Sacramento real estate invesment question

[Jo-Ann Lapin]

I am trying to solve something in my mind as to why Sacramento has recently started to pick up with upper price adjustments. What fundamentals in the market place do you think has changed? 

[Wes Blackwell]

@Jo-Ann Lapin

The main reason for the recent rise in rents and home values is a migration of the lower and middle class from the Bay Area. They are currently leaving the area in droves.

For many Bay Area residents, Sacramento offers affordability and enough of a "big city feel" to make it an attractive alternative to the Bay Area. We've got an international airport, major professional sports teams, night life, culture, art and more. Everything a big city offers, without the big city price.

Millennials are entering their prime "settle down" years where they are in their late twenties / early thirties and are ready to start a family. Buying a home in the Bay Area is too expensive for them, and most are already loaded with debt from college. The median home price in San Jose cracked $1 Million back in August 2016, while it's right around $300k for Sacramento. You don't need a loan calculator to see what's the better option for most households.

For Boomers and Gen-Xer's, many in the Bay Area have recently inherited a property from their grandparents that was originally purchased in 1950 for next to nothing, and are shocked that the rinky-dink little home they grew up in is worth over $500k, so they are choosing to sell and take the massive windfall out of the state or to more affordable surrounding counties like Sacramento, San Joaquin, and Stanislaus. They can sell in the Bay Area and have enough profit to purchase something all-cash out here, setting themselves up for an early retirement.

Plus, Sacramento is a straight shot up I-80, so it's a 2 hour drive at most. That makes it real easy to travel back to the Bay Area on the weekends and see friends and family whenever you like. Areas like Stockton, Modesto and Fresno offer a much more windy and longer commute.

I've written about this in-depth here in the Sacramento forums in the post below, and it will give you a more comprehensive overview of this migration pattern:

https://www.biggerpockets.com/forums/621/topics/396725-millennial-migration-to-sacramento-2017---here-comes-the-rush