Originally posted by @Khushbu Shah:
Hi, I am a small investor looking for some insights and opinions on following two questions
1. what are your reasons for investing in southern california or california in general given very minimal cashflow, rent control and higher property cost in the area.
2. What are your criteria in a property apart from needing rehab for appreciation
Khushbu,
I'm saddened to hear this false narrative being repeated over and over again on BP while the turnkey marketers/providers keep piling on and selling crap rentals for the "perceived" price of gold with their OOS stuff to CA suckers, I mean CA investors.
To answer your question, it's more profitable to invest in California for the same amount of efforts. Rent control can be a blessing in disguise if you're willing to put in the effort to understand and navigate the regulations. Higher property cost is due to higher demand and desirability. Everything in life has a price. Something is cheap for a reason so is something expensive.
I don't discriminate whether or not a property needs rehab. If someone wants to sell me a turnkey property at 70-80 cents on the dollar, I'll buy it. I don't have to wait for any market correction. At the same time, if I have to put in the effort to rehab a property to get my 20-30 equity, I'll do it. No one is going to give us their equity. We have to earn or pay for it one way or another. Of course, equity can be had under the right acquisition circumstance such as "distressed or inherited sellers".
Let's lay out a couple of examples:
1) A $100k OOS flip to make $20k, or a $1M flip here in NorCal or SoCal to make $200k. Very similar effort but the reward is 10x. Do you want to flip 2 properties a year to make $400k, or do you want to do 20 flips to make $400k/year?
2) Learn to scale and look at multifamily rather than single units in our market. Every $1,000/mo increase in NOI is equivalent to $300k gain in equity on a 4 cap (our market). OTOH, every $1,000/mo increase in NOI is equivalent to $120k gain in equity on a 10 cap (cheap market).
Same effort with 2.5x rewards on example 2 above. Scale it up to 10 units and you're looking at making 7 figures/year in value-add. Scale it up to 100 units and you're looking at 8 figures.
I have done the above so I'm speaking from personal experience. I don't have a job; I don't have anything to sell; and I don't have time to meet anyone for a cup of coffee or lunch except some close friends. I've learned to value my time and share it with whom I deem worthy.
Our time on this earth is finite so the more value we put on our time, the faster it helps us to get to our destination. Then we can enjoy life while we're still young, healthy and can do adventurous stuff. Steve Jobs realized it too late. No amount of money could buy him more time when his time on this earth was up.
Have fun figuring it all out. It's a rewarding journey I promise. In the meantime, stay safe and healthy.
