California Vs Out of State (really, but why?)

[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.

[Bruce Woodruff]

And speaking of Taxes, every state gets their claws into ya.....some have lower Property Tax, but higher everything else... (Cali) Others have high Prop Tax and lower everything else. Including COL. People just need to do your due diligence and decide what works and what they want to (or can afford to) spend their money on.....

[Jay Hinrichs]

Quote from @Bruce Woodruff:

And speaking of Taxes, every state gets their claws into ya.....some have lower Property Tax, but higher everything else... (Cali) Others have high Prop Tax and lower everything else. Including COL. People just need to do your due diligence and decide what works and what they want to (or can afford to) spend their money on.....

 having a place in Vegas and investing in over 20 states  NV to me of all the states with no income tax is one of the best to own real estate in from a purely financial aspect. the property tax's are some of the lowest in the country.. and at least in vegas so much of the housing stock is newer not 1900 homes you find in the mid west..  stucco tile roofs desert landscape etc.   Oregon were we are at is not at all tax friendly other than sales tax.. So if your spending 200k a year on sales tax items you save about 14k a year there but the income tax is top 3 highest and property tax's probably in the middle then you add on Portland metro special tax's and its NOT tax friendly at all in the least but still Oregonians will retire in Oregon for some reason . 

[Osazee Edebiri]

Quote from @Peter Mckernan:

@Osazee Edebiri really depends on the deal and the what the investor is looking for on the deal. That being said there are people that I have sat down with in Orange County that have 5000+ units just in California and would not go anywhere else and then you talk to people that live in high priced areas and would not buy in those areas. 

Really comes down to buying right and the places people want to buy! 

I used to work for Irvine Company, they have over 50,000 units and they will only do Coastal California. So I am very familiar with the value of the OC. 

The people who wouldn’t buy in California it’s only because they can’t afford it, otherwise it seems to be the best place to invest. 

[Osazee Edebiri]

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.

Yes, add the dumb of houses from when Zillow left the market.

I think in terms of how land locked a city is. If I were to invest in Sac, I would do the areas close to city center or the more prosperous cities in the metro like Roseville. Go near hospitals, str, target nurses etc. 
Sac in general still has too much physical land room to grow. Hence the Bay is better for being recession proof.

[Osazee Edebiri]

Quote from @Carlos Ptriawan:

I will be very direct here. Biggerpocket is one of the worse places to ask for investment advice because most folks are "sell-side" and they try to promote their city without using data or even basic algebra. Even the podcast is not that great as the approach is inaccurate I think. But I found much better qualified-investors/QP level investors from this site also ; my investment is better since I'm more using qualitative data and not people opinion.

Real estate is actually very easy, you just need to buy where there's an economic boom and expansion.

I agree with the where buy. You can buy the worst house in the best area and the numbers will eventually be in your favor, even if it doesn’t cashflow right away.

I always think it’s interesting for the comfort of cashflow people will buy a property that makes a hundred dollars a month, rather than aim for property that loses $1000 a month, but makes $200k a year in appreciation.

The cashflow property may have appreciated too, but we know it was even close to the same amount. Also how long does it take to scale an cashflow of $1200 a year?

[Osazee Edebiri]

Quote from @Patrick Drury:

@Osazee Edebiri
If you're not able to invest locally or are not able to get the returns, you are looking for you should invest out of state. I would recommend looking in the Midwest. Columbus OH is a great place to start looking in the Midwest. It's a nice balance of cash flow and appreciation. Also, it has lots of job opportunities and population growth. On top of all that it's landlord friendly. 

Your answer sounds like you didn’t read my question. 🙃 

[Osazee Edebiri]

Quote from @Aaron Gordy:

@Osazee Edebiri  Agreed on many points but I think that speculation should be reserved for Vegas. Finding cities that have the largest number of engineer job openings is not sufficient. If that was the case then places like Santa Monica would be off the radar when we both know that is a great place. Learn from history as history repeats itself. Austin has been a job creating machine for many decades and not necessarily with engineering. I would suggest look at places where creative types like to go.

I don’t disagree, but the question is about which will do better in 15. 
Austin is good market.

[Amit M.]

Oh fun, the CA appreciation vs everywhere else in the USA. Man there are tons of archived threads on this topic from several years ago. Worth rereading imo!

As someone who did very well with San francisco RE over the last two decades, my sentiment has been of course with prime and costal CA, and it has worked wonders for me. I basically benefited from this:

…And there is another leg up from 2017-2021 btw :)

But the question now is what will be best going forwards 10-15 years. Certainly if you own appreciated CA rentals in great locations (i.e. professional tenant base), you’re golden. Just sit and enjoy it, which is what I’m doing. But I’m more cautious about buying, especially now in prime Bay Area. OTOH I also wonder if recent high flying markets like Austin Boise, Vegas, etc., etc. are merely going to “correct” 10-15%, or will they see a 2008-9 GFC correction of 30-40%. There are just so many crucial macro economic factors at play right now such as inflation, interest rates, economic growth, global slowdown, etc. Not to mention the national migration trends that were borne out of Covid. We’re already starting to see some zealots who relocated out of CA roll back after suffering searing hot summers, lack of cultural variety, bland geographies, etc. And work from home is getting some challenges from employers. So anything-goes-party-time is over at least for some, and winter is rolling in (both economically and metaphorically.) Plus at the end of the day, yes there is more tech in other states, but the Bay Area is still the primary tech playing field, it’s just not as one sided as it was prior to the pandemic.  

Personally I’m still pro Bay Area CA on long term values, which is why I’m keeping mine. But I’d just sit back and see how 2023 plays out before making any new moves. So I’ll answer your question the way Bob Dylan would…the answer my friend is blowing in the wind, the answer is blowing in the wind. 

[Bruce Woodruff]

Quote from @Osazee Edebiri:

Nope/ I know a LOT of people who could/would invest in Cali very easily who are choosing other states. For a variety of reasons.

And we already guessed that you would invest there ;-)

[Carlos Ptriawan]

1. The discussion is problematic because realtor in CA is debating with realtor in TN or plumber in GA
2. But what drives the market up in CA is not the realtor. It's the engineers that fill the overpaid job posting from every corner of the world and for every new job created they need a house. Hence demand. It doesn's matter there're 350k people leaving CA, most of them are retirees with low buying of power anyway.
3. Why we don't move to TN ? because there's not much engineering job there
4. So move to Texas? yes but only Elon company is there
5. I personally don't think California is very business friendly and beautiful. CA is overrated same like other state.
6. I also sincerely think California is one of the worst place to do business in America, like taxes,etc
7. But engineer doesn't care about that, we only want our overpaid salary funded by Wall Street
8. What happens if the job from Bay area moves to Tel Aviv ?
9. We will move to Tel Aviv. I don't really care about security, humidity,desert,etc.
10. The next wave of the Industrial revolution is still in tech, and tech is very wide from battery innovation to landing Mars, it's far from over.

So next time realtor from TN,AL,OH,MN,MO arguing which city is the best for next 15 years, it's better if you guys ask Bill Gates, Elon Musk, Mark, Sergey Brin to move to your city. For sure we will move there.

[Amit M.]

@Carlos Ptriawan so how do you think the advent of remote work impacts your engineers-will-go-where-jobs-are thesis, if more and more engineering jobs can be done remotely?

[Carlos Ptriawan]

Quote from @Amit M.:

@Carlos Ptriawan so how do you think the advent of remote work impacts your engineers-will-go-where-jobs-are thesis, if more and more engineering jobs can be done remotely?

Yes this is a very true phenomenon. I see several of our colleagues move to Austin primarily, Boise Idaho, Seattle WA and the area around Boston MA. That's the pattern of tech migration that I see so far, but it's still less way than 10%. Every company has different approach, folks like Elon Musk now consider remote work is no longer an option so they have to report to Fremont or Austin. But there are company that's fully remote as well. I myself worked from Hawaii sometimes. But the actual tech migration is actually moving jobs internationally from USA to India. 

I think we need to answer your question using quantitative statistical analysis so there's no ambiguity in analyzing the trend. Like what I've demonstrated before, the ratio of engineering job to house is still highest in San Jose,CA with a ratio of 10:1 and that's still only one city in bay area. If we see more engineering job openings in Austin or TN, time to move to TX....

[Bruce Woodruff]

@Carlos Ptriawan I think your concept of 'engineers drive the market' is short sighted. Not that it's totally without merit, but I think your being one is raising your opinion of the situation.

[Carlos Ptriawan]

Quote from @Bruce Woodruff:

@Carlos Ptriawan I think your concept of 'engineers drive the market' is short sighted. Not that it's totally without merit, but I think your being one is raising your opinion of the situation.

Just stating the fact after analysis, my opinion doesn't really matter here as I'm really expecting I'm to be wrong. 

I know, the result is not exciting.

For question like this you need to use statistical analysis. You could change from engineer to "buying power" or "number of jobs" you will find more or less the same result. It's job market that makes appreciation.

[Bruce Woodruff]

Quote from @Carlos Ptriawan:

Quote from @Bruce Woodruff:

@Carlos Ptriawan I think your concept of 'engineers drive the market' is short sighted. Not that it's totally without merit, but I think your being one is raising your opinion of the situation.

Just stating the fact after analysis, my opinion doesn't really matter here as I'm really expecting I'm to be wrong. 

I know, the result is not exciting.

For question like this you need to use statistical analysis. You could change from engineer to "buying power" or "number of jobs" you will find more or less the same result. It's job market that makes appreciation.

 Then that wouldn't explain why, when doing my searches, I found states that have solid engineer colors but not hot realty markets. 

And I'm not trying to be disrespectful, I just don't think you're totally correct....

[Darius Ogloza]

What drives the market is not the number of engineers per se (growth in the number of engineers is an effect rather than a cause) but the number of entrepreneurial-minded people who have access to capital to bring their ideas to the market/public.   In this respect, California laps the rest of the states and I see no reason why this trend will not continue.    

[Bruce Woodruff]

Quote from @Darius Ogloza:

What drives the market is not the number of engineers per se (growth in the number of engineers is an effect rather than a cause) but the number of entrepreneurial-minded people who have access to capital to bring their ideas to the market/public.   In this respect, California laps the rest of the states and I see no reason why this trend will not continue.    

 Says the investor from California. What a shock......  .

[James Hamling]

Quote from @Carlos Ptriawan:

1. The discussion is problematic because realtor in CA is debating with realtor in TN or plumber in GA
2. But what drives the market up in CA is not the realtor. It's the engineers that fill the overpaid job posting from every corner of the world and for every new job created they need a house. Hence demand. It doesn's matter there're 350k people leaving CA, most of them are retirees with low buying of power anyway.
3. Why we don't move to TN ? because there's not much engineering job there
4. So move to Texas? yes but only Elon company is there
5. I personally don't think California is very business friendly and beautiful. CA is overrated same like other state.
6. I also sincerely think California is one of the worst place to do business in America, like taxes,etc
7. But engineer doesn't care about that, we only want our overpaid salary funded by Wall Street
8. What happens if the job from Bay area moves to Tel Aviv ?
9. We will move to Tel Aviv. I don't really care about security, humidity,desert,etc.
10. The next wave of the Industrial revolution is still in tech, and tech is very wide from battery innovation to landing Mars, it's far from over.

So next time realtor from TN,AL,OH,MN,MO arguing which city is the best for next 15 years, it's better if you guys ask Bill Gates, Elon Musk, Mark, Sergey Brin to move to your city. For sure we will move there.

100%!

[Bruce Lynn]

Tahoe....no way ever.....neat place to visit...but not to invest.....plenty of regulations...and have you tried getting insurance....rates thru the roof you need to replace.  Fires have made it very tough to make profits.

[Bruce Lynn]

@Carlos Ptriawan  Did big bad daddy Oracle just move to Houston?  Not sure if Wells Fargo has any engineers, but looks like they're about to abandon SF if they haven't already.  Zuck just sold his house, so might be moving to Hawaii for all we know.   Bill doesn't matter anymore...pretty much retired and running the foundation....Elon is committed to Texas until Mars opens up.   Silicon Valley will likely not dry up, but people are getting scattered all over the globe.  Just like Goldman Sachs looks to abandon NYC, they've figured out that not 100% of the finance expertise in in NYC.  NYSE is now in NJ right?...at least the servers are.

Where will Salesforce go?   Doesn't seem like they are too happy with the silver deodorant stick office any more.

Not sure if there were any engineers at Schwab, but I think they've left the financial district.

Trying to think quickly about what other companies have moved.....or scattering.

[Robert C.]

I've always felt like California and especially Bay Area investors are under-represented in the forums. Every time I read the anti-california commentary, I always imagine a million collective eye rolls from all the lurkers who can't be bothered to respond and explain what a different investment world it is in our neck of the woods. I don't know for sure, but I wouldn't be surprised if New York City investors might feel the same. It makes sense, though - we're an easy target especially with the politics and San Francisco seemingly carrying the brand for all of Silicon Valley.

As to the OP's question, I'd still place my bet on California for the next 15 years if we're just throwing darts at random investments. However, if the competition is between two advanced real estate investors of equal skills and ability, then I think the outcomes would be pretty similar in whatever location/asset class they were to specialize in. 

Well, since I'm clearly a Bay Area player, here are a few random thoughts that have occurred to me:

1.) There is probably a reason why the high-tech economic engine has consistently thrived in Silicon Valley, and most VC money still gets concentrated here. If you're buying the dirt, you're basically participating in all that venture investment by proxy.

2.) The high dollar entry to invest here can actually have its advantages in terms of operations/efficiency. And I have a theory that it forces you to take your money more seriously and stay disciplined when it comes to entries and exits. 

3.) The politics on the local and state level are, in a way, predictable. So while it may not be "landlord-friendly", that doesn't mean it isn't "investment friendly" if you stay informed and utilize your knowledge of current and upcoming laws to give you an advantage over the competition. The more rules there are to the game, the more inefficiencies you can exploit in the marketplace. With housing affordability problems spreading nationwide, there's talk of rent control and other California-like housing policies in places that have never experienced it before and where investors might not know how to handle it. 

[Carlos Ptriawan]

Quote from @Bruce Lynn:

@Carlos Ptriawan  Did big bad daddy Oracle just move to Houston?  Not sure if Wells Fargo has any engineers, but looks like they're about to abandon SF if they haven't already.  Zuck just sold his house, so might be moving to Hawaii for all we know.   Bill doesn't matter anymore...pretty much retired and running the foundation....Elon is committed to Texas until Mars opens up.   Silicon Valley will likely not dry up, but people are getting scattered all over the globe.  Just like Goldman Sachs looks to abandon NYC, they've figured out that not 100% of the finance expertise in in NYC.  NYSE is now in NJ right?...at least the servers are.

Agreee. This is the trend that I'm watching as well. My co. has large data center operation in Oregon. While most software is in Bangalore and extremely sharp group of people around Boston. 

Where all these data center located is also creating lot of jobs. If I don't forget, there will be a large DC operation in Phoenix,AZ.

In financial sector I knew few are leaving NYC and move to Florida because the time zone is the same with market hours.

[Carlos Ptriawan]

Quote from @Bruce Woodruff:

Quote from @Darius Ogloza:

What drives the market is not the number of engineers per se (growth in the number of engineers is an effect rather than a cause) but the number of entrepreneurial-minded people who have access to capital to bring their ideas to the market/public.   In this respect, California laps the rest of the states and I see no reason why this trend will not continue.    

 Says the investor from California. What a shock......  .

He's saying the same thing.... so basically he's saying that since Venture Capialist guy is living near Stanford, Palo Alto and Atherton, then the same area will continue to prosper. It's the same where hedge fund guys living in Greenwich CT makes NYC keep developing.

But good thing about tech sector is that although the core company is still located in Bay Area, for cost cutting development they have office all over from Austin, Boston, Seattle and Data Center Ops from Oregon to Arizona.

Making data center ops in Bay Area is utterly expensive, they need to move to areas where energy is efficient. This is an opportunity for you guys in Arizona. 

[Bruce Woodruff]

Quote from @Carlos Ptriawan:

Well, we'll see if this happens and what impact it has on the population shift and housing market....

[Carlos Ptriawan]

I do not know if you have invested in Bay Area before. In terms of salary, one of my tenant renting a 3bed1.5bath house in south San Francisco, earns over 320k as a fresh college graduate. Majority of my tenants earns over 10k per month, even with construction job and cleaning job. Annual family income of 120 k is considered low income and eligible for subsidized housing.

So this is good and bad right, we know entry level engineer salary is now $120k but that's considered low to be able to live as proper middle class in bay area standard today especially when one is having family. This creates a social issues. Just this month alone the School District of Milpitas is asking whether the student's parent can rent their room to the the teacher ! The teacher can't afford to pay 3k in rent obviously.

Another thing that I look is a pattern of migration of the new kid in tech career from Bay Area parents. After graduating from UC/State/SCU school many of them prefer to work in Seattle instead. Seattle has a lot of good entrepreneurs and very good companies ranging from Boeing, Amazon and Microsoft. I've checked the house price from Everett to Tacoma they're still well affordable from a bay area perspective.

If the main question here is asking "where to invest outside CA", I'd rather be bullish on Seattle and Austin due to high-paid employer availability. 

If I'm 21 year old kid today with good prospect I would rather live in that city rather than bay area, except if I have Bay area parent.