Where in CA are you investing for CF , or are you?

Question

Hello BP members!I am new to REI and joined BP several months ago. We live inTurlock, CA and are looking for buy and hold multi family opportunities for cash flow. Although not opposed to SFH (just want to scale faster than 1 house at a time) Unfortunately our area will not support cash flowing properties (at least ones listed on the MLS). I have looked at other cities up to 2 hours away and it looks like the same story to me. Hard to cash flow even with 25% down.I read Brandon Turner's book on rental property investing and am excited to get into this journey/adventure.I am also thinking of doing OOS since CF deals seem to be hard to come by. If your interested in OH check out this thread I started here. Where in OH are you investing and Why?I wanted to see where you folks are investing in CA for cash flowing properties. Maybe this thread will have an early death since to find cash flowing properties in CA is like a unicorn and folks will want to keep their investing areas secret. Not a problem I totally get it!! I have looked in Tulare County and Bakersfield here in the valley as the only two places that might have potential. I have not looked very much in northern CA past Sac since those will be much smaller markets but I am not opposed to it if the numbers work. Since these places will not be in my back yard I will have to account for a PM and of course economies of scale play a part in trying to grow. Would be nice to grow in the same area as time goes on. I know in CA we are all about appreciation, I know all about it. My father has preached it my entire life, and I know how powerful it is. My family farms here in central CA and the price of land is just outrageous, you cant gore much that will actually pay the land off. However to reach FI I cannot bank on appreciation, I rather have it as icing on the cake. Maybe I need to change my strategy and look into flipping instead of rentals while the market is hot here? Thank you all for your input! Any info just continues to fill my brain with knowledge. I know I will learn more from my first deal than anything else but don't want to jump in blind either.

Antoine Martel · Answer

Kevin.I grew up in CA and when I first started investing I wanted to start out locally too but the truth is that cash flow in CA is just no where to be found. I eventually ended up investing out of state and it was the best thing that I have done.I was able to buy houses out of state with $15k down which cash flow $250/mo all day long.Single families are a great way to get started out of state. Multifamilies are hard to find out of state and they're overpriced as well. I've found better cash flow with the single families than with multi families.

Account Closed · Answer

Kevin,Perhaps you should consider some of the many other types of property. Commercial property can be an excellent investment as well. Multi-family is overpriced throughout the state right now, so it might be worth waiting a bit on that or being flexible on your areas. If you keep searching though, there are some out there. I have run across a few.If you are not intending to manage it yourself, that opens up your geography. I recently found an excellent deal on multi-tenant industrial in San Bernardino.PM me if you have more specific questions or if I can help in any way.Lauren Prichard, CEOAborn Powers/Aborn HomesDRE#01031213

Sharon Wu · Answer

For those who has high income already, additional CF often will boost them to the higher tax bracket and CF is often not the best strategy for them. I am not CPA so I do not give this out as financial advise. However, if you are only looking for CF or appreciation, you are missing out the other 3 of the 5 benefits of investing in real estate.

Kevin Moules · Answer

@Dan Heuschele, thank you for your continues posts. Much appreciated brain food!Account Closed, Turlock is a nice community that people want to move into, one of the reasons prices are high and places will not CF. Even when I purchased my home back in 2013 it would not have cash flowed if I had rented it out. This being said CA is huge, there must be some pockets in this state that CF. I am wondering what northern CA looks like, areas past Chico and Redding. Obviously towns get smaller but there may be opportunity there for rentals. I am also looking in Bakersfield area and homes are about half of what they go for where I am at. Only 3 hours south, so even though I would not manage it, it would still be close to home and hopefully appreciate as well.

Account Closed · Answer

Cash Flow is always a function of down payment or all cash. I just bought a condo in santa ana ca and it almost cash flows with 10% down. I will hold for a year and sell it and make a decent bit on it. So that is worth it. If I paid all cash for it would be about a 5-7% CAP rate [taking out expenses and HOA]

Account Closed · Answer

Oh and in terms of where to invest, look for areas in CA that are not overbought, obviously. But are in the path of progress. ie: Apple Valley vs Bakersfield. There are some big changes coming in that area regarding development. google High Desert Corridor, Enterprise Zone and the Air Force Base is becoming a free trade zone. Means its going to become a logistics mecca. All those future employees are going to need housing, etc etc. If that works out for you, you can buy me a cup of coffee!

Account Closed · Answer

Real Estate goes in cycles in every market. Where you are in that cycle determines your success. If you can not find a property in Turlock or surrounding area you are not going to find anything that works in CA. Sorry. IT sucks for all of us. Blame cheap money for last 10 years. CA is benefitting those that bought in 2011, held for last 7 years and now can cash out and invest elsewhere. I sold all my property in 2015 and was shell shocked at prices trying to get back in in 2018. Its like 2007 all over again. I got out of most of my properties in 2008. So what to do, you have to look at different strategies than going for cashflow. We have less than 18 months before this market cools off some[ wild speculation] so find a fixer, fix it up and rent out and hold for 2 tax cycles and exchange or pay the gains. I would do this very judiciously because cash flow does not work with super high acquisition cost. You would have to put down 50% to get a 5% Cap rate. So then why bother. Go for some appreciation, fix, rent to cover most of your mortgage, try to refinance and sell in at least 1 year [lower cap gains]. This market you are going to have to skim profit on deals, investors are looking for yield and can not find it so cash goes into property. Etc Etc. Keep us posted

Account Closed · Answer

Its called negative cash flow and only works when markets are going up. Once they turn and you do not have cash flow its called an alligator, it will eat you alive. If you buy all cash then you just have to worry about diminishing return on your money, RE will always hold value just maybe not what you anticipated. Be Careful

Sharon Wu · Answer

@kevin Moules ,1. Income 2. Depreciation 3. Equity 4. Appreciation 5. Leverage They all have good and bad point and everyone have their own different situation. You just need to balance according to your own condition.

Antoine Martel · Answer

Yes, we invest in Cleveland and Akron. Both of these markets have great cash on cash returns. We focus on C class neighborhoods. We have found that in these neighborhoods you will have the best cash flow. We also try to find C class neighborhoods that are in the path of progress. So that over time we will also get some appreciation on our investments.