Cashflow positive in CA with 10-15% yearly appreciations

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Cashflow positive in CA with 10-15% yearly appreciations

Account Closed
Specialist · Northern CA · Member since 2014 · 154 posts · 57 votes

Im tired of reading about all my local CA investors wanting to run out of state for so called "great cash flowing properties". I have purchased (along with some of my investors) over 2 dozen SFR and MFR positive cash flowing properties, within the last 3 years, with instant appreciations over 25% and yearly appreciations of 10%+. I will begin to document these stories from past and future investments moving forward. I have never really posted my success stories on BP mainly because I don't really have the best creative writing skills or bp vocabulary to keep up with you guys, so please bear with me.

IMO, equity is king and cashflow is a little bonus on top. Yes cash flowing properties are always good but the $100-400 a month positive cashflow is nothing to a 10%+ yearly equity game. These out of state markets with little to no appreciation offset your income so greatly that your missing out on the appreciation of Northern California. Even worse, a capex can set you back 2-3 years of all your positive cash flow. So for all you looking to buy out of state because it is cheaper than CA here you go.

Deal 1 

SFR 3/2

Purchase price 60k (cash)

Rehab 10k

Appraised ARV 3 months later 103k

Currently rented at 1,000

15% Yearly appreciation since 2013 and still hasn't reached its peak of 2007.

Yearly profits 45,000  including equity gain

Yearly profits moving forward 27,450 including equity (not including yearly rent increase)

You can do the math anyway you want this is a great deal. Wether you were going to do creative financing, conventional loan or pay cash as I did. I will admit that tenants must be screened good as there is many rift raft around the county but there are also many great tenants as we have found. Just need to do your due diligence as on any investment.

Deal 2

Duplex each unit 2/1

Purchase price 150k

Rehab 1k 

ARV 200k

Currently rented at 1,700

12% Yearly appreciation since 2013.  This years predictions are the same 

As you can see on this property doesn't have the greatest cashflow but still meets the 1% rule Didn't need much rehab at all besides landscaping. One unit is fully remodeled and the other needs a rehab of 6-8k but rent would also go up $100 a month after rehab. This was an instant equity play which helped in my decision process.

I have many many more but don't want to run this post to long. The investments are out there in CA my friends just look for them. Im getting 1% rule easy and expecting a minimum of 10% yearly appreciation. I see these out of state investments 60-100k. Imagine if you had the extra $850.00 a month equity on those properties. I would always be willing to sacrifice a little cashflow for equity any day. The equity gains are much greater.

I know I will hear a lot about equity is not guaranteed but nothing in life is guaranteed. We make these investments on sound research and numbers. Thanks to the BP community we are all here to help you make the best educated and strategic decisions. 

More to come with pictures.

.

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Leonard L.
Investor · Newport Beach, CA · Member since 2012 · 129 posts · 102 votes
10y

There is only one question I need to ask, which always allows me to determine if the buyer has made money or not on any real estate deal  -- WHEN did you buy it?  In real estate, Realtors all tell you is it location, location, location.  Not true.  It is timing, timing, timing.   I agree with OP that there are still deals to be found in CA that make sense as buy and hold.  But as  @Matt Leonardpoints out above, if it also a riskier game.   The OP is saying he has 10% appreciation since 2013. Yeah, so has everyone else.  The question is what happens when you buy in CA and the elevator is going down instead of up.  

Don't get me wrong.  Like the OP, I am buying all my deals in CA (Riverside County).  Shifted from mostly buy and hold to mostly fix and flip.  But that means that if I marked portfolio to current market, I would also have to admit I am only getting a 5% return (although a 15-20% return on capital, thanks to appreciation).  At some point (not yet), I will take most or all of my chips off the CA table and place them in a more stable market in another state while awaiting the next CA correction. [Winter is coming...]  

So yes, appreciation makes you wealthy.  Yes, you can still find deals in CA that make sense if you do this full time and stay highly motivated.  Yes, the signs look good for next year or two at least to keep investing in CA.  Yes, I could tell stories about properties I bought in 2011-2013 period that would make me look very smart.  But whether buying in CA makes sense for YOU or not depends on your goals. If it is capital preservation, buying in CA at this point in the cycle may not be the smart bet.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    @Account Closed Thanks for your post.  I hear the same thing from people here in the DC area that it is too expensive to invest here.  I believe people can find cash flowing properties within driving distance in ANY market. I firmly believe that, people just dont want to look outside there few mile radius that they are most familiar with.

    I also prefer the balance sheet that appreciation brings. I always say "Cash flow is how I pay my bills, appreciation is how I build wealth."

    [email protected]301-893-4635Podcast Guest on Show #192
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  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    10y

    Thanks for the share.your writing is just great. You have a real competive edge with your occupation that most don't. As a CA resident I remain very positive about our market and always remind myself location at the right price with a value add long term is best way to proceed

    [email protected]
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  • Sunny Vig
    Lender · Corona, CA · Member since 2016 · 47 posts · 10 votes
    10y

    You must be doing really good with these kinds of deals, good luck with your skills. I always try to find deals like you are mentioning, but the numbers are not even close to what you are mentioning. Must have a special niche in which you focus on.

    1Reply
  • Account Closed
    Investor · San Jose, CA · Member since 2015 · 23 posts · 6 votes
    10y

    Anthony,

    Your writing skills are great alread, so I want to hear more from you.

    Would you mind sharing with us which locations in California you are referring to?

    Sonny

    0Reply
  • Account Closed
    OP
    Specialist · Northern CA · Member since 2014 · 154 posts · 57 votes
    10y

    @Account Closed I can't share the exact locations or cities of my properties but I can tell you that they are out there in Sonoma, Mendocino, Sonoma, Butte, Sacramento Counties. 

    I am always open to the idea of a JV a deal, but these properties listed above are buy and hold. I have fix and flip deals but I like to enter in at a higher entry point in better areas with higher returns

    Wether its a 2 million dollar home or a 100k home the price for any rehab is usually the same cost, depending on materials used. So as you can see I would rather invest my dollars into something that get higher flip returns. Somewhere in the 75-200k range ideally with properties around 600k selling for 900k.  Properties that can give me a 25-40% return on my investment 3-6 month turn around

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    It sounds like you found the sweet spot in CA.

    Every investor has specific needs to fill. My investments need to buy my groceries therefor must have positive cash flow. I can not afford to carry any negative properties with my income and only view  appreciation as something possibly down the road if the economy does not crash again. But the nice thing is I don't need appreciation to be comfortably upper middle class or successful.

    0Reply
  • Joe Bertolino
    Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
    10y

    Shhhhh... :) 

    0Reply
  • Dmitriy Fomichenko
    Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
    10y

    @Account Closed

    Those are some amazing deals and the entire community would like to read more of these stories. By the way, the appreciation is terrific and you usually get such figures in very selective markets. Good luck and much success to you!

    0Reply
  • Sean Mackenzie
    Santa Barbara, CA · Member since 2016 · 4 posts · 0 votes
    10y

    @Account Closed 

    Great job on finding those deals. It sounds like you have a knack for seeking out highly profitable investment opportunities in your area. 

    Can you share your method for determining which properties you want to invest in? Do you have a defined selection criteria or do you work largely off your intuition gained from your experience in the construction business?

    0Reply
  • Sandra Roddy
    Investor · Arlington, VA · Member since 2012 · 84 posts · 27 votes
    10y

    @Account Closed 

    Your post had a fresh perspective which was rejuvenating since we mostly read complaints from others in the state.  It reminded me of another Californian's point of view, Aaron Monzanilo, (sp?) who invests in So Cal around Riverside.  To him, equity is king and I agree as long as there is a means to withdraw it to keep reinvesting.  

    Finding the right strategy is very important when determining a market.  In your case, I believe you are investing outside of coastal CA with those prices ... maybe central or northern? 

    Yes, please share more stories/pics.

    0Reply
  • Account Closed
    OP
    Specialist · Northern CA · Member since 2014 · 154 posts · 57 votes
    10y

    @Thomas S. mentioned "Cash flow is how I pay my bills, appreciation is how I build wealth."

    0Reply
  • Matt Leonard
    Oakland, CA · Member since 2015 · 23 posts · 7 votes
    10y

    Appreciation vs cash flow is the core of the debate here, but it seems that when the housing market crashed in ~2008 there are some good lessons. It impacted rental markets far less (at least in California), but appreciation didn't just stall out, it put millions underwater (including investors)

    So if appreciation is your primary metric - then that's playing the riskier-but-possibly more rewarding game. Cash-flow seems to be the less-risk-and-more-predictable game. Each have their own pros/cons, and depends on lot on your personal situation.

    1Reply
  • Gordon CuffePro Member
    Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
    10y

    It sounds like your doing great. California has always been a boom then bust real estate cycle since the 1970's. There was steep appreciation from the late 80's then it stopped in the early 90's. Then we had the very steep incline in prices from 2000 to late 2005 then the biggest bust in history. Now we are going through nice appreciation since April 2012. The question is when will this cycle stop?

    0Reply
  • Leonard L.
    Investor · Newport Beach, CA · Member since 2012 · 129 posts · 102 votes
    10y

    There is only one question I need to ask, which always allows me to determine if the buyer has made money or not on any real estate deal  -- WHEN did you buy it?  In real estate, Realtors all tell you is it location, location, location.  Not true.  It is timing, timing, timing.   I agree with OP that there are still deals to be found in CA that make sense as buy and hold.  But as  @Matt Leonardpoints out above, if it also a riskier game.   The OP is saying he has 10% appreciation since 2013. Yeah, so has everyone else.  The question is what happens when you buy in CA and the elevator is going down instead of up.  

    Don't get me wrong.  Like the OP, I am buying all my deals in CA (Riverside County).  Shifted from mostly buy and hold to mostly fix and flip.  But that means that if I marked portfolio to current market, I would also have to admit I am only getting a 5% return (although a 15-20% return on capital, thanks to appreciation).  At some point (not yet), I will take most or all of my chips off the CA table and place them in a more stable market in another state while awaiting the next CA correction. [Winter is coming...]  

    So yes, appreciation makes you wealthy.  Yes, you can still find deals in CA that make sense if you do this full time and stay highly motivated.  Yes, the signs look good for next year or two at least to keep investing in CA.  Yes, I could tell stories about properties I bought in 2011-2013 period that would make me look very smart.  But whether buying in CA makes sense for YOU or not depends on your goals. If it is capital preservation, buying in CA at this point in the cycle may not be the smart bet.

    5Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Leonard L.:

       At some point (not yet), I will take most or all of my chips off the CA table and place them in a more stable market in another state while awaiting the next CA correction. [Winter is coming...]  

     . If it is capital preservation, buying in CA at this point in the cycle may not be the smart bet.

    You're not the first to state their opinion that CA is boom and bust but I just don't see any metric that supports that.  If you look at rents and appreciation in CA it has pretty much been a straight line UP!  Sure the market has cycles where everything jumps up 110% and then has a -10% correction but I sure don't call that a bust.  Even if you buy at the top of the market you're only seeing a 10% drop.  Hardly a reason to pack up and take your money to a "stable" area where the stability is the lack of rent or value increases.  Stick your money in your mattress if that is the kind of stability you need. 

    Of course there was 2008.  If you held thru that time you realize that it had no effect on your investments.  Taking money out of CA has generally not been profitable.

    0Reply
  • Leonard L.
    Investor · Newport Beach, CA · Member since 2012 · 129 posts · 102 votes
    10y

    You want a metric?  How about just three of my actual residences.  Boom examples -- Bought Santa Monica 1995 $300k (for which someone had paid $600k 4 years earlier), sold 1997 $600k.  Bought Danville 1998 $420k, sold 4 years later $840k.   Bust example - bought LA 1989 $165k, worth about half of that a few years later when I wanted to move to Santa Monica, so I was forced to hold and rent 10 years, at negative cash flow, until values finally crept back and I sold at break even (loss if you could holding costs).   Someone bought that same LA house in 2005 for $615k, but it sold again recently for about half that again.   So for every boom story, there is often a guy on the other side who is feeling a great amount of pain from what he sees as the bust.

    Rents and appreciation are a straight line up only if you are looking at chart that only goes back to 2009. On the rent side, my partner has 75 SFRs in San Diego and none have more than 50% LTV debt, but almost lost entire portfolio in 2008 when tenants just couldn't pay rent anymore. His net rents actually declined by 50% from 2007 to 2010 if you factor in vacancy and abatement necessary to keep tenants in the units.

    So, yeah, in these heady, booming days, it is easy to forget the pain of a bust.  But it will come again.   And in the meantime, your return on return on capital on most CA deals when you buy at today's prices is pretty mediocre, never mind the prospective potential loss of capital if you have to sell during a bust.

    3Reply
  • Matt Leonard
    Oakland, CA · Member since 2015 · 23 posts · 7 votes
    10y

    Bob, the ~2007 crash wasn't a little 10% correction. It was a prolonged, multi-year devaluation that saw some parts of the state averaging a 70% loss in value. Nearly 10 years later, most areas still aren't back to their peak. 

    If you are in a position to ride that volatility out over ~10 years, great. But that cycle of boom/bust of housing SALES (and typically what people refer to in valuation) is a lot of risk for most people, and the facts of the economic collapse speak for themselves.

    But the RENTAL side doesn't have those same boom/bust cycles. They aren't immune to economy-wide crises, but the volatility is not nearly the same. Cash-flow properties are far better positioned to ride out volatility in housing prices than houses that are focused only on appreciation.

    Good article (a few years old now) here: http://www.ppic.org/main/publication_show.asp?i=1009

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Leonard L.:

    You want a metric?  How about just three of my actual residences.  Boom examples -- Bought Santa Monica 1995 $300k (for which someone had paid $600k 4 years earlier), sold 1997 $600k.  Bought Danville 1998 $420k, sold 4 years later $840k.   Bust example - bought LA 1989 $165k, worth about half of that a few years later when I wanted to move to Santa Monica, so I was forced to hold and rent 10 years, at negative cash flow, until values finally crept back and I sold at break even (loss if you could holding costs).   Someone bought that same LA house in 2005 for $615k, but it sold again recently for about half that again.   So for every boom story, there is often a guy on the other side who is feeling a great amount of pain from what he sees as the bust.

    Rents and appreciation are a straight line up only if you are looking at chart that only goes back to 2009. On the rent side, my partner has 75 SFRs in San Diego and none have more than 50% LTV debt, but almost lost entire portfolio in 2008 when tenants just couldn't pay rent anymore. His net rents actually declined by 50% from 2007 to 2010 if you factor in vacancy and abatement necessary to keep tenants in the units.

    So, yeah, in these heady, booming days, it is easy to forget the pain of a bust.  But it will come again.   And in the meantime, your return on return on capital on most CA deals when you buy at today's prices is pretty mediocre, never mind the prospective potential loss of capital if you have to sell during a bust.

    You know I think I read that about 50% of investors/homeowners do worse than about half the market.  If you look at prices over the last 4 decades you'll see that well bought properties that sold for $50,000 in the 70's sold for about $100,000 in the 80's, $200,000 in the 90's, $400,000 in the 00's and now for $800,000 plus.  Rents dropping 50%!?  In over 40 years of landlording in CA and Honolulu I have NEVER had to drop rents. 

    Sure if your portfolio consists of properties in the boonies that you thought were good investments because they were CHEAP then you may well have suffered rent declines.  But hey, you bought cheap. 

    You sales examples are surely examples of people buying high and selling low.  That doesn't work in any market. 

    Where's @Matt R. with his market research when you need him?

    2Reply
  • Account Closed
    OP
    Specialist · Northern CA · Member since 2014 · 154 posts · 57 votes
    10y

    This post was not about Cashflow vs. Equity. This post was to enlighten CA investors that there is CURRENT properties for sale with positive cashflow at 1% or greater along with appreciation of 10-15%. If the market does dip I still have the positive cashflow to ride the cycle out. As @Account Closed stated the CA markets have constantly risen decade after decade even with market corrections.

    @Leonard L. I am currently buying properties with these same figures as stated above and will continue to post all my deals. I have just purchased 3 this year all positive cashflow with the bonus of equity gains of 10% plus.  Thats yearly 10%+.  My properties purchased early after the crash has risen in equity 40-50% since the bottom of the market and still not currently at there peaks of 2007 when majority of CA have surpassed there peaks of 07'. 

    No one can predict the future but I can predict that they will be higher in 10 years than they are now. 

    I have one questions to all you guys debating this. If you only purchase for cash flow, is that not a long term strategy? If so, then why would you worry about a market correction if the market will always return and be worth more in the future.

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    This post was not about Cashflow vs. Equity. This post was to enlighten CA investors that there is CURRENT properties for sale with positive cashflow at 1% or greater along with appreciation of 10-15%. If the market does dip I still have the positive cashflow to ride the cycle out. As @Account Closed stated the CA markets have constantly risen decade after decade even with market corrections.

    @Leonard L. I am currently buying properties with these same figures as stated above and will continue to post all my deals. I have just purchased 3 this year all positive cashflow with the bonus of equity gains of 10% plus.  Thats yearly 10%+.  My properties purchased early after the crash has risen in equity 40-50% since the bottom of the market and still not currently at there peaks of 2007 when majority of CA have surpassed there peaks of 07'. 

    No one can predict the future but I can predict that they will be higher in 10 years than they are now. 

    I have one questions to all you guys debating this. If you only purchase for cash flow, is that not a long term strategy? If so, then why would you worry about a market correction if the market will always return and be worth more in the future.

     Ruh! Roy! https://www.google.com/search?q=ruh+roh+meme&clien...

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    Somehow I seem to contrarian on this subject.

    @Russell Brazil, @Matt Leonard, @Leonard L. I've always seen Cash as King and thus invested with the principle of demanding Cash Flow. That does not say that I tear-up the check supporting appreciation!! That's a gift from the REI gods IMO, as I did nothing to make that happen (ignoring the 'forced appreciation' concept).

    Lived in Cupertino, CA in 1973 in a small 3/2 which we bought for 37k,  The following year, the house next door sold for 64k - - almost 100% appreciation - - but wait, in 93 when we sold and came to SoCal, our 3/2 was sold for 305k, 824% appreciation!!!  We used that for a 1031 into our 6-units.  Now that's a total contradiction to my Cash is King, but wait, there's more.

    In 1997 we got into the MFU for the 305k  and started reaping cash flow over some 18-19 yrs.  That's more that a million flowing into my checkbook.  Location, location, location, support systems and a turnkey offer at the right time (inventory for MFU investments was zero) has produced a sale at 775k - - or 254% appreciation which took 18yrs so the yearly value is more like 14%/yr.

    The 'forced appreciation' was not from County assessments, but from the economic appraisal of the rents the units demand.

    WHILE I was managing the facilities and rents, the gods of REI has granted a gift - - Cash of 775k (before closing) and a capital gains 'gift' of 450k

    So the million of cash flow trumps the appreciation and did not get offset by CG and taxes.

    1Reply
  • Matt Leonard
    Oakland, CA · Member since 2015 · 23 posts · 7 votes
    10y

    Bob, I'm with you. There are deals to be found in California. I'm new - but just closed on my first dedicated rental (I have another, but was a conversion from a 2nd home).

    $85k purchase in Sacramento, turnkey SFR that was rehabbed in the past 5 years, and grossing $1,000/month (existing tenant who has been there for 6 years and taken great care of the place). Still in the midst of refinancing it off my HELOC, but once that is sorted - I'll have a solid cash flow (north of $300/m) with minimal cash in.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    @Leonard L. Where in LA was the house that sold in 2005 for $615K and recently sold for half that?  Some locations are still upside down from the peaks in LA but that one is surprisingly upside down. 

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    10y

    The equity has a lot of strong uses including leverage and fast liquidation.  On the other hand, equity can be stripped from property instantly.  Look at how fast in 2008 a property worth 100k went to 60-70k .  

    Cash flow is something that builds over time as you acquire many units.  It is also what prevents you from sinking the ship on a bad stretch in the portfolio.  $300 x month in either direction for a couple of units won't break you in the event there are evictions on both properties.  Negative $300 x 100 units could add up quick and you would have to have deep pockets to sustain this.  

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    10y
    Originally posted by @Leonard L.:

    You want a metric?  How about just three of my actual residences.  Boom examples -- Bought Santa Monica 1995 $300k (for which someone had paid $600k 4 years earlier), sold 1997 $600k.  Bought Danville 1998 $420k, sold 4 years later $840k.   Bust example - bought LA 1989 $165k, worth about half of that a few years later when I wanted to move to Santa Monica, so I was forced to hold and rent 10 years, at negative cash flow, until values finally crept back and I sold at break even (loss if you could holding costs).   Someone bought that same LA house in 2005 for $615k, but it sold again recently for about half that again.   So for every boom story, there is often a guy on the other side who is feeling a great amount of pain from what he sees as the bust.

    Rents and appreciation are a straight line up only if you are looking at chart that only goes back to 2009. On the rent side, my partner has 75 SFRs in San Diego and none have more than 50% LTV debt, but almost lost entire portfolio in 2008 when tenants just couldn't pay rent anymore. His net rents actually declined by 50% from 2007 to 2010 if you factor in vacancy and abatement necessary to keep tenants in the units.

    So, yeah, in these heady, booming days, it is easy to forget the pain of a bust.  But it will come again.   And in the meantime, your return on return on capital on most CA deals when you buy at today's prices is pretty mediocre, never mind the prospective potential loss of capital if you have to sell during a bust.

     I do not know what part of San Diego your partner was in and it sounds like he had many more units than what my family and I had (we had a total of 7 units back then) but we had no appreciable rent decline.   We had one unit go from $1900 to $1850 a month.  That was the only decline I can recall.   The thing working for us is the banks owned a fair amount of vacant/foreclosed properties.  Those people had to live somewhere which if it was not with family meant they were now renters.  We had no extra vacancies.  Basically outside the on paper equity loss due to homes depreciating 20% to 50% (our areas did not approach 50% decline but areas in San Diego county did for example Valley Center) we had no impact on our rentals.  

    Hopefully 2008 is an extreme.  It is comforting to me having rentals at that extreme and having fairly minor impact (other than to my net worth on paper).  I like to think future depreciations will play out similarly.  

    1Reply
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