of state...

@Jonathan M. carefully consider the tax consequences of buying in Texas.  I am assuming you live in CA.  That means you will pay high prop taxes in Texas and high income taxes on the rents you receive in CA.  Just something to consider... 

@Arlen Chou Yep, I live in the Bay Area. I've considered the high real estate taxes in Texas, but even then, the cash flow isn't too bad for an area like Austin. Just not sure if it makes sense to diversify. Do you also invest in the Bay Area? 

@Ali Boone hey there! So as an example condo near Austin, Texas I ran: 

Purchase Price: $189,000

Down Payment: $37,800

Monthly Income: $1,600

Monthly Expenses: $1,318.84

Monthly Cash Flow: $281.16
Cash on Cash ROI: 8.26%

Cap Rate: 6.94%

For a condo in Walnut Creek, CA there is no cash flow - maybe even a bit of loss but the appreciation is well known in California and specifically the Bay Area. 

@Jonathan M. I currently only invest in the Bay Area: Mountain View, Milpitas, Oakland. I have an office north of Dallas for my W2 work, not REI related, and I travel often to Dallas to meet with customers. I have been traveling to both of those cities for the past 15 years and I love Austin, but I never purchased in either city. Maybe I should have... but I am happy with the cash flow and appreciation of the BA.

@Arlen Chou Very very cool. The reason I'm looking at Walnut Creek is because of it's close proximity to SF (via Bart), school district and overall respectable area. How are you cash flowing in the Bay Area? I'd love to grab lunch on me to learn more from you! 

Originally posted by @Jonathan M. :

Account Closed Bay area appreciation is very compelling but so is cash flow each month. I already own two condos in San Jose, so maybe it's time to diversify out of state...

 How is your condo doing in San Jose, do they cash flow? If they do, just buy more?

@Chingju Hu I bought at a great time in 2013. One of them is actually ~$50/mo negative while the other cash flows minimally. I think it'd be much harder to find cash flow nowadays since the market is way more expensive than when I bought in 2013. Idk, but that's the reason I was looking out-of-state or buying in Walnut Creek area where it's not as expensive as SJ but still is a great area. 

@Matt K. oh thanks for the link share - this is actually awesome news. It's the same with SJ - tons of new projects and developments but that's what's increasing prices over there too. Are you investing in WC? 

Originally posted by @Jonathan M. :

@Matt K. oh thanks for the link share - this is actually awesome news. It's the same with SJ - tons of new projects and developments but that's what's increasing prices over there too. Are you investing in WC? 

 I rent here, invest in KC.... more of a bankroll problem vs deals problem lol.

Originally posted by @Jonathan M. :

@Ali Boone hey there! So as an example condo near Austin, Texas I ran: 

Purchase Price: $189,000

Down Payment: $37,800

Monthly Income: $1,600

Monthly Expenses: $1,318.84

Monthly Cash Flow: $281.16
Cash on Cash ROI: 8.26%

Cap Rate: 6.94%

For a condo in Walnut Creek, CA there is no cash flow - maybe even a bit of loss but the appreciation is well known in California and specifically the Bay Area. 

These numbers don't look right. Financing around $150k the payment will be around $900 a month. Property taxes nearly $400. HOA is usually a couple hundred a month. Vacancy? CAPEX? Maintenance? Management?

I don't know Walnut Creek, CA, but am familiar with the issues trying to invest in CA, generally speaking. This is not a cash flow vs. appreciation question. These are 2 high appreciation, low cash flow markets. The main difference is the entry cost, which is of course typically higher in CA. If you want to compare a cash flow market, there are certainly many markets across the US that offer that.

@Jonathan M. Welcome! How about a single family home in Sacramento (suburbs)? Condo for 400k in Walnut Creek is what size? Find a fixer in the Bay Area? Buy a couple or few homes in Phoenix metro (suburbs) for 400k? Good luck and keep us posted.

Originally posted by @Jonathan M. :

@Ali Boone hey there! So as an example condo near Austin, Texas I ran: 

Purchase Price: $189,000

Down Payment: $37,800

Monthly Income: $1,600

Monthly Expenses: $1,318.84

Monthly Cash Flow: $281.16
Cash on Cash ROI: 8.26%

Cap Rate: 6.94%

For a condo in Walnut Creek, CA there is no cash flow - maybe even a bit of loss but the appreciation is well known in California and specifically the Bay Area. 

 Here is a post on cash flow so you can compare: You will see that cash flow is big in some areas like AZ and equity is big in others like CA & TX

https://www.biggerpockets.com/forums/600/topics/58...

@Jonathan M. on the units I have done no improvements on, I am flowing about $100/door/month.  On the units I have renovated I am flowing over $1000 a door/month. to be clear these are NET numbers.  

But remember that cash flow is an illusion based around the amount you put in as an investment.  ANY property will technically cash flow if you pay all cash.  The great driver of wealth in real estate is appreciation.  In the past 5 years, I have been able to go from zero properties to 19 doors AND my total money in ALL of the deals at this point is $700k.  I am in the process of pulling that last bit out over the next few months.  That will leave me with an infinite ROI on all of my doors. That is the power of appreciation. 

I am totally open to meeting up and grabbing a bite, just send me a PM.

@Jonathan M. I believe most people on this board would tell you to do OOS.  For some people like me who owns investment properties both in bay area and out of state for long term, most likely he/she would recommend to buy in bay area.  I don't know condo that much as all my properties are SFHs, which are located in Dallas, Phoenix, Orlando, Raleigh and even Oahu, non of them are as good as those I invested in bay area from 10 plus years term!

But @Arlen Chou I thought it was impossible to find cash flowing properties in the Bay Area? Surely all CA investors are gamblers betting on appreciation, since there is no such thing as cash flow over here. 

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