SoCal is a great example of that in action, and explains to a large degree why our appreciation has been so high historically and will likely continue over the long term IMO (with some volatility in the short term). 

It seems to me that screening people, and rejecting those with out of whack debt to income, or sketchy cashflow, volatile credit over the last decade, little to no credit, short emplyment with a company or business, etc. might then be prudent, on deals lasting longer than than the time it takes to collect a 'finders fee.' :-) I would prefer a 2- 3 year agreement with 'sellers,' and half to a third of that duration with the 'buyers...' with more money down ($5k. - $10k.+) less tacked- on monthly if a sandwich option, and outsourcing the 'property management.'

The other thing typically priced into that CAP rate by the market is the risk and quality, consistency, and volatility of the NOI ... you can see this in any given city where the CAP rate will increase for commercial properties that are older, more run down, and in the rougher side of town where collecting that NOI may be harder and less consistent. 

I agree that CA is boom and bust state and that is partly due to politicians and the short term distortions mentioned ... it is a wonderful thing for investors who know how to play the volatility to their advantage, and can really hurt those who don't.

For example, CoC may tell you something about your year 1 cash flow, but will tell you nothing about appreciation (forced and/or market), rent growth, CapEx, quality/volatility of cash flow, mortgage pay down, tax benefits, management headaches, or the risk you will be taking on to achieve that CoC ... all of these things mentioned and more are critical points to be considered that CoC alone tells you nothing about. 

It's highly liquid and you can sell right away if you need money but it may also be volatile depending on market conditions.  

I am a big fan of the Bogleheads, passive investing and broad diversification across markets and geographies.For just a few hours of easy work per year it's relatively easy to get average returns north of 8-9% but the volatility can be pretty brutal at times.

The great thing about California is our volatility.

Still, its does get tricky in a more competitive markets like now, especially in volatile real estate markets like San Francisco.

They tend to be more volatile in price, and the tenant management is different.