How is the Cali market?

Question

Hey guys,I am doing some research and am interested in the California Real Estate market. I know it's a very big and broad market, so maybe tailor your feedback and thoughts with a location you come from or deal in. To the point, I just want to hear what you experienced investors see from your market...what do y'all expect from an annual ROI percentage standpoint...what is a typical cost (or range) of acquisition for either rentals or flips.I've done a bit of research in bigger markets like LA and San Diego, but I'd love to hear it from the avid investors! Tell me about your market :DThank you,Lukas

Anthony Dooley · Answer

You must be kidding? OKC is a much better market to invest in real estate than in CA. Buy what you know, not some far away place based on the opinion of strangers.

Cory Vines · Answer

@Lukas ZupanMost of the deals I see investors buying in San Diego have 15-20% gross equity. An average deal being worth $500,000 after doing repairs, $50,000 in work to get it there, and being purchased for around $375,000. When fix-and-flipping, most of the time the ROI on a cash deal is between 10-15%, and if you leverage with private or hard money you are looking at 25-50% ROI. It will depend on the area and the higher the value, typically the more margin is needed. I typically find Buy and Hold Investors want the same equity as the fix and flippers. Hope this helps

Lukas Zupan · Answer

@Brent CoombsI believe you misunderstand my intent. I'm not looking to buy in Cali, in fact what I do is sell property to investors in certain cities in california. The purpose of this post is to hear from other investors around cali to hear what types of returns they see and expect where they invest themselves. I assume that while perhaps similar, the numbers and expectations in LA are not identical in Frisco...etc.Thank you for the bit about appreciation..It makes sense that you would bet on that instead of the rental value. Very helpful.To everyone else reading this thread! I just want to gather information! If you invest in any part of california please feel free to tell me how you fair and what type of returns you are happy to see...high side...low side and all that jazz :)

David Song · Answer

California sf Bay Area market increased about 12% in December 2017, compared to dec 2016. Over the last 6 years, the price pint increased about 300%~400% on average. Rent increases have paused for the last year. Prices seem to continue grow due to super low inventory. Multiple bids result in 200k-400k above asking price, as a norm. 2018 will be a highly competitive market for buyers. May not be a good time to buy. I am actually checking out okc today, just online research.

Ryan D. · Answer

California markets are VERY overvalued right now (along with every major metro on the west coast). Investing for cash-flow will yield you extremely poor results, & tie up large amounts of capital, as the price-to-rent ratio is very high here. This leaves investing for appreciation, and that is highly speculative (as mentioned, you would be buying into an already overvalued market). I expect to see a significant correction when the bull market turns, the economy is in recession, & people have less capital to pull out of the stock market to fund downpayments.

Lukas Zupan · Answer

@David GonzalezApologies for missing your comment, I must have skipped over it that day. Oklahoma still has a lot in the way of oil as an economic factor, although we are also growing up in energy and aerospace as well. Certainly oil is not an exclusive deciding factor anymore.@Cory Vines, @Ana Perez Thank you for y'all's thoughts.@Jonathan Orr I appreciate the feedback... it's great to hear about the different methods people follow. Understandable that it varies, everyone has their way of evaluating and doing deals, the same is true here. Exactly why I posed this question to the forum, to grasp a better understanding of how it's done in Californ-I-A.Thanks everyone for the thoughts...I suppose i've heard from a ton of you all now that big metro area in Cali are just not rental focuses, right? Can anyone say otherwise? If so, what kind of annual returns do you see?Keep it coming!Lukas

Jonathan Orr · Answer

Lukas Zupan Brave man stepping into the Cali market lol To just answer your question, I work with a few SFR flippers who is happy to find a 8% ROI on his flips, most properties are Southern California specifically Orange County but to find some better deals they move into riverside and San Bernardino counties. However it is still extremely tough. They basically have their method and can decide on a property in a matter of hours rather than days. They take down properties in under 5 days and have their loans and everything basically set up prior to writing the offer. To make things simple, they do all the work up front from a money standpoint and finding the property is the last piece. Now I could get more into development which is my main focus but that requires quite a bit more equity and is a longer play, however doesn’t seem like that is what you are wanting to do. Like everyone has said. Extremely tough to find deals now but nothing is necessarily impossible. PM me and I am happy to discuss more

Lukas Zupan · Answer

@Dan HeuscheleThank you for the detailed breakdown of how you account for your profits. Very helpful. As @Ron Harris mentioned, cashflow is THE huge factor for investors here. Everyone determines the value differently, of course, but I have seen rental cashflow as high as 30-40% here, and I'm talking all-in expense (100% of purchase value and rehab cost). Those are generally cash deals because they are so high, and, obviously after a few years you have all your money back. This though is more for very niche towns. Again, most people turn their noses up at anything but 10%+ here.As far as calculating all the factors you mentioned, that is possible here as well, the only difference is that your margins for appreciate, forced or otherwise are much smaller. OKC is pretty steady and predictable for long-term rentals in that regard.Again, I appreciate your input. Perhaps we could connect and discuss it further via PM

Ana Perez · Answer

California is a very competitive and tough market. We are trying to invest out of CA, if you thinking about cash flow very difficult.

Ron Harris · Answer

Stick with your local area. Much easier to get started that way. Plus, OKC is cheap compared to Cali. Much higher cap rates if you use that as a measuring stick on SFR. I think of cash flow and equity refi instead of cap rates.