All Forum Posts by: Matt Mason

@Ewa Reza 

I do know people that do these kind of deals in Los Angeles, but they pay roughly $20-$40k for each tenant to move.  Combine that with a $25 - $30k per unit rehab and you are talking about an additional $250k investment so you gotta have a fair amount of cash.  Like I said, they have to get them at a serious discount compared to a building where rents are at market for this to work.

You are talking about the Ellis Act.  There are serious restrictions on the use of the Ellis Act and it is in effect to essentially let an owner to take an option to go out of business (the rental business).   You can't just re rent the property as you wish.  To rehab the property, you are going to have to buy the tenants out in almost any case in LA.  The only way a property like this would work is if you got it at an enormous discount.  The previous owners likely destroyed hundreds of thousands of dollars in value by their poor management.

I think another reason for higher prices have to do with Prop 13.  Since property taxes are the biggest operating expense, this is a huge benefit.  Seems like people don't consider this enough.

Also, I really think and have read quite a bit of research into the fact that we are splitting into two societies.  One is a knowledge based economy that innovates and is highly educated.  These areas will be concentrated in the places you think of now - the Bay Area, Seattle, Denver - Boulder, Austin, Raleigh, etc...  The places with high concentrations of blue collar workers that don't innovate will really struggle.  A lot of this has already happened.  People are finding out just being in a cheap area is enough to attract companies and people, but that just isn't true.

CA gets a lot of flak over its business climate, some of which is deserved.  However, people forget probably the most important business factor and that is the ability to innovate and foster research.  In many cases companies and ideas start in places like CA and other states can only hope to get some of the manufacturing or back office down the road, because they can't hope to start companies on the same level, because they don't have the culture and concentration of research universities.

Yes, that is correct in my experience.

I think people forget about rent growth when they are talking about appreciation.  Over time, rental growth of 4% annually makes a big difference in cash flow over one that only grows 2%.  Replacement cost seems to be one of the most underappreciated metrics here on BP (although I realize it is harder to get a feel for than running a pro-forma on a property).

I see people usually talk down states like Illinois and CA over tenant friendly laws. 

@Account Closed , what are your thoughts on this?  I only have 7 units over a few years and only had a few days of vacancy over that time, much less any evictions, but I am in $1,500 + units.  I am sure it may make more of a difference in lower income and non-urban areas.  I just don't see anyone here ever struggling with long evictions.  I know if you don't follow the rules, it can be a very long process but it seems a little over done as an issue people bring up.

@Nathaniel Busch , it doesn't work that way even though you're thinking is rational. I will say it is very controversial and I believe it is still in the courts.  Pretty much anyone in CA that has any experience with out if state LLCs can back me up on this.

Realize, you will have to pay the $800 CA fee even if the LLC is set up in Ohio as it should be. Any LLC where the ultimate beneficiary's address is in CA owes the fee. This is different from other states unfortunately as CA is very aggressive about LLC fees.

I would seriously consider whether you need a LLC or whether you can live with umbrella insurance. Technically, the lender has a due on sale clause on just about every loan and can call the loan due when you put a property in a LLC. This hasn't happened much over the last 30 plus years as rates have dropped, but if rates start rising, this clause might be enforced much more than in the past.

Some issues to think about.

I will be able to make it as the timing works great for me (celebrating Mother's Day the next week) and it is always nice to catch a sunset in Malibu.

Timing is def. important in CA. 2005 and 2006 hurt some people in many parts of the country. A couple other things I meant to mention are that property often trades hands a little less often and many of these older owners have tiny basis and prop tax and may not be charging market rents because there isn't as much incentive to given that they are making good money anyway and why deal with turnover.

There is also a hybrid between flipping and holding. In other words fix and hold and in the right situations this can be quite effective in CA.

With that, cash is king so I find it nice to have a mix of high cash flow investments and some longer term value add plays.

@Kristi Miller I think a lot of people in out of state investing might not always consider the 5-10 years from now. A lower cash on cash return property in a decent area where there are high barriers of entry in 5-10 years might be yielding more money than an initially higher cash on cash property.

States like CA and Oregon have property tax caps. The savings from this might not mean much in the first few years of ownership, but after ten years they can be pretty significant.

It doesn't have to be all appreciation or all cash flow. There is a medium spectrum too. Anyway my two cents.