Southern California Investment

[William Smith]

Hello, My name is William Smith and I'm new this website. I wanted to introduce myself and ask my first question here. 

I am not very familiar with California Real Estate market since I'm not from here but I live in San Diego, CA. Currently the prices have doubled since a couple of years ago. What is your take on the market now and how do you see the prices in the next couple of years? What is your method of investment in the current market?

Thank you for you time in advance

[Jeff Petsche]

@William Smith I am born and raised in Southern California and have been in real estate since 2003 as a real estate Broker/Agent representing buyers/sellers/flip investors.

Your SD market is insanely expensive, as is my area of Orange County. Yes prices are more affordable the more INLAND you go (San Bernardino and Riverside Counties), but IMHO I don't believe BUY/HOLD investments pencil in our areas.

To confirm my hypothesis, I have analyzed over 200 deals from investment properties that SOLD in the MLS, took the numbers I had to work with from the listing agents, and NONE even came close to respectable numbers. The rent/value ratios are .05 or lower, CAP Rate average was about 4% and COC was less than 6%, so maybe you will have to go out to Bakersfield, Victorville, Hesperia, Beaumont, Indio and other high desert markets to make it work. The risk with these investments is when the correction in CA comes, these areas get hit HARD and FAST. If you buy in CA with the speculation of appreciation year after year after year, then I believe you are just gambling and not looking for the long term wealth.

I suggest you WAIT until we get back to a Buyer Cycle I and II and then ride the Seller Cycle I and II wave next time around. I believe we are currently in a high point of Seller Cycle II. I know many investors in our areas who bought their SFR/Condo buy/hold properties at the right time (Buyer Cycles I and II), are now unloading their properties because they made stupid equity, and are doing 10-31 exchanges into multi-family properties out of state.

Prices in our areas of SOCAL have been rising since 2011 because of LOW INVENTORY and HIGH DEMAND. As long as this trend continues, I do believe prices will continue to rise about 5-6% per year. However, when the "correction" comes, and it will because it always does and we are close to the end of our UP CYCLE, property values could (and probably will) drop double digit percentages. Why, because CA is the king of BOOM/BUST states.

Me personally, my girlfriend and I have decided to RENT in CA at this time because of over inflated prices and we are investing some of our cash into Out of State BUY/HOLD properties, and keep some cash for when we decide to buy back into CA when prices drop (my projection 12-18 months).

We are looking at SFR and multi-family properties in Indianapolis, IN, Kansas City, MO, Oklahoma City, OK and Columbus, OH. Criteria: We are looking to incorporate the BRRRR strategy and focus on properties that hit the 1% rent/value ratios, COC of no less than 12% in great B/C neighborhoods with appreciation of 3% a year. These markets don't typically get hit very hard when there is a correction and properties still cash flow, which is what we focus on, not the appreciation because we will hold these properties 15-20 years, unless we sell and buy UP into bigger units.