California Investing Strategy - Cash Flow or Appreciation

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California Investing Strategy - Cash Flow or Appreciation

Jake Jaenicke
Contractor · San Diego, CA · Member since 2020 · 22 posts · 13 votes

I have lived in Southern California my entire life and I never had the desire to purchase property here. I saw the cost of a small little house, and what that could buy you elsewhere. It wasn't until I got interested in real estate for the investment opportunities that I started to evaluate the Southern California market again.

Many of the books I read, podcasts I listen to, and forums on BP all state cash flow is king. My question to you is this:

In a market like San Diego or New York, where housing prices are so high, but the rents are not equally high, cash flow is hard to achieve (initially). However, housing prices continue to increase and historically will go up. Many of the mid-west regions people are saying they are getting great cash flow, seems to be just that, cash flow only. These areas do not necessarily have the wealth-generating opportunity of appreciation like my market. Would you agree that cash flow isn't everything? It does depend on the stage of life you are in (I am in my 30s, so I thankfully have time to build wealth and do not immediately need cash flow).

If anyone reading this knows of any duplex units in the San Diego area, I am looking! Happy Monday y'all.

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Cody L.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
5y

It's not that homes are too high ... it's that rents are too low (in relation to the purchase price).

I have lots of 'high priced' homes in Houston that I lease.  I bought a bunch of $500k homes I rent for $4,000/month.  Meanwhile, in San Diego, my neighbor who has a house worth about $1m just leased his house out for $4,500/month.    Told him he should sell the home, buy two of the ones like mine in Houston, and nearly double his rents. 

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  • Kenneth Donaghy
    Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes
    5y

    @Jake Jaenicke Yes, I do agree with you. And I do have duplexes coming soon. 

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  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    5y

    It's not that homes are too high ... it's that rents are too low (in relation to the purchase price).

    I have lots of 'high priced' homes in Houston that I lease.  I bought a bunch of $500k homes I rent for $4,000/month.  Meanwhile, in San Diego, my neighbor who has a house worth about $1m just leased his house out for $4,500/month.    Told him he should sell the home, buy two of the ones like mine in Houston, and nearly double his rents. 

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  • Maxwell Ventura
    Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
    5y

    @Jake Jaenicke

    The San Diego market is an appreciation play 1st, Cashflow 2nd. Perfect market for building wealth over time, especially w/ the low supply / high demand. Other factors that separate our growing economy from others is tourism, military presence, and our booming AI/bio tech careers.

    Appreciation on an already higher priced asset (SD Real Estate) relative to the rest of the country will yield far larger returns on your investment over time than increasing cash flow. Much easier to grasp on a spreadsheet. You're taking advantage of compounding interest.

    As for cashflow, it's really just the initial cashflow that is poor for the majority of the county. Over time cashflow here is actually pretty good. Remember, an increasing rental market will follow an appreciating housing market. 

    Hope this helps. 

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  • Jon Schwartz
    Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
    5y
    Originally posted by @Jake Jaenicke:

    I have lived in Southern California my entire life and I never had the desire to purchase property here. I saw the cost of a small little house, and what that could buy you elsewhere. It wasn't until I got interested in real estate for the investment opportunities that I started to evaluate the Southern California market again.

    Many of the books I read, podcasts I listen to, and forums on BP all state cash flow is king. My question to you is this:

    In a market like San Diego or New York, where housing prices are so high, but the rents are not equally high, cash flow is hard to achieve (initially). However, housing prices continue to increase and historically will go up. Many of the mid-west regions people are saying they are getting great cash flow, seems to be just that, cash flow only. These areas do not necessarily have the wealth-generating opportunity of appreciation like my market. Would you agree that cash flow isn't everything? It does depend on the stage of life you are in (I am in my 30s, so I thankfully have time to build wealth and do not immediately need cash flow).

    If anyone reading this knows of any duplex units in the San Diego area, I am looking! Happy Monday y'all.

    Jake,

    You're spot on. I live in LA -- very similar story to SD.

    My plan is to replace my income in 10 years. I did some math and realized I'm better off reaping LA appreciation for nine years, then selling my LA portfolio for Midwest cashflow in year ten. That will produce a lot more wealth than just buying cashflowing properties for ten years.

    In costal cities, cashflow is there to protect the investment. The wealth comes from equity.

    Also, these cashflowing markets in the Midwest are all crappy neighborhoods. Those 1% properties in Memphis aren't in the best neighborhood in Memphis, they're in the worst! So before writing off cashflow entirely, check out San Diego's worst neighborhoods -- or the C neighborhoods, at least. When I started looking at C neighborhoods in LA, I actually did find cashflow here!

    Best,

    Jon

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