New Member from Los Angeles (South Bay)

[Joseph Mananquil]

Hello,

Just stumbled upon this podcast when I did a search regarding real estate. I own a rental which was my primary residence for 6 years with a few partners in West LA. Just recently purchased a primary residence by way of HELOC in the South Bay. I have always been interested in real estate investment, but have always been scared of enduring the hard times with no consistent cash flow. I have decent 9 to 5 job but I live in Los Angeles so money runs out quickly. I am currently taking the steps necessary to get my Real Estate License and should be done in the next few months... I joined this forum to network, learn and congregate with like minded people. Thanks.

[Dan H.]

Originally posted by @Johnathan Alesso:

Welcome!  I live in San Diego and understand what the SoCal market is like.  Have you considered investing out of state?  ...

I am reluctant to buy in California for multiple reasons.  If anyone would like to refute my concern, I would appreciate a counterpoint!

I'm a big fan of So Cal investors investing in So Cal. All you need to do is look at 10 fastest appreciating markets for last decade, 20, 30, 40, and 50 years and compare them to the national average. So Cal not only would have been the superior investment for financed buy n hold but it would not even be close compared to the average locale. Of course past performance is not necessarily an indicator of future performance. However, One thing to note about So Cal properties is the supply is finite especially in coastal urban areas. The demand seems to be infinite. Simple fact is that virtually no where has had the historical ROI of a coastal So Cal financed buy n hold property over virtually any duration between 3 years and 50 years (verifiable fact). Do you think something has changed such that the historically appreciating market is unlikely to do so on a long term buy n hold?

So here is my case for So Cal:

- Advantages of local including expertise, cost to get to property, able to self-manage if desired (typically ~10%). The family had an out of state property hit by 2 hurricanes. Even though we hired contractors because we were not present we were the property getting the least attention with the slowest work.
- Appreciation: Do the research. Use your own knowledge of the supply/demand. It really is simple Econ 101. I am not stating that it is certain to appreciate like it has but econ 101 tells me that excluding something catastrophic it is likely to continue to appreciate in the long term.  Historically it always has appreciated over the long term.  Is there any reason to think this will not continue.   These better cash flow places often have virtually 0 property appreciation.

- rent appreciation: I have purchased properties that were neutral on initial cash flow.  I purchased such a duplex property in 2013.  It is now cash flowing at about $1k month.  Recent rent inflation has been at ~$100/month per year over the last 3 or 4 years. These better cash flow places often have virtually 0 rent appreciation. 
- Prop 13: My family suffered from this big time on a property on Gulf Shores Alabama. The taxes went up faster than the rents (until the hurricanes). We sold this property even though it was awesome (on the sand).
- I have no problem finding cash flow properties in my chosen area in So Cal. These properties cash flow using a $300/unit per month cap expense and 5% vacancy (our vacancy rate is less than this) and 5% maintenance expense. This cash flow does not include equity gain from making the payment which is in effect additional cash flow that can be obtained with a little effort. They may not cash flow with other parts of the country but the effort is less than out of state and so far the appreciation has more than made up for any reduced cash flow (Each property I have owned at least 3 years has gone up at least $100K - I have one property that has been owned only 1.5 years and is probably up $30 to $40K).
- The equity gain for rehabs is larger than many other parts of the country. Nice properties are greatly valued over neglected properties. This implies that I can purchase neglected properties, rehab, and have additional appreciation (more per unit than many other parts of the country).

- most cash flowing places are appreciation challenged.  That is why they sell for so much less. 

- cap expense: it varies more by size than value. For example if I have a 3/2 1500' sfr REI in Ohio at a purchase of $50k and same purchase in San Diego county at $350k I would not expect the San Diego county cap expense to be 7 times the cost but maybe 25% to 50% higher (everything is more costly in coastal So Cal). So your out of state cap expense versus rent is significantly worse than So Cal REI.

My family has purchased units out of state and we no longer purchase out of state.  We have not regretted the decision.