Where in CA are you investing for CF , or are you?

17 Replies

Hello BP members!

I am new to REI and joined BP several months ago. We live inTurlock, CA and are looking for buy and hold multi family opportunities for cash flow. Although not opposed to SFH (just want to scale faster than 1 house at a time) Unfortunately our area will not support cash flowing properties (at least ones listed on the MLS). I have looked at other cities up to 2 hours away and it looks like the same story to me. Hard to cash flow even with 25% down.I read Brandon Turner's book on rental property investing and am excited to get into this journey/adventure.

I am also thinking of doing OOS since CF deals seem to be hard to come by. If your interested in OH check out this thread I started here. Where in OH are you investing and Why?

I wanted to see where you folks are investing in CA for cash flowing properties. Maybe this thread will have an early death since to find cash flowing properties in CA is like a unicorn and folks will want to keep their investing areas secret. Not a problem I totally get it!! I have looked in Tulare County and Bakersfield here in the valley as the only two places that might have potential. I have not looked very much in northern CA past Sac since those will be much smaller markets but I am not opposed to it if the numbers work. 

Since these places will not be in my back yard I will have to account for a PM and of course economies of scale play a part in trying to grow. Would be nice to grow in the same area as time goes on. I know in CA we are all about appreciation, I know all about it. My father has preached it my entire life, and I know how powerful it is. My family farms here in central CA and the price of land is just outrageous, you cant gore much that will actually pay the land off. However to reach FI I cannot bank on appreciation, I rather have it as icing on the cake. 

Maybe I need to change my strategy and look into flipping instead of rentals while the market is hot here? 

Thank you all for your input! Any info just continues to fill my brain with knowledge. I know I will learn more from my first deal than anything else but don't want to jump in blind either. 

Kevin.

I grew up in CA and when I first started investing I wanted to start out locally too but the truth is that cash flow in CA is just no where to be found. 

I eventually ended up investing out of state and it was the best thing that I have done.

I was able to buy houses out of state with $15k down which cash flow $250/mo all day long.

Single families are a great way to get started out of state. Multifamilies are hard to find out of state and they're overpriced as well. I've found better cash flow with the single families than with multi families. 

@Kevin Moules welcome to BP!  Glad you started looking into things here because it is a great community!  

I think the question you are asking actually gets asked quite a bit, and the general consensus seems to be that OOS investing is the way to go.  But here are a few things I would like to pose to you before you take that idea further:

- When investing in a market the best things I have found to look at are growth factors.  Will the city you are investing in grow over the long term, and will it provide its residents with an improving quality of life, while increasing jobs, rents, and prices?  

These questions I cannot answer for you in most other places, but I do know that investing out of state  has its pitfalls in that there is most likely not the appreciation that we would have here in CA, and the area in which you would invest to get that 15% cash on cash return isn't any better than the area in CA that you could invest and get the same return.  

That being said, I would definitely check into Bakersfield because it is closer to you, so if there is any reason that you would need to see the property or be on the premises it would be much easier and cheaper.  Properties here in Bakersfield are still cash flowing, and you can still buy good quality assets that cash flow as well.  The problem is the competition is increasing, but I think that is true of most markets now.  

Also, Bakersfield has increased value year over year, and currently is diversifying its careers paths from oil and ag to transportation and logistics as well as our staples.  Kern County is home to one of the biggest solar energy projects in the States right now as well.  Developments are coming to town over the next 5-10 years that could potentially increase the population of Bakersfield itself up to 3-fold, and some numbers show that within 15-20 years Bakersfield should surpass the size of Fresno, including both cities growth rates.  

Hope this was some help, and if you would like to chat further please feel free to PM me as well. 

Thanks

Sunny

For those who has high income already, additional CF often will boost them to the higher tax bracket and CF is often not the best strategy for them.  I am not CPA so I do not give this out as financial advise.  However, if you are only looking for CF or appreciation, you are missing out the other 3 of the 5 benefits of investing in real estate. 

Kevin,

Perhaps you should consider some of the many other types of property.  Commercial property can be an excellent investment as well.  Multi-family is overpriced throughout the state right now, so it might be worth waiting a bit on that or being flexible on your areas.  If you keep searching though, there are some out there.  I have run across a few.

If you are not intending to manage it yourself, that opens up your geography.  I recently found an excellent deal on multi-tenant industrial in San Bernardino.

PM me if you have more specific questions or if I can help in any way.

Lauren Prichard, CEO

Aborn Powers/Aborn Homes

DRE#01031213

@Antoine Martel , Thank you for your input. Although I have not analyzed many properties I am beginning to see what you are saying about the SFH vs multifamily. Maybe I need to look more at single family vs multi. This will be a slower scale up process of course. It is hard to pass up homes that sell for 75K and get 800/month in rent! I see you guys sell turnkeys in Cleveland. Are these mostly C neighborhoods or B&A? Anything in NE ohio?


@Sanjeev Advani , Thank you for your response! I have followed several of your comments in other threads and its part of the reason why I have briefly looked in Bako. I have also PM @Max Gradowitz and he mentioned that Bako is a good are to invest in as well. Being from the center of the central valley, having friends in Bako, and family that have lived there I always here unfavorable things about the city itself. I mean who can forget the "Bako Rap" on youtube? :) classic. I realize every city has its good and bad side. Where would you recommend looking for B and C class areas? You are correct on the appreciation, where I am looking in OH you will not get it there. However appreciation is great only when you make it work for you and you have to wait on it. CF on the other hand pays the bills here and now. However as a newbie I am all ears!! Ill PM you another day so we can touch basis. If you think 200/door is possible in Bako I would rather go there than OOS.

@Sharon Wu , could you please share the 5 benefits for new folks like me. 1.CF, 2. Appreciation (if you live on the coasts), 3. Tax advantages. 4? 5?. I agree that those with high income are most likely not interested in CF but like using RE to "hide" their money. Someday I hope I am well off enough that I have to hide my money too, but as a newbie and someone trying to reach FI it is cash flow that I am interested in. What am I missing?

@Account Closed

Originally posted by @Kevin Moules :

@Antoine Martel, Thank you for your input. Although I have not analyzed many properties I am beginning to see what you are saying about the SFH vs multifamily. Maybe I need to look more at single family vs multi. This will be a slower scale up process of course. It is hard to pass up homes that sell for 75K and get 800/month in rent! I see you guys sell turnkeys in Cleveland. Are these mostly C neighborhoods or B&A? Anything in NE ohio?


@Sanjeev Advani , Thank you for your response! I have followed several of your comments in other threads and its part of the reason why I have briefly looked in Bako. I have also PM @Max Gradowitz and he mentioned that Bako is a good are to invest in as well. Being from the center of the central valley, having friends in Bako, and family that have lived there I always here unfavorable things about the city itself. I mean who can forget the "Bako Rap" on youtube? :) classic. I realize every city has its good and bad side. Where would you recommend looking for B and C class areas? You are correct on the appreciation, where I am looking in OH you will not get it there. However appreciation is great only when you make it work for you and you have to wait on it. CF on the other hand pays the bills here and now. However as a newbie I am all ears!! Ill PM you another day so we can touch basis. If you think 200/door is possible in Bako I would rather go there than OOS.

@Sharon Wu , could you please share the 5 benefits for new folks like me. 1.CF, 2. Appreciation (if you live on the coasts), 3. Tax advantages. 4? 5?. I agree that those with high income are most likely not interested in CF but like using RE to "hide" their money. Someday I hope I am well off enough that I have to hide my money too, but as a newbie and someone trying to reach FI it is cash flow that I am interested in. What am I missing?

@Account Closed

 Yes, we invest in Cleveland and Akron. Both of these markets have great cash on cash returns. We focus on C class neighborhoods. We have found that in these neighborhoods you will have the best cash flow. 

We also try to find C class neighborhoods that are in the path of progress. So that over time we will also get some appreciation on our investments. 

Try first focusing on Kern County, Salinas and other pockets of the Central Valley. If you have wonderful connections you value and trust then outside may work.

@Kevin Moules

>What am I missing?

I am not sure if your question was directed at the 5 points or what are you missing about investing is CA.  It is my view that you are not missing much but it is not clear to me that when you discuss appreciation that you are referring to both rent and property appreciation.

I hear all the time that CA is bad for cash flow and I think it is not worded correctly.  CA is bad for initial cash flow.  Meaning your cash flow at purchase is typically not good. 

However, our CA cash flow on our units is far greater than $250/unit (If I told you what it averages you likely would be very surprised). How can this be if I just indicated cash flow is not good. It is because I indicated initial cash flow is not good. Do you know what the average rent increase over the last 5 years has been in San Diego? ~$700/month SFR, apartments have been on the order of $500/month. So if I purchased a cash neutral SFR 5 years ago (and 5 years ago it was still easy to find cash positive SFR at retail in San Diego) it would be cash flowing close to $700/month (assuming fixed rate loan and no refinance to take out the property appreciation.

Sounds pretty good. But it gets better. Trulia shows the average San Diego SFR appreciated $152k in the last 5 years. At $250/unit cash flowfor the Midwest unit it would take 50 years to achieve the cash flow equal to the average appreciation from an average San Diego SFR (do the math if you want).

I know of no San Diego RE investor that has owned more than a few years that does not cash flow at least $250/month per unit.

Hopefully you consider this before you make a decision to invest OOS on properties that often under represent expenses (especially maintenance/cap expense estimates).  I have seen Midwest cash flow estimates that did not include cap expenses at all.  I have been told it is because the property was just rehabbed.  As soon as a property is rehabbed the life of the items has started.  Waiting to the cap expense is needed rather than allocating each month will make for some big surprises.

Good luck

@Jo-Ann Lapin , your reached out to me on my very first introduction thread. I appreciate you reaching out again. I am looking in the general area of Visalia south to Bako on 99. Also including Leemore and Hanford. The multis are hard to find. Maybe what I need to do is go after SFH for now and then possibly do a 1031 if the market decides it ever wants to droop a little. :)

@Dan Heuschele , yes I was asking about what I am missing about investing in my beautiful sate of Cali. Although I would still like to know the 5 points?? You make some very good points dan. I was specifically referring to property appreciation as rent appreciation is not something I have heard discussed or even though about myself. Your points do stick in my mind however. 

Dan can I assume that you would not currently purchase a negative CF property with the hope that rent appreciation would make it positive CF? I know their is risk in RE but as a newbie I would like to mitigate that risk if possible. I would not want to purchase a property here in CA where the rent breaks even with the expenses just to wait on appreciation of both rent and property. My goal would be 5k a month in CF. With the buy in cost of a CA property I could purchase an entire property in OH. So lives the battle inside... 30 yr CA mortgage and cash flowing or OOS property with no appreciation and . 

Thank you all for your input so far. It is giving me encouragement to look a little harder in the big state of CA where I live. There has to be some pockets  in this entire state where CF is possible. I will continue my search down in kern county and see what I find.

Thanks!

Originally posted by @Kevin Moules :

@Jo-Ann Lapin , your reached out to me on my very first introduction thread. I appreciate you reaching out again. I am looking in the general area of Visalia south to Bako on 99. Also including Leemore and Hanford. The multis are hard to find. Maybe what I need to do is go after SFH for now and then possibly do a 1031 if the market decides it ever wants to droop a little. :)

@Dan Heuschele, yes I was asking about what I am missing about investing in my beautiful sate of Cali. Although I would still like to know the 5 points?? You make some very good points dan. I was specifically referring to property appreciation as rent appreciation is not something I have heard discussed or even though about myself. Your points do stick in my mind however. 

Dan can I assume that you would not currently purchase a negative CF property with the hope that rent appreciation would make it positive CF? I know their is risk in RE but as a newbie I would like to mitigate that risk if possible. I would not want to purchase a property here in CA where the rent breaks even with the expenses just to wait on appreciation of both rent and property. My goal would be 5k a month in CF. With the buy in cost of a CA property I could purchase an entire property in OH. So lives the battle inside... 30 yr CA mortgage and cash flowing or OOS property with no appreciation and . 

Thank you all for your input so far. It is giving me encouragement to look a little harder in the big state of CA where I live. There has to be some pockets  in this entire state where CF is possible. I will continue my search down in kern county and see what I find.

Thanks!

I have purchased a near cash neutral property but 1) it had a ~$60k value add 2) I was very confident that the value add would make it have positive cash flow 3) I was very confident of near term property appreciation 4) I was very confident of near term rent appreciation. I was correct on all 4 items and pulled out all of my initial costs and some of the rehab cost via BRRRR and it has positive cash flow today that exceeds the numbers you indicated as your goal.

Today, I am far less confident of on-going near-term property appreciation that far exceeds the inflation rate.  However, I am still confident of on-going near-term rent appreciation.  

In summary, I would consider cash negative property if it was enough below market price (not easy in San Diego) or had a nice value add.  Note a $60k value add equals a lot of months of $250/ month a unit cash flow (I believe it is 20 years of $250/month cash flow to hit $60k). 

Occasionally I get asked where I am looking to purchase.   The question is more what I look to purchase.  I look to purchase local to me properties that appear to be free of landlord headaches that either have positive cash flow, are below market, or have a good value add.  

Good luck

@Kevin Moules Capital Appreciation.  Tax benefit including building depreciation, Interest deduction, section 179 tax deduction... Rent increase=anti-inflation.  Equity accumulation through principle reduction.  Leverage.  I heard there is new rule for bonus depreciation this year, but I am still looking for more information about it myself.  

Originally posted by @Sharon Wu :

For those who has high income already, additional CF often will boost them to the higher tax bracket and CF is often not the best strategy for them.  I am not CPA so I do not give this out as financial advise.  However, if you are only looking for CF or appreciation, you are missing out the other 3 of the 5 benefits of investing in real estate. 

 Its called negative cash flow and only works when markets are going up. Once they turn and you do not have cash flow its called an alligator, it will eat you alive. If you buy all cash then you just have to worry about diminishing return on your money, RE will always hold value just maybe not what you anticipated. Be Careful

Real Estate goes in cycles in every market.  Where you are in that cycle determines your success. If you can not find a property in Turlock or surrounding area you are not going to find anything that works in CA. Sorry. IT sucks for all of us. Blame cheap money for last 10 years. 

CA is benefitting those that bought in 2011, held for last 7 years and now can cash out and invest elsewhere. I sold all my property in 2015 and was shell shocked at prices trying to get back in in 2018. Its like 2007 all over again. I got out of most of my properties in 2008. 

So what to do, you have to look at different strategies than going for cashflow. We have less than 18 months before this market cools off some[ wild speculation] so find a fixer, fix it up and rent out and hold for 2 tax cycles and exchange or pay the gains. I would do this very judiciously because cash flow does not work with super high acquisition cost. You would have to put down 50% to get a 5% Cap rate. So then why bother. Go for some appreciation, fix, rent to cover most of your mortgage, try to refinance and sell in at least 1 year [lower cap gains]. 

This market you are going to have to skim profit on deals, investors are looking for yield and can not find it so cash goes into property. Etc Etc. Keep us posted

Oh and in terms of where to invest, look for areas in CA that are not overbought, obviously. But are in the path of progress. ie: Apple Valley vs Bakersfield. There are some big changes coming in that area regarding development. google High Desert Corridor, Enterprise Zone and the Air Force Base is becoming a free trade zone. Means its going to become a logistics mecca. All those future employees are going to need housing, etc etc. If that works out for you, you can buy me a cup of coffee!

@Dan Heuschele , thank you for your continues posts. Much appreciated brain food!

@Rob Massopust , Turlock is a nice community that people want to move into, one of the reasons prices are high and places will not CF. Even when I purchased my home back in 2013 it would not have cash flowed if I had rented it out. This being said CA is huge, there must be some pockets in this state that CF. I am wondering what northern CA looks like, areas past Chico and Redding. Obviously towns get smaller but there may be opportunity there for rentals. I am also looking in Bakersfield area and homes are about half of what they go for where I am at. Only 3 hours south, so even though I would not manage it, it would still be close to home and hopefully appreciate as well. 

Cash Flow is always a function of down payment or all cash. I just bought a condo in santa ana ca and it almost cash flows with 10% down. I will hold for a year and sell it and make a decent bit on it. So that is worth it. If I paid all cash for it would be about a 5-7% CAP rate [taking out expenses and HOA]

@kevin Moules ,1. Income 2. Depreciation 3. Equity 4. Appreciation 5. Leverage 

They all have good and bad point and everyone have their own different situation. You just need to balance according to your own condition.