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Updated over 9 years ago on . Most recent reply

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Bobbi Martinez
  • Burbank, CA
6
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2% Rule in California?

Bobbi Martinez
  • Burbank, CA
Posted
As I begin to analyze properties - small, multifamily - in the LA area, none seem to be "passing" the 2% rule. A guy in my real estate investing program (which I now regret investing in) moved out of California to begin investing in Texas because he "couldn't find any profitable deals" here. I definitely don't want to leave LA. How do experienced investors in California proceed when rents well exceed 2% of the purchase price of properties here? Any advise or feedback would be gratefully appreciated. In advance, thank you! B

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David Faulkner
  • Investor
  • Orange County, CA
3,093
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David Faulkner
  • Investor
  • Orange County, CA
Replied

If you want to stay in CA, invest in RE, and NOT invest remotely out of state, then you will need to adapt your strategies to this market. That means forget about 2%, probably would need a small miracle to pull 1% and in the nicer neighborhoods you can't even cashflow with less than 50% down. This doesn't mean you can't still make money in this market, it just means you'll need to either change up your tactics (value add house hacking, flipping, RE services, etc) and/or wait until the market turns (always does, and usually dramatically in CA) to get cashflow. BTW, even in the depths of the great recession I was only able to pull ~1.25% on SFRs in C-class hoods (Palmdale, Lancaster), but they cashflowed and their values have since doubled ... so profitable buy-n-hold is possible in CA, just probably not at this point in the cycle. You need to be cognizant of the market cycles, adapt accordingly, and always protect your downside with a viable plan B. BTW2, I generally advise NOT investing out of state ... been there, done that, and it was very painful for me; your mileage may vary.

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