Two words that don't go together: California and Cashflow

[Jordan Futch]

Where in California are people having the most luck finding cashflowing properties? I'm in the central coast and it seems as the costs are simply too expensive to make the numbers work.

-jordan

[Dan H.]

@Jordan Futch

San Francisco, Los Angeles, San Diego, Santa Barbara, OC, San Jose.  You may think I am joking but I am not.

There is initial cash flow (those cities do poor on this), projected cash flow (depending on rent appreciation used (how conservative are the estimates) those cities do OK on this), and actual cash flow (those cities do near top of nation on the actual cash flow).  The actual cash flow is the cash flow obtained over the holding period of the RE.  Those cities I am confident have either the best or near best actual cash flow in CA over the last 10 years, the last 20 years, the last 30 years, the last 40 years, the last 50 years.  Do you note a trend?

As RE appreciates, the rent appreciates. A year ago June (June 2018), I had looked at the average SFR rent increase for San Diego over the previous 3 years. The average SFR rent had increased ~$500 over those 3 years. I suspect if I did the exercise today the numbers would be close to the same. I invite you to do the exercise for any of the cities that I listed. I realize some of the areas have had rent control and all of the areas will have rent control starting soon but I expect you will see numbers similar to the San Diego numbers.

What does this rent appreciation imply?  It implies that the cash flow increases at a quick rate.  A purchase that in San Diego from June 2015 that was $250 negative cash flow at purchase would have close to positive $250 cash flow in June 2018.  By June 2019 I expect the cash flow would be positive ~$400 but have not actually looked at city wide rent increases in that time (I know all of my tenants got rent increases).

The higher appreciating cash flow area will always catch a slower appreciating cash flow area given enough time (it is simple math).  This is why those cities have been great to RE investors.