Is it profitable to invest in california?

[Jasraj Singh]

Hi,

As i’ve had a discussion with a lot of people about investing in California and most of them are saying that it’s difficult for a property to produce cash flow there and the market is Always very expensive there so i wanted to know that is it profitable to invest in california and if it is, in which parts of California is it profitable?

Thank you

[Chris Crosby]

Hi @Jasraj Singh, with the right strategy investing in particular parts of California can be profitable.  Many California investors are drawn to building wealth through property appreciation.  There are many properties in the Long Beach/LA market that cash flow (3-5%) and appreciate at a conservative rate of 5%.  

But as I mentioned, property appreciation is where you will build most of your wealth in CA.  In Long Beach, for example, multifamily properties have appreciated on average 6.44% over the last 60 years (*Data collected by Buckingham Investments). Let's take a look at the numbers and run a quick example to highlight the importance of wealth building through leveraged appreciation in CA.  

Property Value: $600K

Initial Down Payment: $150K

Loan Amount: $450K 

Year 1 Appreciation (5%): $30K 

Year 1 Cash Flow (5%): $7,500 

Year 1 return (cash flow & appreciation): 25% (20% from leveraged appreciation & 5% from cash flow).

As you can see, leveraged appreciation is a key driver to build wealth in CA because of the high and steady rate of appreciation.    

Hope this helps!