Hello everyone. I’m looking for some honest feedback from experienced investors here.

I recently analyzed a multifamily deal in California and wanted to share the numbers because it really highlights how challenging cash flow has become here, and why we are focusing on out-of-state markets.

32 units

Purchase price: ~$9.5M

Cap rate: ~5% (in-place)

Avg rents slightly below market but not massively under-rented

Light value-add potential (nothing heavy)

Financing: 70–75% LTV

Commercial multifamily debt around ~5–6% range

25-year amortization

DSCR target 1.25+

Once debt service was added:

Cash flow was basically neutral (or slightly negative early years)

Cash-on-cash ended up far below my target

Even with conservative rent bumps, it didn’t reach my minimum return threshold.

I kept asking myself, If cap rates are around 5% and debt is also around 5–6%… where is the cash flow supposed to come from?

From what I’m seeing, a lot of California multifamily seems to rely more on appreciation + tax benefits rather than strong day-one yield.

What I've found focusing on out-of-state multifamily:

Cap rates are higher

Cash flow is stronger

Targeting 10%+ cash-on-cash is more realistic

If you’re investing here in California, are you mainly betting on appreciation vs cash flow, or what's your strategy?

Would really appreciate hearing how others are approaching this market.

Thanks in advance, and I hope everyone has an incredible weekend.

Cheers.