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Updated over 7 years ago, 05/08/2017
300k+ in equity in 3 years, low cash flow should I 1031 out of CA
In 2013 I had some good timing. Purchased a four unit apartment building, built in 1980 with major tenant and management issues. It cost me around $360k all in but I used an FHA203k loan so my out of pocket was around 25k all said and done.
Three years later, the rents are good based on purchase price but not compared to what its worth. Gross rents just under $50k net would be around $30k if not for the mortgage. I'm netting around $100 a door a month all said and done. The property recently appraised for $700k but more realistically I believe its worth $650k. I owe $340k on the property.
By end of the month, the last unit will be renovated. They all match, are built well and are in perfect landlord setup. Easy to maintain, clean out etc for the next tenant. All units have will have good tenants, solid leases and its turn key. I keep looking at what its worth, what little it collects and I'm nervous about the California market.
My main goal in 2013 was to own real estate, I thought appreciation would be possible and to leverage loans to get equity without my money. Now I've done that I am craving cash flow and lots of it. So this place doesn't meet the model anymore. I'm not certain as this is a newer thought process but if the goal is cash flow this isn't the best place to do that.
Has anyone else cashed out of California? Where did you go? How did you decide? How big of a place did you buy? What class of property did you buy? With the equity I have my thought was to shoot for a million dollar property and use the equity to cover my down payment. I didn't visit the place for a year as a test to see if it was possible to manage remotely and it went well. I know I'd need feet on the ground wherever I went though.
Any input is greatly appreciated.
Originally posted by @Dan H.:
Originally posted by @Tim G.:
Originally posted by @Arlen Chou:
@Tim G. Where is your property? I use to live near UTC on Eastgate Mall. $360k for a 4plex in San Diego could mean lots of different things based on the location. Is your "appraised" number from an actual appraiser or just from an agent? What is the make up of the units? Something seems wrong if your CF is only $100/month/door on a property that has doubled in appraised value. It feels like your rents are low... are you at market rates? I only ask because based upon my own limited experiences, when my appraised value doubled, my rents had also doubled and cash flow was great.
-Arlen
Arlen, it's in Ramona. Market is $1200 for nice units w a pool and carport or garage and a few more amenities. Mine are renting for $1050-1100 with more basic setup. I think I'm at or just below market on two but not a great deal.
Appraisal was from a bank, I see Escondido and spring valley units going around $700k that are similar.
Feel free to look for yourself it's 834 A St. Ramona, Ca
I claim to be an expert on Escondido duplexes to quads. I do rent surveys evert few months of Escondido properties. I did one one month ago for 2 BR units. The cheapest non apartment 2 BR in Escondido at that rent survey was $1700. I put ours on market at $1700 wanting to rent it as soon as it was ready. I had 3 tenants ready to move in when the unit was ready (1 did not pass our check so it went to the second). In Escondido studios go for over $1k. I do believe Ramona is lower than Escondido but I question how you did your rent survey? I think your rent is likely low but I do not claim expertise on Ramona rental market. If you have performed actual rent survey then you may be correct but if you have not actually looked at rent prices on Zillow, trulia, Craig's list I think you are low.
If you decide to sell, PM me ideally before committing commission to a realtor.
Good luck
Can you explain what a rent survey is and I'll see if it's close to what I'm doing.
There could some some difference if a duplex includes a yard, garage etc and is more residentially geared than true apartments.
Originally posted by @Chris Martin:
Originally posted by @Account Closed:
Tim it sounds like a Guru got a hold of you! My Grandad was born in the 00's. That's 1900's. Index funds didn't come about til the mid 70's!!! How about comparing a mid 70's purchase in SF using FHA or VA financing that was common at the time to yer fancy indexing?
The unadjusted (for inflation) return for the S&P500 from 9/1970 to 9/2016 would be 10,010.8% per https://dqydj.com/sp-500-return-calculator/
So $25K invested 9/70 would be $2.5M now.
If I purchased a $100k property (assume 25% down) in San Diego in 1970 it would very likely be worth well over $2.5M. My parent's first home purchased in 1969 with $2k down (10%: $19.5k value) is worth over $500k today and it is not in any area of exceptional appreciation (it was in East Chula Vista). Their second home purchased in 1977 for $72k (they put down less than $10k is worth over $700k today). A property I purchased in 2012 for $300k is worth ~$600k today (I put 20% down). Each instance beats the S&P. Between my RE and family RE San Diego purchases we have 10 purchases and all were financed and all have significant better return than S&P for same duration as purchase duration.
Originally posted by @Tim G.:
Originally posted by @Dan H.:
Originally posted by @Tim G.:
Originally posted by @Arlen Chou:
@Tim G. Where is your property? I use to live near UTC on Eastgate Mall. $360k for a 4plex in San Diego could mean lots of different things based on the location. Is your "appraised" number from an actual appraiser or just from an agent? What is the make up of the units? Something seems wrong if your CF is only $100/month/door on a property that has doubled in appraised value. It feels like your rents are low... are you at market rates? I only ask because based upon my own limited experiences, when my appraised value doubled, my rents had also doubled and cash flow was great.
-Arlen
Arlen, it's in Ramona. Market is $1200 for nice units w a pool and carport or garage and a few more amenities. Mine are renting for $1050-1100 with more basic setup. I think I'm at or just below market on two but not a great deal.
Appraisal was from a bank, I see Escondido and spring valley units going around $700k that are similar.
Feel free to look for yourself it's 834 A St. Ramona, Ca
I claim to be an expert on Escondido duplexes to quads. I do rent surveys evert few months of Escondido properties. I did one one month ago for 2 BR units. The cheapest non apartment 2 BR in Escondido at that rent survey was $1700. I put ours on market at $1700 wanting to rent it as soon as it was ready. I had 3 tenants ready to move in when the unit was ready (1 did not pass our check so it went to the second). In Escondido studios go for over $1k. I do believe Ramona is lower than Escondido but I question how you did your rent survey? I think your rent is likely low but I do not claim expertise on Ramona rental market. If you have performed actual rent survey then you may be correct but if you have not actually looked at rent prices on Zillow, trulia, Craig's list I think you are low.
If you decide to sell, PM me ideally before committing commission to a realtor.
Good luck
Can you explain what a rent survey is and I'll see if it's close to what I'm doing.
There could some some difference if a duplex includes a yard, garage etc and is more residentially geared than true apartments.
This is what I do when I do a rent survey: I create a spread sheet that has columns for rent, BR, BA, parking spots (garage, car port, or just off street), yard, supplied Gardner, utilities covered, a notes column. I typically start with Craigslist and search for rentals in Escondido filling out a row for each listing. In the notes I place reasons why a prop is not a good comp as well as identifier info in hopes of avoiding counting the same property more than once. I then do the same for Zillow and trulia. In Escondido Craig's list has lower rents listed than Zillow or Trulia. When I'm done I know the range of rents for comparable properties. If your quad has no yard maybe apartments are fair comp but all of my units have a yard so I mostly try to exclude apartments from the comp and if I have to include them I do so discounting them because they have no yard. The rent survey takes me over an hour and probably close to 2 hours. If I have no turnover in a year I do about 2 rent surveys per year. I of course do one every time I set rent upon tenant turnover; fortunately we do not have much tenant turnover.
I did a quick look at CL. Ramona has significantly less rentals than Escondido and apartments rents for 2 BR start at $800 ( this is about $400 less than Escondido - you cannot get a studio for $800 in Escondido). The 2 BR apartments averaged about $1100 to $1200. However there was only one 2 BR with a clearly identified yard. It was $1700. I suspect CL will be lower rent than Zillow or Trulia only because that is what I see in Escondido.
Good luck.
Originally posted by @Account Closed:
@Tim G. What if three years ago you chased OOS cash flow with $25,000. What would you have today?
Now you have $300,000. You have the opportunity to chase cash flow. Why do you think the result will be different?
I totally agree, at that time in the cycle. The play was appreciation. I went all in and got my hands on two properties and realized equity gains in the range of $500-600k combined.
But... appreciation isn't the play in this cycle. That is why I think if I kept this rental, I could be posting on here 5 yrs from now and the equity gain would be either less than current or equal. I don't anticipate it to continue in the next 3-5 years.
Originally posted by @Tim G.:
Originally posted by @Account Closed:
@Tim G. What if three years ago you chased OOS cash flow with $25,000. What would you have today?
Now you have $300,000. You have the opportunity to chase cash flow. Why do you think the result will be different?
I totally agree, at that time in the cycle. The play was appreciation. I went all in and got my hands on two properties and realized equity gains in the range of $500-600k combined.
But... appreciation isn't the play in this cycle. That is why I think if I kept this rental, I could be posting on here 5 yrs from now and the equity gain would be either less than current or equal. I don't anticipate it to continue in the next 3-5 years.
Seems like you have a very short term mindset. If you want to be a successful buy-and-hold investor, then you will need to transition to a long term mindset IMO, that means looking beyond just this or the next cycle or trying to time when and where the cycle will turn. If you can't or don't wish to focus on the long term, then I honestly think you should stick with flipping and wholesaling. Applying short term thinking to buy-and-hold RE investing could be hazardous to your financial well being in my opinion and experience. The only important short term consideration for me is to stress test to ensure can I afford to hold the property through the short term ups and downs, the rest of my focus is on long term ... it wasn't always this way for me, my brain had to be beat into submission the hard way.
Originally posted by @David Faulkner:
Originally posted by @Tim G.:
Originally posted by @Account Closed:
@Tim G. What if three years ago you chased OOS cash flow with $25,000. What would you have today?
Now you have $300,000. You have the opportunity to chase cash flow. Why do you think the result will be different?
I totally agree, at that time in the cycle. The play was appreciation. I went all in and got my hands on two properties and realized equity gains in the range of $500-600k combined.
But... appreciation isn't the play in this cycle. That is why I think if I kept this rental, I could be posting on here 5 yrs from now and the equity gain would be either less than current or equal. I don't anticipate it to continue in the next 3-5 years.
Seems like you have a very short term mindset. If you want to be a successful buy-and-hold investor, then you will need to transition to a long term mindset IMO, that means looking beyond just this or the next cycle or trying to time when and where the cycle will turn. If you can't or don't wish to focus on the long term, then I honestly think you should stick with flipping and wholesaling. Applying short term thinking to buy-and-hold RE investing could be hazardous to your financial well being in my opinion and experience. The only important short term consideration for me is to stress test to ensure can I afford to hold the property through the short term ups and downs, the rest of my focus is on long term ... it wasn't always this way for me, my brain had to be beat into submission the hard way.
Possibly..
But if I were to post on here that I have a contract to buy a rental for $675k that brings in $4200 a month in rents this forum would not support buying. Yet when I own that same property, the consensus is to keep?
My mindset is to evaluate and strategize what is best for my personal goals based on market indicators. That isn't short term, I'm popping the hood to my rental business and deciding if its doing what I need it to. A lot of investors would be wise to do the same.
Sitting on a couple million in real estate with low cash flow so your kids can cash in when you die doesn't sound that appealing to me.
Originally posted by @Tim G.:
Originally posted by @David Faulkner:
Originally posted by @Tim G.:
Originally posted by @Account Closed:
@Tim G. What if three years ago you chased OOS cash flow with $25,000. What would you have today?
Now you have $300,000. You have the opportunity to chase cash flow. Why do you think the result will be different?
I totally agree, at that time in the cycle. The play was appreciation. I went all in and got my hands on two properties and realized equity gains in the range of $500-600k combined.
But... appreciation isn't the play in this cycle. That is why I think if I kept this rental, I could be posting on here 5 yrs from now and the equity gain would be either less than current or equal. I don't anticipate it to continue in the next 3-5 years.
Seems like you have a very short term mindset. If you want to be a successful buy-and-hold investor, then you will need to transition to a long term mindset IMO, that means looking beyond just this or the next cycle or trying to time when and where the cycle will turn. If you can't or don't wish to focus on the long term, then I honestly think you should stick with flipping and wholesaling. Applying short term thinking to buy-and-hold RE investing could be hazardous to your financial well being in my opinion and experience. The only important short term consideration for me is to stress test to ensure can I afford to hold the property through the short term ups and downs, the rest of my focus is on long term ... it wasn't always this way for me, my brain had to be beat into submission the hard way.
Possibly..
But if I were to post on here that I have a contract to buy a rental for $675k that brings in $4200 a month in rents this forum would not support buying. Yet when I own that same property, the consensus is to keep?
My mindset is to evaluate and strategize what is best for my personal goals based on market indicators. That isn't short term, I'm popping the hood to my rental business and deciding if its doing what I need it to. A lot of investors would be wise to do the same.
Sitting on a couple million in real estate with low cash flow so your kids can cash in when you die doesn't sound that appealing to me.
I would support a decision to buy at $675k property that brings in $4200 a month in rents under the right terms and in the right neighborhood, and an apples-to-apples comparison would be 675k less transaction fees and taxes (if applicable) that you would net on sale, but that's beside the point. You want to look for short term returns (5 years or less) rather than longer term, that's fine, nothing wrong with that ... in that case my advice stands, I'd advise you to stick with wholesaling and flipping, not buy-and-hold. For your mindset and goals as I understand them, I would sell, pay the taxes, and use the money to flip and wholesale locally, and feel free to take off and enjoy yourself with the profits in between projects ... either that or hold and don't sell, and keep as a totally passive investment, or 1031 into another local 1-2 year value add play that you could hold if the market turns and you need or choose to, which doesn't seem like what you want to do ... I wouldn't 1031 the property out of state, because it doesn't seem like it would be the best fit for your goals and with your mindset I think could prove hazardous. I know you will likely disagree with the last statement, but this is my advice based on personal experience investing out of state, and seems like the advice of many other experienced locals; it is not likely to yield the results you are thinking you can get ... it is much harder if not impossible to apply the same methods you use locally and expect similar results out of state. Good luck whichever path you choose.
As Spiderman says, "With great appreciation comes good rent growth." Or something like that. Seriously, generally my markets have a .008 RTP ratio. I would expect your rents to catch up with the appreciation. In my markets I'd be expecting $2400 rent growth.
Newbie here. I agree with your intent to sell and take the money elsewhere. That is what meets your particular criteria at the moment. Other investors in this thread decided to hang tight through multiple storms and have benefited from their extreme patience. Doesn't mean you need to do the same.
At one of the meetups I regularly attend the guy who runs them always says the same thing. "Every wealthy real estate investor I talk to always tells me that they sold two years too soon." You've got the appreciation you were anticipating and now you can take it elsewhere.
Also isn't an important metric return on equity? If the ROE you're seeing from this rental is worse than what you'd get if you used the equity to purchase other cash flowing rentals, isn't that what you want?
Best of luck and look forward to reading about your decision.
Originally posted by @Pete Perez:
At one of the meetups I regularly attend the guy who runs them always says the same thing. "Every wealthy real estate investor I talk to always tells me that they sold two years too soon." You've got the appreciation you were anticipating and now you can take it elsewhere.
And the lesson is that you should HANG onto your investment to be wealthier. Did that go completely over your head?
Tim, it just occurred to me that you should reach out to @Erik Nowacki or perhaps he could chime in on this discussion. He literally has done almost the exact kind of thing you are contemplating. He 1031 exchanged a multi family in Ramona for a larger multi family in Memphis. While I personally wouldn't advise it, he has done it, and short of not doing it has done it in a fashion that I think would be the best, which is to say he physically moved from SD to Memphis to be hands on in a value add multifamily repositioning there. I haven't heard an update on how that is going for him ... he was active on BP and then kind off dropped off, which is not generally a good sign; hope I'm wrong on that for Erik's sake and that he will chime in with an update and guidance for you based on his personal experience ...
Originally posted by @Tim G.:
Originally posted by @David Faulkner:
Originally posted by @Tim G.:
Originally posted by @Account Closed:
@Tim G. What if three years ago you chased OOS cash flow with $25,000. What would you have today?
Now you have $300,000. You have the opportunity to chase cash flow. Why do you think the result will be different?
I totally agree, at that time in the cycle. The play was appreciation. I went all in and got my hands on two properties and realized equity gains in the range of $500-600k combined.
But... appreciation isn't the play in this cycle. That is why I think if I kept this rental, I could be posting on here 5 yrs from now and the equity gain would be either less than current or equal. I don't anticipate it to continue in the next 3-5 years.
Seems like you have a very short term mindset. If you want to be a successful buy-and-hold investor, then you will need to transition to a long term mindset IMO, that means looking beyond just this or the next cycle or trying to time when and where the cycle will turn. If you can't or don't wish to focus on the long term, then I honestly think you should stick with flipping and wholesaling. Applying short term thinking to buy-and-hold RE investing could be hazardous to your financial well being in my opinion and experience. The only important short term consideration for me is to stress test to ensure can I afford to hold the property through the short term ups and downs, the rest of my focus is on long term ... it wasn't always this way for me, my brain had to be beat into submission the hard way.
Possibly..
But if I were to post on here that I have a contract to buy a rental for $675k that brings in $4200 a month in rents this forum would not support buying. Yet when I own that same property, the consensus is to keep?
My mindset is to evaluate and strategize what is best for my personal goals based on market indicators. That isn't short term, I'm popping the hood to my rental business and deciding if its doing what I need it to. A lot of investors would be wise to do the same.
Sitting on a couple million in real estate with low cash flow so your kids can cash in when you die doesn't sound that appealing to me.
Do you have any kids? Curious, since we keep hearing about this fear of leaving a large will to your (future?) kids. What is wrong with leaving a legacy? Don't raise entitled, ungrateful kids. Simple. You don't have the confidence in yourself to produce hardworking, responsible, and upstanding offspring? Step your game up!
I don't have any kids personally, but I am moving my liquid capital into turnkey properties. I actually plan on making $0 on them, and I am okay with that. Are you? The "cash flow" will just be our own money coming back to us.
Even a crappy appreciation play, in my experience, yield a better ROI than a strong cash-flowing property. The math just does not pan out for these turnkey properties, which is a bit worrisome if I'm honest.
Originally posted by @Andrey Y.:
Originally posted by @Tim G.:
Originally posted by @David Faulkner:
Originally posted by @Tim G.:
Originally posted by @Account Closed:
@Tim G. What if three years ago you chased OOS cash flow with $25,000. What would you have today?
Now you have $300,000. You have the opportunity to chase cash flow. Why do you think the result will be different?
I totally agree, at that time in the cycle. The play was appreciation. I went all in and got my hands on two properties and realized equity gains in the range of $500-600k combined.
But... appreciation isn't the play in this cycle. That is why I think if I kept this rental, I could be posting on here 5 yrs from now and the equity gain would be either less than current or equal. I don't anticipate it to continue in the next 3-5 years.
Seems like you have a very short term mindset. If you want to be a successful buy-and-hold investor, then you will need to transition to a long term mindset IMO, that means looking beyond just this or the next cycle or trying to time when and where the cycle will turn. If you can't or don't wish to focus on the long term, then I honestly think you should stick with flipping and wholesaling. Applying short term thinking to buy-and-hold RE investing could be hazardous to your financial well being in my opinion and experience. The only important short term consideration for me is to stress test to ensure can I afford to hold the property through the short term ups and downs, the rest of my focus is on long term ... it wasn't always this way for me, my brain had to be beat into submission the hard way.
Possibly..
But if I were to post on here that I have a contract to buy a rental for $675k that brings in $4200 a month in rents this forum would not support buying. Yet when I own that same property, the consensus is to keep?
My mindset is to evaluate and strategize what is best for my personal goals based on market indicators. That isn't short term, I'm popping the hood to my rental business and deciding if its doing what I need it to. A lot of investors would be wise to do the same.
Sitting on a couple million in real estate with low cash flow so your kids can cash in when you die doesn't sound that appealing to me.
Do you have any kids? Curious, since we keep hearing about this fear of leaving a large will to your (future?) kids. What is wrong with leaving a legacy? Don't raise entitled, ungrateful kids. Simple. You don't have the confidence in yourself to produce hardworking, responsible, and upstanding offspring? Step your game up!
I don't have any kids personally, but I am moving my liquid capital into turnkey properties. I actually plan on making $0 on them, and I am okay with that. Are you? The "cash flow" will just be our own money coming back to us.
Even a crappy appreciation play, in my experience, yield a better ROI than a strong cash-flowing property. The math just does not pan out for these turnkey properties, which is a bit worrisome if I'm honest.
I am NOT looking to buy turn key properties. Multiple posts here I have stated that. They are a horrible idea and do not fit my model.
The only way I was considering selling my CA apartment building was to 1031 from 4 units collecting 4k a month into a 1mil+ 20+ unit property in a solid steady market. Not Memphis or another war zone market.
Originally posted by @David Faulkner:
Tim, it just occurred to me that you should reach out to @Erik Nowacki or perhaps he could chime in on this discussion. He literally has done almost the exact kind of thing you are contemplating. He 1031 exchanged a multi family in Ramona for a larger multi family in Memphis. While I personally wouldn't advise it, he has done it, and short of not doing it has done it in a fashion that I think would be the best, which is to say he physically moved from SD to Memphis to be hands on in a value add multifamily repositioning there. I haven't heard an update on how that is going for him ... he was active on BP and then kind off dropped off, which is not generally a good sign; hope I'm wrong on that for Erik's sake and that he will chime in with an update and guidance for you based on his personal experience ...
Thanks for the info. Usually I'm on here least when I'm least busy so who knows. I'll reach out regardless.
Hi @Tim G. I cant comment on California and 1031, But can share with you that I also purchased a 4 unit block of flats back in 2012. after subdividing the units to separate titles and very good timing my 900k cost was now worth close to 2million. (this was in Auckland NZ which is the hottest market in the country). at that stage i figured out that the added equity could benefit me better if utilized to create more cash-flow. same like you, the rent to value ratio wasn't great.
So i sold it, paid tax on the gain and shifted the money to pay off debt on Commercial property we own which is triple net lease (tenants pay for 100% of outgoings) And never looked back.
now, the cash-flow is great and regarded as 100% income for servicing do to been net income investment. i feel that the money is working harder now. Just some food for thoughts.
Hi @Tim G., I am brand new to BP and still getting the hang of things here. I have a background in 1031 exchanges and thought I'd mention something concerning your plan to potentially 1031 your 4-unit in CA for a 20+ unit outside the state. As of 2014 the CA FTB requires anyone exchanging a property in CA for one in another state to file a 3840 documenting the deferral of the California-sourced capital gains so that they can hold you accountable to pay taxes on those gains if they are ever realized in a taxable sale down the road (this is often called the "California Clawback Provision").
This is unique to California. Let’s say that you exchange a property located in Washington for a property located in Oregon and defer your capital gains under IRC § 1031. Then you sell your Oregon property. Washington would not attempt to tax the Washington-sourced gains. Rather, Oregon would tax you on all of the capital gains realized upon the sale of your Oregon property—including the Washington-sourced gains that had been deferred.
Even California operates this way when it comes to the reverse situation; California levies capital gains taxes against non-California-sourced capital gains that happen to be realized in California. If you were to exchange a Washington property for a California property and then sell your California property, you would owe capital gains taxes in California against your original tax basis, not just the gains achieved on the California property.
If you're not careful you can wind up paying capital gains taxes twice. If you 1031 into a non-CA property and ever decide to cash out, you are very likely to have to pay capital gains taxes on the total amount of gain to the state in which you sell, and then pay CA for your CA-sourced gain.
You may be able to defer your gains indefinitely, or offset your tax burden in the year in which you sell by losses, write-offs, and credits, but this is something to be aware of when thinking about exchanging CA property for property out of state.
Hope this helps and good luck!
@Tim G. I think you should highly consider staying in California with your investments. Considering the fact that many of our local experts regularly take their worst performing properties and trade them in for something better is something you too should think about doing.
It's my understanding that Mike Cantu recently sold some of his Riverside homes and did a 1031 exchange into a single home in Newport Beach. Going from C or B neighborhoods into an A neighborhood and staying in California is going to be your best bet in the long run. Don't look for the cash flow here, that's not what California real estate is about; it's the equity growth as you have clearly seen with your 4-plex. Talk to you soon.
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Originally posted by @Account Closed:
Originally posted by @Sam Newell:
We have had quite a few California investors move their investments out here to Utah. I have found that most investors are finding 4-5% cap rates in California and I have sold multiple brand new fourplexes to my investors at 7.5% cap rates.
So what is the point of going from a high demand area (4-5%) to a low demand area (7.5%) ?
Low Demand? That's the great thing about our area, we are at a 15 year low in vacancies. Our economy is experiencing growth, new jobs, and lower than average unemployment. The point is leaving a 4-5% cap rate to a 7% cap rate would be cash flow and equity. A 2% difference in %Cap rate is $100+/- in equity at $500k. Our appreciation has been over 10% for investment properties for the last 3 years and is staying strong. That's why California ivestors are not leaving their money in low growth low return areas, Utah is just proving to be the better all-round investment. (Sorry for the delayed response, wife had surgery a couple weeks ago and life has been crazy)
@Tim
@Tim G.Thanks for this thread where I have been lurking. I bought 4plex quite some time ago (15 years) in a C neighborhood here in California (SF Bay Area). It has appreciated as well as been very good in the cash flow department. I have equity, and am considering the thoughts on this thread with excitement and trepidation. Like someone mentioned, I prefer to buy and hold in which case something in California looks more interesting when you add 10 years or so to now. Do you have your 300K available to leverage? Why not wait unit the market corrects? And yes, if you are cash flowing in the way that you say, then why would you give a decent return, especially in the area? Why 1031 at all? Forgive me if you answered this prior - so much reading with computer screens!
Tim G. If you're looking for cash flow then Utah or Texas is where our investors are moving their money to from California. I work with FIG and we have sold over $150M in multi family investments in the last 4 years here in Utah, around 50% of that is to out of state buyers and the majority of the out of state buyers are coming from California. We build brand new fourplexes & duplexes in nicer areas that are in high demand. You can get a fourplex that will appreciate 8-10% a year here that will also CASH Flow really well. The Silicone Slopes and our booming economy are driving the housing demand, and our diverse workforce/job base helped Utah not get hit as hard during the last recession. I'd be happy to answer any questions you have.
Originally posted by @Sam Newell:
Originally posted by @Account Closed:
Originally posted by @Sam Newell:
We have had quite a few California investors move their investments out here to Utah. I have found that most investors are finding 4-5% cap rates in California and I have sold multiple brand new fourplexes to my investors at 7.5% cap rates.
So what is the point of going from a high demand area (4-5%) to a low demand area (7.5%) ?
Low Demand? That's the great thing about our area, we are at a 15 year low in vacancies. Our economy is experiencing growth, new jobs, and lower than average unemployment. The point is leaving a 4-5% cap rate to a 7% cap rate would be cash flow and equity. A 2% difference in %Cap rate is $100+/- in equity at $500k. Our appreciation has been over 10% for investment properties for the last 3 years and is staying strong. That's why California ivestors are not leaving their money in low growth low return areas, Utah is just proving to be the better all-round investment. (Sorry for the delayed response, wife had surgery a couple weeks ago and life has been crazy)
You're a bit off on your assessment of what a cap rate measures. The point is that the nicest, most high demand properties sell at a lower cap rate. And you can't call California low growth. Check their appreciation rates compared to any other state over the past 20+ years.
Update: Not selling, but ready to
I decided to take a closer look at the place and see what I could do. Being on the outskirts of San Diego I think there's a chance for appreciation based on the city expanding. I cleaned up the property and made some small adjustments. I removed a lot of security lights as its a safer area now (cut electricity $50 a month), added palms out front and repaired damaged fencing, termite etc.
I added value by a taking small 12x12 area leading to unit 2's patio that was unused. I realized if I added a gate, it was a patio I could allow the upper units to share. Bringing the value of the units up $25-50 a month.
Two vacancies popped at the same time, thankfully one was the lowest rent ($1050 going to $1250). I also raised the rent on my last under market unit (+$60).
My overall plan is to have the place 100% turn key and ready should I want to sell, but operate with long term plans. I'll have my realtor license in CA soon which does help should I want to sell.
Monthly Income will be $4720 once both units are on new leases. Maintenance expenses have been high this year ($5100) due to termite, roof, landscaping, drainage etc. but all big ticket items are now done. Normal monthly expenses for everything hover around $2900 (loan, ins, elec, water, repairs etc)
Cash flow is improving, I'm glad I took time to reassess the property and adjust. Its shifting from D to C or something like that!
