Selling Investment Properties to go Out of State

[Rick Albert]

Hello Everyone!

I have clients who are thinking of stopping investing in Los Angeles and begin looking out of state.  This is primarily because CA/LA has not be kind to landlords during the pandemic.  

I was just curious if others had the same thoughts.  Here in Los Angeles you can generally bank on appreciation. 

Just thought I would get your thoughts.

Thanks!

[Dan H.]

Originally posted by @Rick Albert:

Originally posted by @Stephen Brown:

I think this will be the trend as California is not Landlord friendly and is much harder to scale. I think a lot of folks want cash now rather than wait for a future sale based on appreciation. If they didn't have money problems now they could simply invest in the stock market and wait. That's what my clients have been telling me at least. They want cash now and so they come to our market here in Ohio.

I think the landlord friendly part is a bigger concern.  Because of the high costs of rents and the good appreciation, You don't have to scale to the same degree.  For example I have a client who nets about $1700/month off one of his rentals (2 units).  You might need 6 or 7 units to get the same results but with possibly more management (such as vacancies, calls, maintenance, etc). 

We have a STR duplex that we net ~$14K/month (rent - PITI). Then on top of that, it has appreciated over $4K/month over its hold period. 5 such properties would set one up real well. Unfortunately we only have one of these, but we have another 2 (but LTR) that have also appreciated over $4K/month over the hold period and they have good cash flow. One of these LTR has a rent to purchase price ratio over 2% (the other is too recent of an acquisition to have a great ratio, yet).

I agree in this market the initial cash flow in coastal CA is not good, but it improves fast.

The cash flow of a good Midwest buy n hold property is not going to match the average monthly appreciation of a poor coastal So Cal buy n hold property (our worst has done better than $1900/month over the hold period, we have three that have appreciated more than $4K/month over the hold period).

The regulations are LL unfriendly.  It is my belief that San Diego currently has the least LL friendly regulation (COVID related) in the country (evictions can only be for health and safety items - tenants can currently break the lease with impunity but in less than 60 days they will pay for their violations (assuming no extension)).  

But ...   Largely/partly due to low vacancy rates, the missed payments and eviction rate in coastal CA is some of the lowest in the country.  So the regulations are unfriendly, but they seldom are an impact (but if they are, it can be painful).

Good luck