Do homes on the coasts really appreciate more?

Question

I've only been an investor for the past 10 years, so I realize I'm relatively new at the game.

One assumption that I seem to keep hearing about is that the Midwest/South is for cashflow, while the coasts are for appreciation. Based on what I've seen over that time period, however, I'm not sure that this is true.

While properties on the coasts are certainly more expensive, in terms of % growth I've actually seen higher growth in smaller markets. Ex. homes in Detroit, Charlotte, Cleveland that I picked up for $50k-$100k four years ago have now doubled, while homes in the Bay Area have gone up by 20-25% (ex. a $2mm home is now $2.5mm). On top of that, the cash flow is MUCH superior to what I've been getting in the Bay Area (like 3-4x).

If someone could let me know if there's something I'm missing here, I would greatly appreciate it. Thanks!

Bjorn Ahlblad · Answer

Depending on when you bought, and the hold time you might actually lose money anywhere. My experience in Ca with a 30 year hold was 7.5x on property 1, and 10x on property 2. Others have made more.

Then we moved to Wa and in 6 years our three properties have more than doubled, but we still own them and could be broke in a few weeks! Who knows? You can't count the gain until you actually sell.

Cash flow in Ca was pretty much non-existant. In Wa it has been spectacular. I'm a senior citizen-my wife almost, and our current properties keep us from ever having to take jobs at Walmart!!

Darius Ogloza · Answer

Try this exercise: look up (1) the historical price of your Midwest SFR at the time of first sale, (2) the rate of inflation from the year the SFR was built until the present and (3) the market value of the property.  In most cases, you will find that the long term holder lost a ton of money over the life of the property.  Typical figures for Toledo Ohio are something along the following lines:

Price in 1945 - $14,000

Value today of $14,000 in 1945 dollars - $235,949

Price in 2023 - $100,000

In short, the vast majority of those properties not only failed to appreciate but actually lost you a significant amount of money over their life.

Looking at a three or four year segment of time can be powerfully misleading.

Jaron Walling · Answer

@John Anderson There's about a million reasons why real estate prices have shifted drastically in the last few years but here's my top three.

Economy/job relocation/remote work.

Cost of living.

Environmental factors.

Bonus; terrible politics

Everyone wants the Cali lifestyle and weather but few want to earn it. People will live pay check to pay check to make it happen, or move.

Bob Okenwa · Answer

You'd need 10-15 of those 50k Cleveland and Detroit homes to match 1 Bay Area home in terms of dollar amount made on the sale based on your example.

Picking up 1 house is a lot easier than getting to 15. If you cash out 15 houses individually, that's a lot of commissions and closing costs as well. It's not always easy to sell an entire portfolio at once.

Account Closed · Answer

Hey John, the midwest and south have far more affordable entry points, which makes cashflow feasible for investors. I'm originally from NY, and in my area there's no way you can cashflow on a single family based on the median home price. Having said that, it's hard to label an entire state/city based on their overall appreciation. Here in Columbus, we see C class areas with little appreciation, while nicer areas have exploded in price over the years. A lot of appreciation comes to individual neighborhoods, markets, etc. However, as you said even in Cleveland where appreciation hovers right around the national average with little to no population growth, you still were able to see immense returns. This is where neighborhoods and certain areas come into play- even with nationwide average appreciation, many areas  in Cleveland have managed to appreciate a ton recently, and it sounds like you got in at the right time.

Dave Poeppelmeier · Answer

Let's also look at the price of land in Toledo, OH in 1945 compared to 1776: Exactly, it doesn't matter. 1945 may as well have been in 1776 in Toledo. Toledo and Ohio in general went from being one of the most important States in the Union (when the West wasn't nearly as developed as it is today), to it's heyday in the 50's and 60's when the nations steel and cars were made here, and of course the bottom falling out in the 70's and 80's, stagnation in the 90's while everyone regrouped, and the 00's, 10', and now 20's when these cities are thriving again. Yes, everyone's going to say "but they're losing population!!!". Yeah, those generations that stayed are dying, or moving out to the Suburbs as that migration pattern continues.

@John Anderson You are correct in your general assumptions that coasts are appreciation and Midwest is Cashflow. What you're likely experiencing is this rediscovering of these markets from investors who see the same thing you're seeing: Good returns regarding boring, not sexy cash flow. Don't overthink it, if you're getting bonus appreciation good for you, but stick to the meat and potatoes of why you invested in Detroit and Cleveland in the first place.

Darius Ogloza · Answer

The past is no guarantee of the future for sure - every stock broker uses that disclaimer for good reason.  If there are demographic reasons for the "appreciation" in recent years, then we might expect some real gains to be made in the future.  If it's merely a lot of out of towners buying and selling what they view as "cheap" assets to each other, and, accordingly, then you are likely seeing a bubble as that's usually just a game of musical chairs investors play.

Simon Ashbaugh · Answer

It really depends, cleveland generally appreciates around the national average (though parts of cleveland have gone up 2-3x in some areas over the last couple years). Columbus on the other had is appreciating better than a lot of coastal areas because we have intel, honda, amazon, and others investing billions here. The coastal areas will always be hot markets, but i think they appreciate a lot slower and they really dont cashflow unless you have a really good STR

Do homes on the coasts really appreciate more?

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