Is California a bad place for REI?

Question

Hey everyone I'm relatively new to REI and have been cramming as much knowledge as i can over the last few months. I'm highly motivated but the more i research and the more people i talk to i hear the same thing. "You should move", "Theres no money in California", "Start investing out of state first to get started". Now I'm at the point in my life where i would not have a problem moving for greener pastures but not totally excited to jump up and leave my family( altho i will). I myself have leaned more towards Wholesaling to start out and get my feet wet but would like to hear my fellow BP members thoughts and opinions. Thanx, Rian

Rich Weese · Answer

Here is the reason I'm bearish on CA, NY etc. Two reasons

1. The bankrupt situation of CA and the taxes situation in NY. Both are big future problems for each state.
2. I always like having a second EXIT strategy. If I buy a property in CA, for example and am unable to flip it, I can't rent it for anywhere near an amount that makes it a good return or will be adaquate to pay the mortgage on it. I'd prefer a state where there is a lower median price and it will rent for a comparable amount to CA . Rich

Rich Weese · Answer

Good luck Rian,
     I agree wholeheartedly with Vikram on phase 1. Get your education, use your investor list and try wholesaleing. Once you are successful, have some $$$, have some good contacts on BP, then try the next step. Vikram and I disagree on that step. Maybe by then, El Centro will be improved and things will look up. I know that town somewhat!!!

Now the fun part of the story.

When I was fulltime RV'ing 7 years ago, a friend and his wife convinced my wife and I to spend part of a winter in the Big Bend RV and golf course. I played golf every day and   pitched for a couple slow pitch senior softball teams.  I recorded my 2nd and last Hole In One on the 4th hole of the Big Bend course. Crazy part was I didn't see it! The hole is straight uphill and a blind hole. My buddy and I looked all over before he finally found it sitting in the cup. Great day. Rich

Steve L. · Answer

I know a lot of people who are extremely successful in today's REI in California.

Some have deep pockets and are just earning a return on it.  Others myself, started with very little.

Pros
- I would venture to guess El Centro definitely has a lot of inventory that would "cash-flow".  For sure sub-100k, probably properties available sub-50k.
- The economy is heavily based around trade with Mexico (some people may call this a con)

Cons
- El Centro is a small market
- I'd have to agree that, very few people making a living wholesaling
- I think the county El Centro is in has the highest employment rate in the country.

Good luck.

Rich Weese · Answer

Vikram- I agree, sorta. If wholesaling really worked, then maybe I'd agree. Of all the "wholesalers" on here, I haven't read posts from very many that are successful. It doesn't hurt for the wholesaler to try.
      Now, IF the wholesaler is ever successful and saves money to do flips, then I'd be really concerned about trying to do it in CA because of items I mentioned in previous post. No second exit strategy if flip doesn't sell. Most wholesalers won't wait till they can pay cash. They'll get a HML and be in trouble if the property doesn't sell due to inability to pay loan. No 2nd stategy. If they were doing this in other areas or certain states, they could rent for enough to pay the loan.
      I realize there are ALWAYS exceptions to the rule. Having 40 years experience in CA and seeing the ups and downs at different times, this era is not good, imo.
    I agree that short term is less important. Just not certain CA would be a short term investment, especially for a newbie at the present time. Rich

Vikram C. · Answer

I am sure California is a great place for many short-term strategies such as wholesaling, flipping, short-sales, etc.  The Inland Empire and Sacramento are among the fastest-growing parts of the country so you will also find some good long-term opportunities there.

The reason many investors don't like California is because some of the more expensive coastal areas tend to have very low rent yields, making CAP rates and cash flows low in the initial years.  The government also seems to be a bit of a mess there although it is possible that the regulatory environment might get better instead of worse.

I would not move based on what you have said.  It is better to learn the business in a place that you are familiar with than in one you are not.  You probably also have established contacts in your area whereas you will have to start afresh in a new place.

Vikram C. · Answer

Rian, Rich Weese is a very experienced RE investor and I am a very experienced businessman.  We usually agree on most things but seem to have slightly different views on your situation.  That probably means that there is no one right answer to your dilemma.

Had you been in some other state and asked me whether you should move to El Centro to start your RE career, I would probably have advised against it.  But that's not your situation.  You are already there, your posts indicate that you are very familiar with that area and have already established RE contacts there.  You have also mentioned that you have family and friends there.  To me, those are very important things and a form of "capital."  I would not throw it all away and start afresh somewhere else.

I would suggest that you learn the business in your backyard, so-to-speak.  Once you have established a track record of success, and if you feel that your town is too small for the types of things you wish to do, then you can consider moving to greener pastures.  This is not the time to do that.

Good luck in your RE career and feel free to ask on BP for any help that you need.  The people here are very knowledgeable and helpful.

Tadd Bennett · Answer

I appreciate all the responses greatly. Unfortunately i do live in El Centro which has the highest Unemployment rate in the Nation. We have a good amount of foreclosures and myself have never heard of a wholesaler in my area. Bandit signs are not messed with because.. well theres just mine out there, lol. I have had success finding investors tho, I have accumulated a buyers list with about 8 people on there. Flippers, buy & hold, to a multi millionaire farmer who owns over 120 homes & properties. I even met a guy from Georgia who came here for the market, why he did that? i have no idea.
                                                            
                                                            Non important info for you :D ..
                                                            
                                                            El Centro is located in the So Cal desert bordering AZ and Mexico, and about a 1hr 45min drive to the nearest big city (San Diego). Population is a little over 44,000 last i heard, and with a population of around 170,000 for our hole valley. This year there has been over 300 homes sold in El Centro alone so properties due sell, altho a high % are foreclosures. Being close to the border we have a big population of US Customs and Border Patrol stationed here, as well as 2 State prisons. Since most of these employees dont orginally live here, upper high end rentals do relatively well here. Now the unemployment rate is thrown off a lot from our Mexico friends to the south, since they tend to come work for sesonal work then collect unemployment for 6 months out of the year, all while living in Mexico. Imperial Valley is huge for farming, put it this way, more than 2/3 of the vegetables consumed in the United States during the winter months are grown here in the Imperial Valley.
                                                            
                                                            Anyways im not sure why i shared all that but that's where im from so i just gotta work with what i got or move on. The market is so up and down here its just hard for someone with no experience to understand it all. Hopefully it works out but im determined to make it work in some way of fashion!.. Even if i have to move...
                                        
                                        Again Vikram, Rich & Steve thank you for your insights. Any other words of wisdom & experience will be greatly appreciated & absorbed.

Rich Weese · Answer

El Centro is REALLY the armpit of CA, imo.
    The first stategy is to sell wholesale. The second is to fix and flip to owner user. The 3rd is to RENT it and then sell as a turn key to investor. Rich

Vikram C. · Answer

Rich, I think there's a difference between RE investors with a lot of capital and people who are starting out.  For people with capital, it makes sense to invest in whichever state (or, in my case, country) offers the best returns.

But the OP is thinking of starting out wholesaling and perhaps will graduate to flipping once he accumulates some capital.  For him, it makes more sense to stay at home where he probably already knows the area well and can get help from his friends and family while he is starting out.  Don't you agree?

I also think that short-term investments are not very sensitive to location.  For longer-term investors, such as commercial property investors, location can make a big difference in their cash flows and returns.

Christopher W. · Answer

I'm in CA and have never heard of El Centro before just now. In fact I had to go look up where it is at. I don't know anything about the El Centro market, but it seems like a decent place to start a wholesaling/flipping business - especially if you already have investors to work with. I think you may run into a problem if you try to find retail buyers though. I don't see a lot of job growth or an influx of residents. High unemployment and foreclosures will just compound the problem.

Is California a bad place for REI?

Most Popular Reply