Buying in Norther California

[Kristi Miller]

Hello:

Although we live in Napa, CA, our real-estate portfolio is with properties in the midwest. We just understand that area the most. After looking at some multi-family properties here in Northern California I do not understand how anyone makes money investing here if you are a buy and hold person who prefers to buy properties already in good condition? The price of the property is much higher than the rents being paid. Any insight? Are most investors in CA paying cash for the property and investing for appreciation? as opposed to cash flow and high cash on cash return?

[Jay Hinrichs]

@Ali Boone

on another thread one poster asked how to amass wealth or great wealth, with great wealth being described at net worth of 5 to 10 million.

The point the CA investor makes is that it is wholly possible to get to the 5 million mark buy buying Passive CA neutral gear to slight negative gear properties. My point that I made was what I know growing up in Cupertino in the 60's and buying my very first home in Milpitas for 70k.. during the 60's and 70's you could buy a home for the same price in Palo Alto as you could in Kokomo Indiana or anywhere else in the mid west ( were Quote un Quote Cash flow homes are bought ) And if you say bought 5 of them in Palo Alto and kept them for rentals long term One they would have cash flowed like crazy after 10 years or so. And 2 they would be worth today 7.5 million for 5 of them and you paid 30k for them back in the 70's same with ?Cupertino.

Now you could have paid 30k for a home in KC, Memphis, Indy, virtually any of the soup de jour cash flow towns.. same time frame same price points. Well those homes today are worth... Yes maybe 60k and they would not have cash flowed over time anywhere near the CA properties.

So what I tried to point out is this is just regional and in a lot of ways was just luck and passive investing to the extreme.. Just happened to live in one of the greatest place's on earth and the market took you for a ride.

@Account Closed

Bob what would you have paid for a Honolulu home in the 70's that's worth 500 to 1.5 today... I know one of my bizz partners just bought a fixer for 1.5 over on the other side of Diamond head.. right across the street from that crazy Japanese billionaire that owns all those ocean front places that sit vacant.. I heard Baldwin bought all of that for 100 mil or so..

Out of state is fine for some but as Bob points out its not a big money game its a slow cash flow game and your cash flow can go backwards on you very quickly if you don't have the right teams in place. or you guy low end C property and live in CA and expect it to perform like A or B.

One thing about CA.. the market will take care of bad rental situations over time. Bad rental situations in the Mid west cash flow market ( IE bad tenant loss of value because of trashed home or what Ali described as she lost money getting her rentals straightened out) Can in many instances never be recouped.

@Mike D'Arrigo

One must always remember that in the foreclosure epidemic half of the foreclosures came from Land lords that failed... And logic only dictates why would a land lord fail... and let a property go.. 1. because its not performing ( biggest reason) 2. strategic default property so far underwater and rents don't cover the investor walks..

I know of one Terrible turn key outfit out of Salt Lake that I did a few HML with back in 05 and then saw what they were doing with the long term buyer and I stopped after 2 or 3 loans. But someone else funded it and the owner of the TK was also a mortgage broker and they did about 100 homes in this one town ( all in the lowest price ranges) Many never got rented all of them had conventional loans on them and ALL went to foreclosure over the ensuing years as investors just walked.

Out of area investors Need to proceed with Ultra caution and make sure those they work with have impeccable creds.. And then choose the high end of the market not the low end.. Low end is just plain tough and a Huge Risk in my mind.