Quote from @James Wise:
Do people still buy property in California for any reason other than the weather? Seems like everything else about California sucks. High taxes. Soft on crime. People just stealing whatever and whenever they want. Homeless people living in tent cities pooping on the streets etc.....
Why do people still go to California?
It mid-70 deg today, so while half the country is dealing with the vortex i hung out at the beach. In the summer while the other half of the country is dealing with sweltering heat, i'm still hanging at the beach. Weather aside, I started
investing in CA 10 years ago for diversification, but also because it still has sound investment fundamentals.
The weather is better, there's way more to do, quality of living is better, and the diversity of food is hard to beat. I've lived in many cities across the US and around the world, so I've tried to remove as much bias as I can. I also invest in the midwest and sunbelt, so I'm not partial to one location for investment purposes. And while better quality of life and more things to do may not be important to you as an individual, it will still attract/retain general population over time.
yes CA business laws here are tougher to navigate, but that creates a barrier to entry. I believe that all businesses reach equilibrium, so returns should not be better in any other state/city than the other once you normalize for effort, risk and barriers to entry. Think about this - the metro city that I invest in has a greater population base than every other state in the US, aside from TX and FL. That is intrinsic demand in a diverse economy that will likely never go away. Supply side is also limited by regulations and cost efficiency.
People talk about net migration, but I also think that may be transient. I think US, like most other developed economies, will face base population decline over time. To offset that decline, we will increase immigration to maintain GDP. And people aren't immigrating to the US with aspirations to live in OH (despite my family doing so). While CA seems expensive to rest of US, it isn't that expensive compared to many other countries around the world.
To invest here you certainly need liquidity, and need to also understand investment analysis. You can't simply use year-1 cash flow, COCR or other simple metrics. You need to use IRR modeling since cash flows are not evenly distributed. And yes, you'll likely also run negative CF in early years. A typical MF property that I purchase runs negative $20k for the first few years. So i'm negative $50k before my CF turns around (part of that is principal), but once it turns the positive CF is significantly greater than other regions. And while most people "don't bank" on appreciation, I do for the fundamentals noted earlier. Over a 15 yr hold period, i've seen my CA IRRs beat all my other locations.
I think most people who've seen appreciation over the 5 years are mixing inflation with appreciation. I also think the migration patterns post covid aren't sustainable, so places with true appreciation like ID and MT may flatten out. Employment is increasing in some midwest and gulf coast cities, but land is plentiful in those areas and you can keep building, so asset value will be indexed to construction costs (ie. inflation more than appreciation). Everyone who bought 5+ years ago is doing well, but going forward you need to keep in mind fundamentals driving supply/demand.
