Investing in southern california

[Khristopher Kyle Garay]

Ive heard a lot of negative comments about investing in southern california. So is it true? Is so cal not the best place to invest in rental property?

Opinions....?

[Dan H.]

Originally posted by @Khristopher Kyle Garay:

Ive heard a lot of negative comments about investing in southern california. So is it true? Is so cal not the best place to invest in rental property?

Opinions....?

 Case Shiller has historical profit metrics for buy n hold RE for all major cities.  Guess which cities have produced the best return for this century?  San Francisco, L.A., and San Diego.   How is that possible with such poor to rent ratios?   That poor ratio really is a poor initial ratio. 

Here are some thoughts on the San Diego market

• appreciation on SFR has produced between $1k to over $4k per month of hold. This is true even for a property purchased at the height of market just prior to the Great Recession.
  Rent appreciation prior to 2020 had been over $100/month average per year over the previous 6 years. 
  A unique trait of investing in CA is the virtually fixed property tax from prop 13.  I have properties that are taxed at ~0.3% of value.  
  Low vacancy rates result in better tenants.  Do you know where San Diego ranks in rent delinquency and evictions?  Near the best in nation.  Tenant friendly policies result in very few problems due to the low vacancy rate/high demand for housing.  
  Initial cash flow sometimes has little correlation to actual cash flow.  Actual cash flow is the cash flow realized over the hold period.  
  The RE market is an efficient market.  This is important because it implies price is based on numerous parameters.   High in these parameters is expected return and expected risk.  
  San Diego is geographically constrained.  To the west we have the ocean.  To the South we have Mexico.  To the North we have Camp Pendleton and OC.  To the East the climate quickly gets harsh in Anza Borrego.  
  San Diego is economically diverse with a wide range of quality jobs from tech to biomed.  
  San Diego has multiple quality universities: UCSD, USD, SDSU.
• San Diego has always seemed expensive.  For financed purchases San Diego is currently more affordable than many times in the past.
  

Historically Southern Ca has produced outstanding return for buy n hold RE investors.  I see little reason to believe this will change going forward. 

Owner Occupied financing (high LTV) such as FHA make the cost of entry in the home market (house hack) cheaper than many OOS markets.

Good luck