All Forum Posts by: Osazee Edebiri

@Osazee Edebiri I actually ran something close to your hypothetical back in 2004. I took a $400,000K HELOC from my primary residence in Marin County and purchased eight properties in Rochester NY - mix of a duplexes and SFR's on the theory that California property served as a kind of "stock" and that I needed some "bonds" in my portfolio. I ended up selling most of the Rochester properties in 2014-15 at a rough break even point as there was little appreciation on most and the cash flow was mostly eaten up by capital improvements and repairs. Had I used the $400K to purchase another Marin County fixer I would be up another seven figures today. Easy. Of course, one example proves nothing but I here's a data point/some food for thought.

P.S. nothing against Rochester.  It's a great place to invest but you have to run the numbers and then run them again figuring that the weather and taxes are going to have an effect on your bottom line.  

Markets find equilibrium. There's no better or worse, it depends on goals etc.

If you want cashflow next month, you buy a dumpy little $100k place in a midwest warzone with a monster cap rate and nominal cashflow. You need the cashflow to patch the bullet holes. It's worth $100k today because it doesn't appreciate, it was also worth $100k (in inflation adjusted terms) 10 years ago.

If you want wealth 10 or 15 years from now, you buy in a ritzy California location (San Jose, Hollywood, whatever) and watch one of our regional engines of the global economy lift all boats. Prop 13 is the icing on the cake, I've seen more than a few >$1m homes with annual property tax bills below $2k. Pair that with a fixed rate mortgage and rents trending up over time, and you've got the ultimate inflation hedge. A rental home per kid is a really good college savings plan.

Most people don't have, or want to have, the dial entirely set to either extreme. It's not fun to bleed cashflow for a decade with a-paper self-employed tenants who cannot qualify for a mortgage because they, like many higher income people, cheat on their taxes, nor is it fun to dodge bullets while posting eviction notices. 

Somewhere in the middle is where most fall, where the goals are aligned. The upper half of that dial, modest cashflow, lower maintenance tenants, with stronger than average appreciation, California has aplenty. The lower end of that dial, strong cashflow but weak appreciation, and high maintenance tenants, is where much of California comes in weak.

For people that go multiple directions at once, mixing it up for diversity early on, laziness eventually compels them to shift more towards the modest cashflow with lower maintenance tenants and higher appreciation direction. Or maybe they just get older, want to hustle/evict/etc less, and have more things in life on auto-pilot, or at least closer to it. Or maybe they got sick of property tax increases outpacing rent increases in locations without something similar to Prop 13.

But, yeah, that's the pattern. Young eager hustlers chase cap rate and cashflow, get wiser & more conservative as they age. Meme stocks are great when you're 23, not so much when you're 43, same thing.

 California’s property tax is typically ranked as 15th or 16th lowest in the nation. 

Endless regulations still result in one of the lowest eviction rates and lowest rent delinquent rates in the country. 

Case Shiller shows the 3 best returns for residential property for this century are coastal California cities.  

neighborhoodScout has virtually every California coastal city as 10 out of 10 in appreciation for this century. 

Every reputable source shows coastal California has produced better returns for this century than other large residential RE markets. 

Volatility of coastal Ca is a myth.  Virtually every coastal Ca city has had few significant depreciation cycles.  The coastal Ca cities recovered from the Great Recession faster than the bulk of other cities.

Your old timer wisdom would not have served you well in the recent past.  Question is how would it serve you going forward.  My opinion, not well.  

You're incorrect here. I understand you are biased towards Cali, and that's ok as long as you realize that. But there are no other states with the over regulation that Cali has. Zero. I lived and owned many businesses and properties there for over 40 years, longer than you've been alive.

And if someone decides to squat in your Bay Area Mansion the State Law will protect them, it's a State issue and then County, not neighborhood. (Although I get that you're saying that rich areas will treat it differently, the elites never follow their own rules)

@Osazee Edebiri

Here's my argument against California (besides the obvious regulation and rent control).  If I were going to invest $1M, I wouldn't buy $1M worth of property.  I would leverage it and buy $4-$5M worth of property.

At that point, I wouldn't expect to be able to cashflow that in California currently, so I'd have to make up some of that $3-$4M worth of mortgage payment out of pocket (not happening.  I'm just a teacher!  haha.) 

However, I could buy properties in Jacksonville that would cashflow (and most likely appreciate too).

The problem with appreciation is that it doesn't help if you can't hold onto the property long enough to realize it.  Some of us need cashflow too...

Don’t forget. Huge state income tax on that capital gain, even if you do a 1031 out of the state. You’re betting on California versus Miami, versus, Austin or Dallas, versus I dunno, Puerto Rico. Suddenly you’re facing rent caps and relocation fees a ban on no-cause evictions. You can not imagine what California will think of in the next 15. 

Their ideas in the last 12 months. Tax billionaires, even if they leave the state. Pay fast food workers $22/hour. 25% tax on anyone that sells a property within 5 years of purchase, any vacant hotel rooms must be made available to the homeless, stealing less than $1,000 isn’t a crime, protests against cleaning up parks, free drug needles, camping on the sidewalk and in peoples yards is a right, etc etc etc. 15 years ago NONE of these things would have been predicted. 

I’m not saying you can’t make money in California, lots of people doing it. On the other hand. If you didn’t live there you wouldn’t consider it. Why would you want to invest where they actively HATE you  

“If San Diego wasn’t in California I’d move there tomorrow.”  (Assuming it was still in the US not Mexico…)

I am a new investor in the San Diego area and I am weary of investing here/ California for multiple reasons.... the income tax on rentals is high... like the above poster stated the tenants can essentially squat here with out paying rent and landlords have no rights... and this is not the same California of even 5 years ago. The state is overrun by crime and homelessness, people are leaving this state in a mass exodus as are corporations. 

California offers high property taxes, tenant friendly laws to a fault, ENDLESS regulations and more volatility than anywhere in the country. Old timer type wisdom would tell you to invest elsewhere and I would have to agree.

All other things being equal, I would say a property in Southern California that is not too far inland will perform better than any place else in the country.

But I would not say that for the rest of california, no. I think that there are many other parts of the US that will begin to outperform the bulk of California.

I lived in California for decades, and just recently left. I have had properties that I bought here perform even better than California properties to be honest.

At least as far as appreciation is concerned.

@Osazee Edebiri

Where is dictated by how you want to invest and how much you have to place.

For me, 1 million dollars does better in TN than CA over 15 years. If there was substantially more to invest or I wanted to be more passive, then CA would be more appealing.