Cash Flow States out of California

[Amby Bhagtani]

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

[Dan H.]

Quote from @Amby Bhagtani:

I am in California and finding a cashflow property is hard. What states are people buying properties in today that yields cashflow? Serious investor here. 

 RE markets are efficient.  Typically, the best initial cash flow is in the cheapest markets.  Why?  Because if the market had good appreciation outlook and good rental increases it would not be a cheap market.  The good initial cash flow is to compensate for lower future outlook for return.

The reality is historically Coastal CA has produced the best cash flow for long term holds.  Here are average detached home prices for some coastal CA counties from the year 2000: San Diego $279K, Los Angeles $221K, Orange County $322K.  What do you think detached homes rent for in each of these markets today.  I suspect each would be approaching the 2% rent to cost ratio.  Without extracting equity out, these markets would have cash flow far in excess of the cheap markets that initially had better cash flow but historically have rent increases that may not even keep up with inflation.

In general, when property appreciates the rents increase.  Similarly, the low appreciation market (i.e. the cheap markets) typically have rent increases that strongly correlate to the property value increase. 

Initial cash flow has a terrible correlation to actual cash flow over a long hold.  This is because the market it efficient and prices reflect total return outlook.  Therefore, the properties that have poor initial cash flow have the poor initial cash flow because their cash flow outlook and appreciation outlook are superior.

We have basically done BRRRR and have been fairly good at it. We only have one property that we did not extract our initial investment out via a refinance. Why is this relevant to the subject? It is because someone could point out that due to higher price point in coastal CA there is less opportunity to purchase volume. However, if you can acquire Coastal CA RE with zero cost (what we have accomplished), the initial price does not limit the properties that can be purchased.

In summary, coastal CA has historically been a great market for cash flow and appreciation for long term holds.

Good luck