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]

Quote from @Dan H.:

Of course Calis population grew over that entire decade. But the point is that it is now declining year-to-year:

https://www.dailywire.com/news...

[Justin McCabe]

That would depend on the deal itself and how smart of a purchase it was. Generally, California has historically high rents, prop 13 to curb wild taxes, and a front runner for annual appreciation (though it fluctuates more than other states). If you want a cashflow play, other states might work out better, but for long-term appreciation, I'll take California, even amidst the drawbacks. 

[Bruce Woodruff]

Quote from @Justin McCabe:

 Generally, California has historically high rents, prop 13 to curb wild taxes, and a front runner for annual appreciation (though it fluctuates more than other states). 

But also much higher purchase prices, right?

[Justin McCabe]

Quote from @Bruce Woodruff:

Quote from @Justin McCabe:

 Generally, California has historically high rents, prop 13 to curb wild taxes, and a front runner for annual appreciation (though it fluctuates more than other states). 

But also much higher purchase prices, right?

 Absolutely. I believe only Hawaii beats California in high cost of living, as the average CA home costs $816,804 as of last quarter. 

[Bruce Woodruff]

Quote from @Justin McCabe:

 So that should put a different twist on the positives...?

[Justin McCabe]

Quote from @Bruce Woodruff:

Quote from @Justin McCabe:

 So that should put a different twist on the positives...?

Definitely can. Ups initial contribution to a deal. Also have to look at would getting two properties out of CA for the same initial contribution make more sense, (I believe median home price is 438k nationwide). That being said, there are plenty of pockets of CA that still have housing around 500k (Inland Empire north of San Diego) that also have healthy rents compared to national averages. It's a big state, lots of variances. 

[David Song]

Quote from @Dan H.:

Quote from @David Song:

Quote from @David Song:

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.

This question has been debated on BP for over a 

This question has been debated on BP over a decade. About 10 years ago, I made the decision to stay in CA Bay Area, rather than OOS. Looking back, that decision certainly paid off big time. I am curious about those folks decided to go OOS 10 years ago, how are they doing. I am sure they are doing fine, with the nationwide appreciation in the recent years. But I would love to know if they regretted their decision.

Around 20 years ago we purchased two OOS properties. I loved the location of both but especially one on the sand at Gulf Shores Alabama. The other was lake front in Alabama. We sold them both because our San Diego RE was performing far better. Two hurricanes hitting the Gulf Shore RE in consecutive years was also a factor on us selling that property. The properties were not appreciating like San Diego. the cash flow was going in the wrong direction because the STR rents were not going up as fast as the property tax and insurance. Our insurance on the Gulf Shores property went up something like ten fold in just a few years (going from memory). There were two large claims for the damage from the hurricanes.

There are times that I wish we had kept the Gulf Shores property, but it is not because I believe it would have produced better return than the San Diego properties.  It is because a duplex like that does not exist in Southern Ca and, if it did, it would be >$10m.  

Our San Diego properties have produced great returns.  The rents compared to purchase price is incredible.  The appreciation has been incredible.  The property tax is very reasonable especially on the longer hold properties (thanks prop 13).  The insurance has increased at reasonable rate.  

Thanks for sharing your experience. Personally, I know friends who sold their Bay Area property and move to Las Vegas. They missed about 1 M in appreciation over the last decade. That is for only 1 property.

 Today, I see a lot of new investors repeating the same investing philosophy that those OOS advocates made 10 years ago. They only believes in cash flow, not appreciation. They believe cash flow is real, appreciation is just a dream.

At least from my investment experience over the last 13 years, the real world outcome is contradictory to their belief.

Cash flow is superficial, appreciation is the real deal. Your investment outcome will largely dependent on the regional appreciation, not its cash flow. Cash flow can be affected by accidental incidence, like a stolen AC, a bad tenant, etc. Whereas appreciation is not. Ten years ago, if you buy a property in Bay Area, no matter how bad the cash flow was, and how bad the tenant was, you will at least triple your property value. 1 M property purchased in 2012, 200k down, now 3m. How much return is that? What kind of cash flow can compare to that kind of appreciation?

The best investment is usually with the least cash flow, contrary to what is preached on BP.  The only regret I have is that I should not focus that much on cash flow 10 years ago. Instead, I should have bought property with negative cash flow in better neighborhood.

[Osazee Edebiri]

Quote from @JD Martin:

Quote from @Osazee Edebiri:

Quote from @JD Martin:

Quote from @Osazee Edebiri:

Quote from @Todd Rasmussen:

@Osazee Edebiri

Where is dictated by how you want to invest and how much you have to place.

For me, 1 million dollars does better in TN than CA over 15 years. If there was substantially more to invest or I wanted to be more passive, then CA would be more appealing.

Yes, I definitely agree, I mean just being more familiar with an area is an advantage. But this question is based on what would perform better. So let’s say we took a person who had no ties to California or Tennessee, how would there million dollars perform better and why?

I'm in TN. For cash flow and general wealth building I love investing here but historically there's no comparison between here and most of California in terms of housing appreciation. Even our markets that are getting "expensive", like Nashville, are no comparison to most of California's prices. 

That of course comes with a caveat. As a landlord there's no way I would want to be a California investor because I don't want to work that hard for the extra return. It's the same reason I don't own C/D class housing - there's much better returns there but I don't want to work that hard.

Return and risk are strongly correlated. One of the reasons you have historically had better returns on investment property in California is because you face a lot of hurdles and aggravation that I don't face here in TN.

 I like that. At the end of the day path of least resistance even if it doesn't net a higher return. Though I do think once you get to a certain level, there is less work to deal with, no matter where you invest.

 This is really the case with virtually all investments. There's virtually nothing safer than just sticking your money in a savings account or bank CD, and probably virtually nothing easier. That's why it pays peanuts. Real estate - especially if you own/manage your properties - has a fantastic return, but it's hard work and anyone who thinks otherwise either hasn't owned anything or is comparing it to something really hard like working in a 3rd world country. That hard work is why most people will never invest in real estate (other than their primary home). And then within RE there are gradients of work. I personally think solid B housing/B neighborhoods/ B tenants are the easiest work of all, and it has good returns - but not as good as C or A, which I think is more work for different reasons, and definitely not as good as D. I have an acquaintance who owns a trailer park with 150 units - most park owned but a few tenant owned and they rent the land. His returns are much better than mine, but he works his ***** off for that return. He's a fixture at eviction court. He has junk haul off companies on speed dial. ETC. He wants that oversized return, and he gets it, but he doesn't get it for free. 

You get what you work for.

[Osazee Edebiri]

Quote from @Steve Ehrman:

@Osazee Edebiri I guess that it would depend on the measurement of performance. If you are looking at cash flow, which is my measurement, then Detroit is the best in the country right now at a 2.2% rent to purchase price of the property.

Thanks Steve,

I would look at performance differently. I would take cash flow and appreciation and see which performed better via NOI and ROI. Then I would also factor in how the property helped me scale too.

But it’s fine, using your cashflow premise does Detriot outperform California in rent appreciation in 15 years? Maybe it does but what about the overall dollar amounts to cashflow. Average rents are higher here, so even if the Cali property doesn’t cashflow when you purchase it, does it cashflow more in 15 years?

[Osazee Edebiri]

Quote from @Matthew McKee:

Quote from @Osazee Edebiri:

Quote from @Matthew McKee:

Quote from @Carlos Ptriawan:

Actually there's no such this as CA vs out of state.
This is all just mathematical equation dude. So lets have this exceltable how the house appreciation performs since 2009 :

Bay Area    6.9%
San Diego  6.5%
Kansas City 3.2%
Nationwide Average 3.1%
Typical Inflation every year 2.9%
..
Indianapolis,IN 1.8% (just for illustration ,not accurate)
Birmingham,AL  1.5%  (just for illustration,not accurate)

 There's a metro that's accelerating double in the inflation rate, that's where you see the highest acceleration. The highest acceleration is equal to a lower cap rate equal to lower cash flow.

In the other spectrum, there're cities where it's lacking appreciation, so you can still always have higher cash flow/higher cap rate in that city.

In another question: what makes the city appreciates a lot? economic booking and highest supply/demand ratio.

In the year 2300, if Silicon valley moves to Boise Idaho, Boise Idaho will appreciate double as well. 

So it's not about "where", but it's about "economy". Higher economic output triggers higher appreciation, it happened everywhere regardless it's San Jose, NYC, Singapore, Berlin, or London. 

It's a function of math.

this is an astute breakdown.

At the end of the day, no one has a crystal ball. If the numbers makes sense, a deal can work in any market but who knows what that market will become in 15 years. 

 Right, but if that was truly the case people wouldn't associate such a negative connotation with investing California vs any other state. 

Biases are largely formed from historical data or common rhetoric, biases are also personal opinions often shared by a number of people. Yes California is an intimidating market and the current tenant/landlord laws make it even more so but numbers don’t form biases and the future isn’t chained by the past.

I’m mostly just being philosophical but I do believe every market has the potential to be flipped.

 Agreed, but real estate investing is based on past data mixed with calculating future projections in order to pick where to currently invest. If Apple or Tesla builds a big corporate office in a podunk town, the values will go up. 

[Osazee Edebiri]

Quote from @Bill B.:

Well @Carlos Ptriawan. You did forget to put Las Vegas on your housing appreciation list from 2009 to 2022. We went from $209,000 to $480,000. 130% in 12 years. So I’m guessing we compared pretty favorably. Especially with lower insurance, lower property taxes, and no income tax. You might even say it woulda have been a better investment than any of your examples. The rent to price ratio is probably better and again, tax free. 

So I’m guessing you’d make more from the renting part of the investment because of lower costs and keep more of the net because of no taxes. Especially if you suddenly decided to sell the appreciated properties and compare the net gain after those taxes. And don’t forget. Nevada doesn’t hate landlords like California does. Though, as more and more flee the golden state for the silver state, that’s unfortunately slowly changing. They never remember what or why they fled. 

Again. My main point is if you lived in Florida or New York, Texas or Minnesota, you wouldn’t be saying the best place to invest in the country is California. 

Two old sayings:

1) It’s easier to fool people than to convince them they’ve been fooled

2) What’s the worst state to do business in?  And why did you say California?

 The question was not of ease, it was of performance.

[Osazee Edebiri]

Quote from @Bruce Woodruff:

Quote from @Osazee Edebiri:

Quote from @Bruce Woodruff:

Quote from @Osazee Edebiri:

Quote from @Bruce Woodruff:

Quote from @Osazee Edebiri:

I will agree with you Matthew, there are some cities that have Endless regulations, but many cities in other states have those problems too.

You're incorrect here. I understand you are biased towards Cali, and that's ok as long as you realize that. But there are no other states with the over regulation that Cali has. Zero. I lived and owned many businesses and properties there for over 40 years, longer than you've been alive.

And if someone decides to squat in your Bay Area Mansion the State Law will protect them, it's a State issue and then County, not neighborhood. (Although I get that you're saying that rich areas will treat it differently, the elites never follow their own rules)

 The whole premise of this question is to hear why another state is better and while likely out perform a Cali investment in 15 years, most of the responses are just negatives to California. I definitely love California, but if someone can give me good reasons to invest somewhere else of course I would do it. Reasons are two sided. Cali's bad laws, eviction practices, etc and the benefits to another state.

Eviction is very much county to City here. Evictions happen, but realistically if you are renting a Bay Area Mansion, the tenant you put in matters. I value your longer than my lifetime experience, that's why I here for these conversations. I did property management for 5 years, time again the the tenant screening is one of the most crucial parts to success. Then for small landlords the relationship with the tenants or how the property management maintains the relationship. 

And yes to the areas where there are "elites" as you say, I believe those are the areas that will out perform most other cities in other states.

Hey, I was the first one to say that coastal Cali will probably out-perform anywhere else. At least until a major paradigm shift happens, which I suspect it will. But not in the next 15 years.....

But...... now that I've had time to let this thought percolate, I will change and say that there are other areas that could outperform that area.

 Wait.., what areas and why?

Aha, I can't tell ya bro....you'll roll in with all your fat Cali money and buy it up.....

Why? Because I've been seeing it happen, at least in shorter term appreciation. And the trend looks to continue and grow.....

 Haha, I wish you much success there and that's fine I am sure most of us will do well regardless. Also if I decide to invest out of state, I will just go directly ask David Greene where I should buy and I am sure I will do fine ;-)  He invests in California btw.

[Osazee Edebiri]

Quote from @Dan H.:

Quote from @David Song:

Quote from @David Song:

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.

This question has been debated on BP for over a 

This question has been debated on BP over a decade. About 10 years ago, I made the decision to stay in CA Bay Area, rather than OOS. Looking back, that decision certainly paid off big time. I am curious about those folks decided to go OOS 10 years ago, how are they doing. I am sure they are doing fine, with the nationwide appreciation in the recent years. But I would love to know if they regretted their decision.

Around 20 years ago we purchased two OOS properties. I loved the location of both but especially one on the sand at Gulf Shores Alabama. The other was lake front in Alabama. We sold them both because our San Diego RE was performing far better. Two hurricanes hitting the Gulf Shore RE in consecutive years was also a factor on us selling that property. The properties were not appreciating like San Diego. the cash flow was going in the wrong direction because the STR rents were not going up as fast as the property tax and insurance. Our insurance on the Gulf Shores property went up something like ten fold in just a few years (going from memory). There were two large claims for the damage from the hurricanes.

There are times that I wish we had kept the Gulf Shores property, but it is not because I believe it would have produced better return than the San Diego properties.  It is because a duplex like that does not exist in Southern Ca and, if it did, it would be >$10m.  

Our San Diego properties have produced great returns.  The rents compared to purchase price is incredible.  The appreciation has been incredible.  The property tax is very reasonable especially on the longer hold properties (thanks prop 13).  The insurance has increased at reasonable rate.  

 I like that you mentioned negatives to both states. I would like to someone provide an augment like this for why another state is better with some number facts too.

[Osazee Edebiri]

Quote from @Aaron Gordy:

@Osazee Edebiri Your hypothesis needs to be narrowed a bit more. The Bay area is much different than LA. LA is much different than Sacramento. Texas is also very different from one location to another. Austin is very different than Houston. Dallas is different than San Antonio. Each location has their own particular zoning and building constraints.  And then there are the small town differences where the cap rates tend to be higher than the larger metros.  Let's consider San Francisco vs Oakland. Or how about Sacramento vs Dallas. You will have very different outcomes based upon the locations and even more so within the submarkets within those locations. Your hypothesis needs to be narrowed a bit more, imho. 

No Aaron, that is exactly the point. I know that, but when people say California, they lump it as a-whole. No one has even mentioned the Bay Area cities I would invest in. Of course most people don't know know the dynamics of the Bay, they just know the major cites, mainly San Francisco, Oakland and San Jose. The Bay has 101 cities. Maybe some other cities if they are into College sports.

[Osazee Edebiri]

Quote from @Carlos Ptriawan:

 Ok fair enough. So modify the question, using your math. What state would be the best to $1m in, performing the best in 15 years?

the right question is "how do I place" my bet.

 
My own view: the answer is in the linkedin/zip recruiter/monster.com 

Find city/metro that has largest number of engineer job opening per square miles.

So you'll find:

San Jose,CA ; Burlingame,Ca ; San Francisco,CA ; San Diego,CA ; Austin,TX ; Raleigh,NC ; Boston,MA, Seattle,WA and maybe even Huntsville,AL.

Go follow the trail of money........and split the bet accordingly to those cities. Invest for 15 years and forget.

 Good train of thought.. I actually prefer to Househack to engineers, so following your same strategy Househacks that are in those areas probably perform the best. Funny enough the city I live in San Jose, is on your list. 4 out of the 9 cities you stated are in California. 

[Osazee Edebiri]

Quote from @Luka Milicevic:

Quote from @Karen Margrave:

Like it or not, no place is like CA. We have coastal areas, mountains, lakes rivers, cities and beautiful country properties. Plus the weather is to die for! Those things alone keep CA a high demand area to live and invest in. Personally I HATE the politics of CA, but let's not go there. 

 "let's not go there" is the whole reason people are leaving. 

Other states don't have those features, but they do have others-for example TN has beautiful country properties that people can actually afford. Did you know Somalia has one of the most beautiful, untouched beaches in the world? Would you live there? 

All the things you mentioned are HUGE +++ to the state. It's truly one of the most beautiful states in the country, but those things can only keep people there for so long as I believe you have had a net out migration of 350k in the last year and lost a congressional seat due to continued population decline. 

 Max exodus only matters if the state doesn't do something about it in the future. Something will be done. 

[Osazee Edebiri]

Quote from @Leo R.:

@Osazee Edebiri  what's the difference between trying to predict appreciation and speculation? (to me, there is little or no difference).

Sure, we can make all sorts of educated guesses about appreciation, but at the end of the day, nobody knows. 15 years from now, SoCal could be completely out of water...or it might not. 15 years from now, Cal could experience a catastrophic earthquake...or it might not.  15 years from now, the Cal legislature could enact sweeping rent control...or it might not.

60 years ago, there were probably plenty of people who assumed that RE in Detroit would be a great long-term appreciation play (I mean, why not--in the 1960s, Detroit was one of the most productive industrial powerhouses in the world!)...but we all know how that panned out.

Personally, I don't have Warren Buffet-like piles of cash that I can risk on speculative investments, so my strategy is to go for property that will cashflow enough to protect me from unanticipated problems, but in markets I think have decent appreciation potential...but none of my plans require appreciation to pencil out (doing that would be speculation).

Good luck out there!

 Not saying there is anything wrong with cashflow, but if we are speculating we are speculating. You can't say California is a speculation and not say there is a chance something could wipe out your cashflow market. That is  a risk we all assume no matter where we invest.

[Osazee Edebiri]

Quote from @Johnny Wolff:

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.

 A very interesting question that I've been wrestling with recently.  I'm currently living in San Diego and deciding whether to buy here or buy elsewhere.

From a total ROI standpoint - I agree that CA wins (and I don't think its that close). Challenge is the cashflow won't be break even until the rents rise sufficiently - so you'll be getting hit consistently there. If you're cash rich and want to deploy capital and yield doesn't matter CA is the clear winner based on my modeling. But...who is so cash rich that they don't care about yield at all. Most people care at least a little bit.

 That's why I think house hacking is so critical. At the end of the day if you just maintain a primary home in California, long term play you win. Does it really matter what any house does in the short-term if you are living it and not paying rent?

[Osazee Edebiri]

Quote from @John Williams:

Appreciation is always a gamble - the past will not necessarily look like the future (especially in California). If you can still find cash flow, that is a different story. However, if you are betting on appreciation alone, you should be able to service the debt/expenses in some capacity just in case your assets don't appreciate as fast as you'd like. 

In my market, you can leverage $1,000,000 and pick up 15-20 solid homes that produce decent cash flow and appreciation!

 See that sounds cool at first, but 15-20 homes vs 1, 2 or 3 California homes for $1m. How much rent do you get on a home that cheap? These are roughly 50 to 65k houses?

[Osazee Edebiri]

Quote from @Tony Kim:

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.

By comparing it to "any other state", you're making it impossible to answer the question. I feel values are inflated here in California. But I also feel values are even more inflated to the extreme in several other parts of the country. I just came back from a one week business trip to Dallas. Of course, that obviously doesn't make me an expert on the Dallas market, but it did reinforce my belief that the best market to invest in is still your backyard. I loved Dallas and I loved the people here...super-friendly and I ate loads of great BBQ. But I'm pretty sure I wouldn't want to buy a multi-unit in Dallas unless I lived here. But if I DID live in Dallas, I would start gobbling up properties before prices started to resemble Austin or Houston. It also reinforced my beliefs about California...and they are pretty much in line with @Karen Margrave's post. I just wouldn't be able to give it up to relocate and thereby have direct access to cheaper properties.

California is at a point where direct ownership by Mom and Pop investors such as myself just doesn't make much sense unless you're extremely well capitalized. If you're intent on direct ownership, then most par-time investors like me will have to invest OOS to avoid negative cash-flow for the first several years. I leave it to the pros and have put most of my focus on evaluating syndicated deals on the west coast, of which there is a ton of activity. The pros don't seem to be frightened of the oppressive CA regime. It's mainly the Mom and Pops like me that like to overplay it. 

 Yes, I believe that is called barrier to entry. Seems a high barrier reaps a high reward.

[Osazee Edebiri]

Quote from @Carlos Ptriawan:

Here I break down for you. THis is the real time ratio between Engineering jobs wanted and home available for sale.
I use indeed and zillow.

san jose,ca 8200 engineer jobs: 860 home listing.
san diego,ca 3200 engineer jobs: 1748 home listing
austin,tx 2900 engineer jobs: 3500 home listing.
raleigh,nc 1900 engineer jobs: 1200 home listing
huntsville,al 1700 engineer jobs: 774 home listing.

Now you know why Bay Area keeps growing, the demand for engineering job is so high that there's no home for sell, there're 10:1 ratio !
Austin is like 1:1 ratio, there's house for every new job meaning there's no scarcity of house in TX.

Huntsville,AL is good choice as it has 2:1 ratio 

The texas guy is correct, we need to move those engineer job to TX. The demand for job in CA is too high ...

 Incentive for cities to improve. Actually I do think the cities are fighting to get big tech to come to their cities.

[Osazee Edebiri]

Quote from @Thomas Higgins:

Loved this question as you can take it anywhere! Market, asset type, politics, Macro, Micro etc. Here is my take as I see it as a great opportunity to show the value of multifamily cash yield-focused investing. I will use two examples to illustrate the power of multifamily cash flow investing in markets with good cap rates:

In California, I buy a 3-million-dollar house (after accounting for buying costs and a reasonable LTV 1M/.33) seems about right. I find a great broker and am able to purchase based on local comps with a 4% cap rate (or cash on cash yield). I get a loan from an awesome broker at a 5% interest rate. I own it for 15 years and the market appreciates by 3% per year.

In Ohio, I buy a 20-unit property ($1M/.25 / 200k a door) for $3M and own and operate it for 15 years. Let's assume I buy this 20-unit building at a 6.75% cap rate and get a loan at a 6% interest rate with a 75% LTV.

I modeled both scenarios back of an envelope to illustrate the differences in each strategy. I should note that my sense for the California SFH space is that a 4% cap rate on a $3M home may not be attainable, and some people may argue 3% appreciation is too low or high. I am using it as a benchmark to show both ways of looking at real estate and not comment on the appreciation potential of an entire state.

I hope you find this helpful!

 Yes, I like this breakdown. California average appreciation is 6.77 over the last 39 years tough. 

[Osazee Edebiri]

Quote from @Bonnie Low:

@Osazee Edebiri Go Wildcats! LOL

 Ha, Of Course!

[Thomas Higgins]

Quote from @Osazee Edebiri:

Quote from @Thomas Higgins:

Loved this question as you can take it anywhere! Market, asset type, politics, Macro, Micro etc. Here is my take as I see it as a great opportunity to show the value of multifamily cash yield-focused investing. I will use two examples to illustrate the power of multifamily cash flow investing in markets with good cap rates:

In California, I buy a 3-million-dollar house (after accounting for buying costs and a reasonable LTV 1M/.33) seems about right. I find a great broker and am able to purchase based on local comps with a 4% cap rate (or cash on cash yield). I get a loan from an awesome broker at a 5% interest rate. I own it for 15 years and the market appreciates by 3% per year.

In Ohio, I buy a 20-unit property ($1M/.25 / 200k a door) for $3M and own and operate it for 15 years. Let's assume I buy this 20-unit building at a 6.75% cap rate and get a loan at a 6% interest rate with a 75% LTV.

I modeled both scenarios back of an envelope to illustrate the differences in each strategy. I should note that my sense for the California SFH space is that a 4% cap rate on a $3M home may not be attainable, and some people may argue 3% appreciation is too low or high. I am using it as a benchmark to show both ways of looking at real estate and not comment on the appreciation potential of an entire state.

I hope you find this helpful!

 Yes, I like this breakdown. California average appreciation is 6.77 over the last 39 years tough. 

 Here is an updated break down with 6.7% appreciation:

I would caution against investing based on historic YoY appreciation; it can lead to bad investment decisions.

[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!