California is quite different.
- low property taxes (1.2% approx) compared to 2.5-3% in TX. This removes one social hurdle to huge price appreciation impacting long term owners.
- prop-13 property tax cap (2% rise per year) incentive to long term hold.
- maintenance expenses are lower due to moderate weather on coasts. insurance cost tends to reflect this too.
- huge density of high earners and billionaires in costal metros increases demand.
- high construction cost due to earthquakes and local regulations keep supply and density of housing low.
- loans esp. jumbo,commercial, and HML are cheaper in CA due to competition (3% 5yARM w/25y amortization in hot metros matching the low 2-3% cap rates!)
So a 1% ratio property is about 7% cap rate in CA but only 6% or less in TX (same vacancy)
All these factors favor appreciation over cap rate.
Take a look at the property appreciation data for SF bay area over last 40 years...
That said, central california hits .8-1% rule often and also appreciates with coasts(2013!!). It is the goldilocks market (not to high cap, not too high appreciation).
To each their own.
Why would I not invest in CA?
Different rule of thumb applies at different price ranges, different property tax, and vacancy environments.
I use .8% filter and then compute cap rate estimating vacancies before buying.
