Selling Investment Properties to go Out of State

13 Replies | Los Angeles County, California

Hello Everyone!

I have clients who are thinking of stopping investing in Los Angeles and begin looking out of state.  This is primarily because CA/LA has not be kind to landlords during the pandemic.  

I was just curious if others had the same thoughts.  Here in Los Angeles you can generally bank on appreciation. 

Just thought I would get your thoughts.

Thanks!

@Rick Albert

It’s a double edge sword in LA, the landlord climate was already tough for landlords and then along came Covid and made it worse.

On the other hand, the appreciation in LA the last 7 years has been amazing, even during Covid. Kind of a tough question to answer…

Originally posted by @Rick Albert :

Hello Everyone!

I have clients who are thinking of stopping investing in Los Angeles and begin looking out of state.  This is primarily because CA/LA has not be kind to landlords during the pandemic.  

I was just curious if others had the same thoughts.  Here in Los Angeles you can generally bank on appreciation. 

Just thought I would get your thoughts.

Thanks!

We are seeing some smaller landlords selling, and longtime investor families, private equity groups etc stepping in. They tend to have resources to weather these issues. The era of the mom and pop, a landlord you personally know, is starting to end in LA. 

 

I tend to agree. I do tell clients to invest in LA because as others leave, it will only decrease inventory, keeping rents high and vacancy low. I'm about to put my ADU on the market and will be interesting to see the action.

@Rick Albert From where I am sitting, CA is still the best state in the country from a quality of life perspective (yes its expensive, but you get what you pay for). Plus I recently saw some news that CA is working on making some property owners who missed out on rent last year whole. Link to NYT article.

Hey Matthew,

Generally speaking I agree on the quality of life (and as an agent it is my job to promote it).  However I'm starting to see changes in that mindset.  This is a very high tax state (property, sales, and income tax) yet we have a major homeless problem (expected with popular states) and rank 40th in K-12 education.  Other states provide better education, have the outdoor experiences and can develop the shopping and dining experiences.  The only thing they can't replicate is the beach and the weather.

I think this will be the trend as California is not Landlord friendly and is much harder to scale. I think a lot of folks want cash now rather than wait for a future sale based on appreciation. If they didn't have money problems now they could simply invest in the stock market and wait. That's what my clients have been telling me at least. They want cash now and so they come to our market here in Ohio.

Originally posted by @Stephen Brown :

I think this will be the trend as California is not Landlord friendly and is much harder to scale. I think a lot of folks want cash now rather than wait for a future sale based on appreciation. If they didn't have money problems now they could simply invest in the stock market and wait. That's what my clients have been telling me at least. They want cash now and so they come to our market here in Ohio.

I think the landlord friendly part is a bigger concern.  Because of the high costs of rents and the good appreciation, You don't have to scale to the same degree.  For example I have a client who nets about $1700/month off one of his rentals (2 units).  You might need 6 or 7 units to get the same results but with possibly more management (such as vacancies, calls, maintenance, etc). 

Originally posted by @Rick Albert :
Originally posted by @Stephen Brown:

I think this will be the trend as California is not Landlord friendly and is much harder to scale. I think a lot of folks want cash now rather than wait for a future sale based on appreciation. If they didn't have money problems now they could simply invest in the stock market and wait. That's what my clients have been telling me at least. They want cash now and so they come to our market here in Ohio.

I think the landlord friendly part is a bigger concern.  Because of the high costs of rents and the good appreciation, You don't have to scale to the same degree.  For example I have a client who nets about $1700/month off one of his rentals (2 units).  You might need 6 or 7 units to get the same results but with possibly more management (such as vacancies, calls, maintenance, etc). 

 Interesting. I often hear investors making $300+ per door here, sometimes I hear crazy numbers like $800+ for homes that don't cost a whole lot. I think it all depends on how much you're intentionally setting aside for repairs and your debt structure.

Originally posted by @Rick Albert :
Originally posted by @Stephen Brown:

I think this will be the trend as California is not Landlord friendly and is much harder to scale. I think a lot of folks want cash now rather than wait for a future sale based on appreciation. If they didn't have money problems now they could simply invest in the stock market and wait. That's what my clients have been telling me at least. They want cash now and so they come to our market here in Ohio.

I think the landlord friendly part is a bigger concern.  Because of the high costs of rents and the good appreciation, You don't have to scale to the same degree.  For example I have a client who nets about $1700/month off one of his rentals (2 units).  You might need 6 or 7 units to get the same results but with possibly more management (such as vacancies, calls, maintenance, etc). 

We have a STR duplex that we net ~$14K/month (rent - PITI). Then on top of that, it has appreciated over $4K/month over its hold period. 5 such properties would set one up real well. Unfortunately we only have one of these, but we have another 2 (but LTR) that have also appreciated over $4K/month over the hold period and they have good cash flow. One of these LTR has a rent to purchase price ratio over 2% (the other is too recent of an acquisition to have a great ratio, yet).

I agree in this market the initial cash flow in coastal CA is not good, but it improves fast.

The cash flow of a good Midwest buy n hold property is not going to match the average monthly appreciation of a poor coastal So Cal buy n hold property (our worst has done better than $1900/month over the hold period, we have three that have appreciated more than $4K/month over the hold period).

The regulations are LL unfriendly.  It is my belief that San Diego currently has the least LL friendly regulation (COVID related) in the country (evictions can only be for health and safety items - tenants can currently break the lease with impunity but in less than 60 days they will pay for their violations (assuming no extension)).  

But ...   Largely/partly due to low vacancy rates, the missed payments and eviction rate in coastal CA is some of the lowest in the country.  So the regulations are unfriendly, but they seldom are an impact (but if they are, it can be painful).

Good luck

@Rick Albert I just sold of my remaining OOS properties that were better than the 2% rule to buy negative initial cashflow multifamily in San Diego.

CA is landlord unfriendly, highly regulated. That also scares off plenty of investors. Having to negotiate with tenants to move out for compensation, dealing with different rent control rules for properties 0.3 miles apart (here in LA), these are headaches. 

The thing is, there's also a lot of opportunity, for that reason. If you can figure out how to navigate these waters, long term appreciation here is unbelievable. Same in NYC, another market with many of the same issues. For folks who either have well paying jobs or own another business that generates good income, it makes sense. For folks looking for shorter term cash flow to replace their work income, less so.