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Updated about 2 years ago, 11/21/2022
California Vs Out of State (really, but why?)
I think the constant discussion of California vs anywhere else is intriguing. So I pose a question. Hypothetical, if a person had a 2 million dollars to invest, they purchased property with 1 million in California and 1 million in any other state, which would perform better after 15 years and why?
This assumes anything and everything will happen, which is the real life case anyway. I am not automatically assuming California will perform better just because I live here in the Bay Area. I think someone may have interesting incite to why another state could out perform California property in the next 15 years.
The landlord law issues are a non issue in good areas. Same on the northside of chicago I have never had a single client out of the 40 million in multi units I sold need to do an eviction. But then go to the south side and you have lots of evictions where the laws do come into play. I think biggest reason people invest out of state is for cashflow. Appreciation is great but not guarenteed.
Quote from @Osazee Edebiri:
I think the constant discussion of California vs anywhere else is intriguing. So I pose a question. Hypothetical, if a person had a 2 million dollars to invest, they purchased property with 1 million in California and 1 million in any other state, which would perform better after 15 years and why?
This assumes anything and everything will happen, which is the real life case anyway. I am not automatically assuming California will perform better just because I live here in the Bay Area. I think someone may have interesting incite to why another state could out perform California property in the next 15 years.
There are so many factors that you need to consider in this question. What type of investment? STR, LTR, BRRRR, etc. In general, California will have better appreciation than any other state.
I work specifically with LTR investors in California, so I've been able to see first hand how their property can scale 10x in 10 years, given they play the market right. It's insane how much appreciation properties accumulate even with minimal renovations.
Out of state, there is a huge market for STR and the BRRRR strategy.
In my opinion, this comes down to long term vs. short term investing. If you invest 1 million dollars in California, you are going to have appreciation that doesn't require constant renovations etc. If you invest out of state, you will need to be hands on in order to get the same appreciation.
I'd love to connect,
Ethan B. Hanes
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Well it's not going to cash flow in California and there's such an outflow of people from California with a lot of negative trends (homelessness, increased crime, collapsing commercial real estate, etc.) as well as already terrible affordability I would expect that even on the appreciation front, California is not the best place to invest, although there are areas that will fare worse so it depends on which state you are investing out-of-state in to compare to California.
Quote from @Bruce Woodruff:
Quote from @Osazee Edebiri:
And we already guessed that you would invest there ;-)
I was speaking to the people who like California, but it is too expensive for them.
@Carlos Ptriawan Kinda true, "It's job market that makes appreciation". That is the demand side. Its also the supply side where there are consistent supply constraints such as geography, geology, available land, permitting cost, cost of labor, cost of materials, zoning, etc.
- Aaron Gordy
Quote from @James Hamling:
Quote from @Osazee Edebiri:
Quote from @Zach Cohen:
I am a new investor in the San Diego area and I am weary of investing here/ California for multiple reasons.... the income tax on rentals is high... like the above poster stated the tenants can essentially squat here with out paying rent and landlords have no rights... and this is not the same California of even 5 years ago. The state is overrun by crime and homelessness, people are leaving this state in a mass exodus as are corporations.
Stating the negatives of Cali doesn’t mean that other states will beat it in 15 even with those issues.
Another state that beats CA with 15yr Len's, there is about 42 of them, take your pick.
Look, first and foremost, look at your median home price. It's so high, how much appreciation can happen? To argue they can considerably appreciate is to argue that wages can by 3x/4x national average in CA. Why would any co. with half-a-wit have there operations in a place where production cost will be a multiplier higher?
Silicon valley is in process of relocation, along with countless other CA based operations for this exact fact.
CA is arguably seen it's peak. There is a long list of major issues starting to pop up, water is just 1. Not to mention there is a very real probability that CA will no longer be "CA" in 15 yrs, very good chance it will be 2 separate states. It's at the final mile for this to happen and the water issue could be the final straw that breaks the issue.
Countless other states that have a lot of growth happening, and on the horizon to come. CA, are we to believe it has another 30% growth over next 15yrs? How?
I hear what you are saying to some extent, but 42 states?
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Quote from @Osazee Edebiri:
Well how many do you think are better? Pick a number......I think 42 is high too, but I'd bet the number is 30 ish...
Quote from @Osazee Edebiri:
I think the constant discussion of California vs anywhere else is intriguing. So I pose a question. Hypothetical, if a person had a 2 million dollars to invest, they purchased property with 1 million in California and 1 million in any other state, which would perform better after 15 years and why?
This assumes anything and everything will happen, which is the real life case anyway. I am not automatically assuming California will perform better just because I live here in the Bay Area. I think someone may have interesting incite to why another state could out perform California property in the next 15 years.
The question is too broad as much depends on the business strategy associated with deployment of the $2M. If the business strategy is to flip; how much and how many properties can be purchased and flipped for profit when $2M is deployed in the Bay Area versus another part of the country. You can apply the same logic to holding property. Also I would not compare states, I would compare cities.
Quote from @Crystal Smith:
Quote from @Osazee Edebiri:
I think the constant discussion of California vs anywhere else is intriguing. So I pose a question. Hypothetical, if a person had a 2 million dollars to invest, they purchased property with 1 million in California and 1 million in any other state, which would perform better after 15 years and why?
This assumes anything and everything will happen, which is the real life case anyway. I am not automatically assuming California will perform better just because I live here in the Bay Area. I think someone may have interesting incite to why another state could out perform California property in the next 15 years.
The question is too broad as much depends on the business strategy associated with deployment of the $2M. If the business strategy is to flip; how much and how many properties can be purchased and flipped for profit when $2M is deployed in the Bay Area versus another part of the country. You can apply the same logic to holding property. Also I would not compare states, I would compare cities.
People seemingly have reasons they analyze when they choose where to invest. So the question is really what are the reasons, numbers included, a person would do believe there investment would do better in 15 years vs any well performing city in California.
Yes flipping in California will be different since the average price point is higher, but the point is if someone did one million worth of flipping in CA vs 1m in another state which would do better in 15 years? If flipping is their investing style.
#1 Market Trends & Data Contributor
Yes flipping in California will be different since the average price point is higher, but the point is if someone did one million worth of flipping in CA vs 1m in another state which would do better in 15 years? If flipping is their investing style.
I just read market research from one of the largest CRE broker firms, more CRE development would be happening in Texas/Oklahoma and South (GA/AL/FL).
Live Where Ever You Want to Live, Invest Only Where It Makes Sense. For me, I live in So Cal but only invest out-of-state. Doesn't mean CA won't make money but I've found I can do so much more elsewhere. This is buy and hold strategy. Now, where out of state? That's the biggest question because for us in California everything is cheap to the east of us. What we need is growing markets. And not just Grown markets. Some have increased too much already (Phoenix, Austin, Houston...) Research the markets no one is in but that you can see is on the rise. This is where wealth is created.
Quote from @Carlos Ptriawan:
I also want to add that not every city in CA is having "sustainable appreciation". This is one thing to consider when you try to invest.
Case in this example is Sacramento,CA ; currently it has only 800 engineers job wanted with 1,000 house for sale. So ratio is 1:1 , compare to 10:1 in Bay Area. The mortgage to median income ratio in Sacramento is actually also higher there than Bay Area although from nominal price it seems Sacramento is cheaper than the Bay.
After interest rate hikes, Sacramento felt more dramatic price depreciation because the local economy can't support such price appreciation.
If you ask me where to invest for sustainable appreciation between Kansas City and Sacramento, I will select KC.
Sacramento is in the middle of building or expanding a handful of hospitals and medical school campus’ employing something like 4500 new doctors.
interesting topic. I was always debating this with myself and with wife. For a 15 year time span, I've invested in CA (mostly in silicone valley) and OOS, such as TX, FL, AZ, NC and even HI. Comparing with all the returns, CA was on the top before the pandemics. Since pandemics, things are different. OOS has been catching up. For my calculation AZ is on the top in terms of both appreciations and cashflows. But who knows in next 10 or 15 years. IMO, there is no "the" place the best. It all depends on how familiar the markets you are in, how long you hold the assets, etc.
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Quote from @Jim G.:
interesting topic. I was always debating this with myself and with wife. For a 15 year time span, I've invested in CA (mostly in silicone valley) and OOS, such as TX, FL, AZ, NC and even HI. Comparing with all the returns, CA was on the top before the pandemics. Since pandemics, things are different. OOS has been catching up. For my calculation AZ is on the top in terms of both appreciations and cashflows. But who knows in next 10 or 15 years. IMO, there is no "the" place the best. It all depends on how familiar the markets you are in, how long you hold the assets, etc.
The best bet for investors that are already in CA is perhaps to do a hybrid --if you can. Rather than place in single bet like CA only CA investor can do multiple region investments.
But the trend that I read from institution that are smarter than me, the trend is pretty clear :
It's going to the Southern state, not even midwest.
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Quote from @Jim G.:
interesting topic. I was always debating this with myself and with wife. For a 15 year time span, I've invested in CA (mostly in silicone valley) and OOS, such as TX, FL, AZ, NC and even HI. Comparing with all the returns, CA was on the top before the pandemics. Since pandemics, things are different. OOS has been catching up. For my calculation AZ is on the top in terms of both appreciations and cashflows. But who knows in next 10 or 15 years. IMO, there is no "the" place the best. It all depends on how familiar the markets you are in, how long you hold the assets, etc.
Btw I use two tools to analyze this trend, using Zillow Home Index and the sold record data and extrapolating the result to excel file, second method is using software like Housecanary which can pinpoint which block of a particular zip code has the highest growth. It's quite fascinating that there's a lot of hidden markets, for example recently appreciation in some zip codes in Hawaii is actually appreciated more than the bay area.
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Quote from @Carlos Ptriawan:
Interesting, but very predictable, right? Red states with at least decent weather....
If you had $2M you could buy 20 properties free and clear in good neighborhoods in Toledo which would generate you $120,000 at least per year. Probably more given today's rent. They would appreciate as well and you could sell them individually to home owner occupants. I think that would be better than California personally.
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Quote from @Bruce Woodruff:
Quote from @Carlos Ptriawan:
Interesting, but very predictable, right? Red states with at least decent weather....
I think the mantra for next year/decade is "cost saving", "efficient energy"...
aka they wanna invest where cap rate is making sense, talent pool is available and lot of sunshine hahahaha LOL
Quote from @Carlos Ptriawan:
Quote from @Jim G.:
interesting topic. I was always debating this with myself and with wife. For a 15 year time span, I've invested in CA (mostly in silicone valley) and OOS, such as TX, FL, AZ, NC and even HI. Comparing with all the returns, CA was on the top before the pandemics. Since pandemics, things are different. OOS has been catching up. For my calculation AZ is on the top in terms of both appreciations and cashflows. But who knows in next 10 or 15 years. IMO, there is no "the" place the best. It all depends on how familiar the markets you are in, how long you hold the assets, etc.
Seems to me the perfect multifamily game over this last cycle would have been buy in CA starting 2010, sell or 100% refi portfolio in 2017 to early 2018, buy/1031 to FL/AZ/TX and hold through the pandemic. Refi/lock long-term rates between December 2021 - January 2022.
If anyone did that exactly, please let me know... I will be your intern.
Stephen: you can generate $120,000 by owning 2 homes in the Bay Area that cost you about $2 million. In Toledo, especially with the winters, you will have $240,000 in roof replacement expenses for your 20 homes over 10-15 years, thereby taking out 2 whole years of income. Same for furnaces, water heaters, etc. You will also have a substantial management fee to handle 20 sets of tenants. In coastal California, you will have anywhere from $0 to $24,000 in roof expenses, $0 to $10,000 for furnaces, etc. You can easily self-manage 2 properties. There is no comparison if you have that kind of capital to invest. The Midwest works for people who have more limited budgets.
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Quote from @Darius Ogloza:
Stephen: you can generate $120,000 by owning 2 homes in the Bay Area that cost you about $2 million. In Toledo, especially with the winters, you will have $240,000 in roof replacement expenses for your 20 homes over 10-15 years, thereby taking out 2 whole years of income. Same for furnaces, water heaters, etc.
You're stretching a little to make your point, methinks....
a) A water heater lasts the same in either climate
b) A boiler type furnace as would be used in the Midwest on a multi-unit will last just as long. Heck even a typical FAU system will because they are in a basement/attic/etc..not to mention mini-splits....
c) Roofs will certainly get more wear but are still expected to have a similar lifespan - with proper maintenance and especially with todays new roofing materials and techniques.
You somehow forgot to count in your calculations how much an average landlord loses by having to deal with California's onerous regulations, fees, inability to evict, pay-to-move and related BS.... :-)
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Quote from @Bruce Woodruff:
Quote from @Darius Ogloza:
Stephen: you can generate $120,000 by owning 2 homes in the Bay Area that cost you about $2 million. In Toledo, especially with the winters, you will have $240,000 in roof replacement expenses for your 20 homes over 10-15 years, thereby taking out 2 whole years of income. Same for furnaces, water heaters, etc.
You're stretching a little to make your point, methinks....
a) A water heater lasts the same in either climate
b) A boiler type furnace as would be used in the Midwest on a multi-unit will last just as long. Heck even a typical FAU system will because they are in a basement/attic/etc..not to mention mini-splits....
c) Roofs will certainly get more wear but are still expected to have a similar lifespan - with proper maintenance and especially with todays new roofing materials and techniques.
You somehow forgot to count in your calculations how much an average landlord loses by having to deal with California's onerous regulations, fees, inability to evict, pay-to-move and related BS.... :-)
well one point is you only have 2 roofs 2 hvacs and 2 water heaters.. not 20 .. for the same cash flow
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Quote from @Jay Hinrichs:
Quote from @Bruce Woodruff:
Quote from @Darius Ogloza:
Stephen: you can generate $120,000 by owning 2 homes in the Bay Area that cost you about $2 million. In Toledo, especially with the winters, you will have $240,000 in roof replacement expenses for your 20 homes over 10-15 years, thereby taking out 2 whole years of income. Same for furnaces, water heaters, etc.
You're stretching a little to make your point, methinks....
a) A water heater lasts the same in either climate
b) A boiler type furnace as would be used in the Midwest on a multi-unit will last just as long. Heck even a typical FAU system will because they are in a basement/attic/etc..not to mention mini-splits....
c) Roofs will certainly get more wear but are still expected to have a similar lifespan - with proper maintenance and especially with todays new roofing materials and techniques.
You somehow forgot to count in your calculations how much an average landlord loses by having to deal with California's onerous regulations, fees, inability to evict, pay-to-move and related BS.... :-)
well one point is you only have 2 roofs 2 hvacs and 2 water heaters.. not 20 .. for the same cash flow
Ahhhh, yes, but if you buy the 20 in one or two buildings, then you'd only have the same. And way more units to pay for things that go bad. But I see your point. I just like my point better.... :-)
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well one point is you only have 2 roofs 2 hvacs and 2 water heaters.. not 20 .. for the same cash flow
I have experienced the same as well, generally few/lesser more expensive house is much more manageable than multiple cheaper home although total cost is the same.
I will not repeat my mistake again, I promise :)
The easiest way to make money is in CA seriously (at least in the past), even in 2015 I see a home that sold for $500k in Livermore, it's back to the market in June for $600k without single upgrade.