Appreciation vs. Cash Flow in Bay Area

[Taylor Cu]

Hello Bigger Pockets!

I am a newbie currently living in the Bay Area of California. My interest lies in rental properties. I am working on becoming better at analyzing deals. I’m working to get all of my finances together by the end of next year and hopefully house hack my first investment. As I am looking at more deals, I realize it is a little difficult to find positive cash flowing properties in my area. I thought about trying to invest out of state and was advised by a local investor that the sharks will eat me alive since this would be my first. (Still didn’t fully understand what he meant by that haha). I also read on another discussion that appreciation will continue to increase in the Bay Area and that cash flow doesn’t matter as much. I understand that positive cash flow and appreciation play huge wealth generating factors but I feel like it’ll be hard to find a property with both. What matters more? Getting a property in the Bay Area and rely on appreciation or going out of state to try and find both factors?  

[Chris Mason]

Hi @Taylor Cu,

One thing to keep in mind is rent appreciation & Prop 13.

Texas: Rent went up 10%, yay! But now the tax man says my property tax bill went up 20%, awww. :(

California: Rent went up 10%, yay! Tax man can't touch me because of Prop 13, yay a second time!

I've seen plenty of people build modest rental portfolios by doing nothing more than converting the old home to a rental, instead of selling it, after 5 years when they are ready to move onto a new home. Prop 13 doesn't go away just because you moved out, you can keep the 30YF you got when you purchased it, and your insurance starts to get cheaper as you have multiple policies with the same agent. Rent goes up over time, but expenses in California tend to hold flat relative to inflation.

Outside of that waiting game, there are cashflow positive deals in the Bay Area, they cross my desk frequently. You might have to do a little more than double click to have Redfin show you multifamily, like have a local agent send you daily notices when anything multifamily in Pittsburg, Vallejo, Oakland, etc (build your own city list), hits the market, and then run numbers when you get home from work (not just rent/capex/etc, but run comps on the property to figure out what it'll actually sell for, since we know list price is irrelevant in our area).