Is there a positive cash flow in California?

Question

I've heard a lot that it's impossible to find real estate with cash flow in California. And of course, I trust true professionals and then checked their opinions. Fortunately, I was able to find a few properties (not for advertising, just to prove my words: 1450 Belvedere Ave, STOCKTON).

I assume the real cash flow can be found at the Fourplex in Stockton. Any other ideas (and if possible with the proof of your words)?

Also, I will be glad if someone has a fourplex for sale or wants to work together (partnership or agents if you have cashflow property).

Joseph P Finkelstein · Answer

My sister and I own a cashflowing building in So Cal, and it took about 27% down to do so. As Bruce said, every building should cash flow as long as your NOI covers your debt service. That means that in some areas like expensive CA, on average, you have to leave more equity in the property and thus the power of your leverage is worse.

Also, cashflow is not a static equation. Some units are below market, but they just need some fixing up to get higher rents and more cashflow. Some areas have pretty steady rental growth year over year, so that will change your cash flow year over year. You definitely make your money when you buy, but that doesn't mean that the building is locked the way it is once you own it.

Another aside, it is true that a lot of areas are tough to cashflow in CA, but be careful with how you run your pro formas. I know on bigger pockets they like to use a 10% vacancy expectation, and that is a great rule of thumb across the board, however, in our market (Los Angeles) the average vacancy is more like 5%, so if we used 10% there would never be a purchase that made sense.

Caroline Widjaja · Answer

It's true that it's tough to find cash-flowing properties in CA. It's either small ROI or break-even. Most investors only rely on appreciation in CA. I once worked for a big hedge fund real estate firm in CA, even though they bought bulks of SFH properties from the big banks, their ROI only 5-6%, and they bought it 8-10 years ago. By now, they have A LOT OF equities from it. I would say they made a pretty good move back then, even the ROI is small.

Bruce Lynn · Answer

Cash flow is a function of what down payment you use.....but I would generally say from what my CA investor clients tell me is that cash flow year one with a 20-25% payment is very tough.  Rent vs price is very tough.  I sure there are opportunities...and probably better chances outside of the major cities where sales prices might be better.

One trick though is CA tends to be unfriendly towards landlords and I understand now has statewide rent control.

Many great investors will likely look at more investment friendly states.

Matt K. · Answer

There's always stuff that can cash flow, but generally speaking it just takes more money to do so.

A 4plex in Stockton is unlikely to see the same appreciation as other properties. That's part of the reason cash flow is low CA is because people are willing to sacrifice monthly for a bigger chunk at the exit (in theory).

There is always deals, but in this market I'd be super picky. Don't get something just to get something.

Garrett Crosby · Answer

Absolutely. However, I do have a few thoughts on this topic being both an investor-friendly agent in LA and an investor myself. :)

#1 Short Term Rentals are an amazing cash flow opportunity in CA. I love these for a number of reasons - but mostly because you don't need to worry about the tenant laws that can cause headaches for landlords with buy and hold properties.

#2 Flips - this market was born for it. In the current climate we are in, scoring cash deals is very common - but of course, demands a lot more capital upfront. Hard money lenders are available - but I caution new investors to partner with experienced flippers or at least an investor-friendly agent to walk you through the steps.

#3 Buy & Holds are doable but risky IMO. I own several buy and hold properties - but they are not in CA. This is for multiple reasons - one of which is the amount down to secure cash flow, the other is due to the tenant laws of the state.

Of course, all of these have to do with residential (not commercial) examples - but there are certainly good commercial opportunities out here as well.

Happy to have a more detailed conversation offline if you'd like. Good luck! :)

Alex Zan · Answer

Much appreciate Joseph for this info!

Gurbeer Sangha · Answer

Hi!

I am a realtor and investor based out of California (specifically Fresno, but I specialize in deals in the whole Central Valley). All of my investments are positive cash flow after mortgage and costs. You just need to find the right deals (which is easier right now with the adjusting market). You can look at a couple of examples that are on my profile of positive property cash flow. Feel free to reach out if you need help getting started or have any other questions.

Is there a positive cash flow in California?

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