California vs out-of-state

Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote

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

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Arlen Chou

Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes

@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.

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Dan BurstainBusiness Member
Real Estate Agent · Austin, TX · Member since 2014 · 361 posts · 331 votes
8y
I am a believer in the Austin market. I sold my duplex in Long Beach, CA last year and bought a duplex and 3 single family homes here in Austin with a 1031 exchange. 118 people moving here every day and every economist saying Austin, the 11th most populated city in the nation, will double in size in the next 20 years. It is tough to ask a generic BP question because each part of the country is different. You should not look at appreciation in say the midwest like you can here in Austin. We have 30 years of constant appreciation. Even in the housing crisis our sales prices were back higher than they were before the crisis just some 18 months later. We have a large, strong employment base with the government and university being two of the biggest employers. Add Silicon Hills and now a new push in medical research and we have a very stable, diversified, and growing job sector with 35,000 new jobs a year. I just don't see a better ROI place right now than Austin.
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AJ Singh
Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes
8y
@Jonathan M.
a condo has HOA fees for life of ownership. if you can find a SFR for that price, it will make a better investment.
Some of the posters here do real estate 24/7 so they can find hidden deals and some of them made their buys at the right time during recessions.
If the Austin investment is in a good neighborhood and you have a performing Prop Mgt team, go for that one. cash flow trumps appreciation at any time unless that asset is sold or refinanced. otherwise its just paper money..
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Arlen Chou
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
8y
@AJ Singh Cash flow + Appreciation ALWAYS beats just cash flow or just appreciation. Investors should ALWAYS remember the simple equation:
cash flow + appreciation = wealth
@Jonathan M. the real magic comes in the form of managing the cash flow and driving appreciation. There are many things that an investor can do to affect both CF and A to their benefit. The key is to find a market that you can receive and control/drive both pieces of the equation to attain a higher W. The next step is to create a plan around the particular property you are targeting. I personally don't do this full time, its a side gig to me, but it can be done effectively if you focus on the above equation. Do it in Austin, do it in Walnut Creek, do it in Boise, do it San Jose... it does not matter as long as you focus on the equation and understand how you will pump up cash flow and drive appreciation.
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AJ Singh
Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes
8y
@Arlen Chou
appreciation in midwest and mid south market is in the buy price. cash flow is the major driving factor in most of the OOS markets.
a value add play in the multifamily will force appreciation by increasing gross rents for sure.
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
8y
@Dylan Vargas There are so many options. I've actually looked at Sacramento as well for multi-family. I think I'm just in a pickle of finding where I want to invest now. Getting analysis-paralysis haha and just need to pull the trigger on one area so I can really start looking.
@Account Closed I've looked in to Houston and San Antonio - both great cash flowing areas!
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
8y
@Arlen Chou Gotcha, so you're taking out the $ you put in as down payments? And cool, I'll send over a PM!
@Jim G. Definitely in it long term and that's the reason I'm still considering investing in the bay area.
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
8y
@AJ Singh yeah, I think that's the reason I started considering OOS. I want to diversify my appreciation properties by also getting in to cash flowing properties.
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Matt K.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
If you want to chat KC (mo side) message me, CA money goes far that way and off market deals aren't terrible. If you can tackle bigger portfolios you can knock down prices more so then on single one off units...
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Arlen Chou
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
8y
@AJ Singh I understand that appreciation in general does not exist between the coasts. However, the OP question was specifically about Austin and there is opportunity for both cash flow and appreciation in that market.
I believe that there are regions in the "fly over" states that can see appreciation and my point is that if a person is looking for a remote investment opportunity then he/she should take the time to research specific markets that can obtain both cash flow and gain appreciation. Doing the research is neither easy or fast, but those markets do exist.
As I have said I love Austin, but the tax implications just don't make it attractive to me. With that being said, it might make sense for other with the right deal/situation. The best part of REI is that there is a strategy for every person that fits their particular needs/criteria.
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Arlen Chou
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
8y
@Jonathan M. you are correct. I get into a deal, and then after natural or forced appreciation I do a cash out refi to pull my money back out of the deal. If all goes well, I get all of my cash + some additional cash, reload my gun and go hunting again. This strategy has to be balanced with cash flow. I do not focus on max LTV at time of the refi. I look at what the property can carry and still throw off positive NET cash flow. Once my cycle is completed I have all of my cash back out, I have cash flow coming in and I control a nice asset in an appreciating market. The best part is that if you buy right and the property keeps appreciating you can refi again. Keep in mind that this is a NON-TAXABLE EVENT! Also, if the market does come crashing down I won't care because I have no money in the deal any longer. As long as I manage cash flow I am totally insulated from market swings. My process takes time, but I love the idea of infinite ROI, market swing insulation and having a goose that lays golden eggs forever.
4 Reply
AJ Singh
Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes
8y
@Arlen Chou
You are right on austin market. another one that comes to mind is Nashville.
1 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
8y
Originally posted by @Jeff C.:

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 agree. Seems like there's some missing numbers in there.
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
8y
@Jeff C. These numbers are straight from my realtor. There is no HOA as this is a house.
P&I: $811.67
Prop Taxes: $310.17
Mgmt: $128
Insurance: $60
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
8y
@Ali Boone hey! I just replied to Jeff with the numbers up above.
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Jeff C.
Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
8y
@Jonathan M. You said clearly that it was a condo. Now it’s a house? It also doesn’t change the tax situation, capex, maintenance, management, vacancy...
1 Reply
Jeff C.
Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
8y
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
8y
Originally posted by @Jeff C.:
@Jonathan M.
You said clearly that it was a condo. Now it’s a house? It also doesn’t change the tax situation, capex, maintenance, management, vacancy...
Agreed. And is the 'house' (or condo, whatever it is) fully rent-ready or does it need work?
Something's not quite adding up about this.
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
8y
@Jeff C. @Ali Boone Yep, my mistake. I meant a house. You're right this doesn't take in to account the vacancy. Tax is in the numbers. I added in management in the numbers as well.
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Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
8y
@Jonathan M. Austin has the highest forecasted growth in the next 10 years of any MSA in the country. I’m thinking that’s going to be an appreciation play that might also cash flow. WC has a ton of rental demand. I think it really depends upon your goals. I’m guessing you’re going to make money on either one if you buy right.
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
8y
@Jonathan M. as others have already noted, your cash flow estimates are missing a lot of estimates that should be included in the cash flow. Rent - PITI does not equal cash flow. The following estimates should be included: vacancy, maintenance, cap expense (level loaded across all months), miscellaneous. I am notorious for believing cap expense is a long-term killer of RE investors in many markets. I have spent the time to calculate cap expense and can tell you it is a lot higher than most people forecast.
Your question should be Walnut Creek vs Austin.
Both are primary appreciation markets. Walnut Creek historically has the better market and rent appreciation. So we know that in the past Walnut Creek was, on average, the better investment.
Austin will have initial better cash flow but I would take rent appreciation over initial cash flow for buy n hold.
So do you think Austin is going to have better market and rent appreciation than Walnut Creek going forward. I suspect both will have good market and rent appreciation and that you likely would do pretty good in either market if your planning long-term.
I would go Walnut Creek primarily based on historical data and not seeing a whole lot of things to significantly impact either locale.
Good luck
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Brian Mcmenamin
Rental Property Investor · San Diego, CA · Member since 2018 · 176 posts · 83 votes
8y
@Jonathan M. I'm not a fan of condos, and would prefer the potential cash flow situation in a 2-4 plex in Austin. I'm not familiar with walnut creek. most of my investments have been in San Diego, but I'd take Cash flow all day. Good Luck
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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
8y
The politcs of california scare me to death as an investor. Hell, it scares me to have so much net worth of mine tied into my San Diego home -- but I do it because its paradise. But to own multifamily? Even if they made money in SD (they don't) I'd worry. Toss in the extreme tenant friendly laws and I'm all about Texas.
Houston has seen monster appreciation over the last 3-5 years (hell, 1-2 years even. Just sold a property I bought for 4.2m for 6.1m with almost no capx done to it and holding it for about 2 years).
So stay away from BFE warzones, and lefty liberal coasts, and find yourself some nice red state high growth (think Az, tx) multi. For the life of me I just can't see a better option.
3 Reply
Mike Chern
Investor · San Antonio, TX · Member since 2016 · 76 posts · 25 votes
8y
CA is heating up on prop 10 now, To be voted Nov 6
0 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
8y
If I were to vote on Austin or Walnut strictly from an appreciation standpoint, I'd go with Austin all day long. Combined with some of the issues Cody mentioned as well as the risk of Prop 10 if it passes. And, very unoffically, Austin seems like a heck of a lot more fun. Not much going on in Walnut.
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Jonathan M.
OP
Rental Property Investor · Bay Area · Member since 2015 · 21 posts · 1 vote
7y
@Lee Ripma If you don't mind me asking, where did you get the info on forecasted growth for Austin? That's pretty sweet in itself.
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