California real estate investing is definitely different than the REI we do here in Kansas City. And I’ve written about the differences between California and Kansas City before and I think I’ve proved that for cash flow nothing beats Kansas City. You can see the first post here wherein I proved the math for Kansas City.
Of course, those articles go all the way back to 2007 when real estate was still booming. It’s not anymore in most places though activity has most definitely picked up. But then I receive this facebook message from my cousin, a realtor in California.
“We closed on an investment property yesterday and now I’m trying to get it ready to rent. 960 cash – 2 week close and no contingencies. ( 8 offers I think ) As soon as we closed I got a call if we’d sell for 1,050,000. It’s only a 2 bedrm condo and I’m asking 4400 mo rent but it will go higher. It’s crazy here. I don’t even do real estate anymore but for us…”
Now I admit that looks fantastic! Heck, it’s a $90,000 equity gain in a matter of days! But I regularly sell houses with cap rates of 10. I regularly sell houses with 11%-13% cash on cash returns. Heck, if you take all in prices of houses we do and go for my quick-n-dirty multiplier I sit at 1.7-1.9 on a more than regular basis. ($46,000 all in price divided into rent of $850 equals a 1.85 which is sure to kick off better than 11% cash on cash.)
I don’t have the energy to do all the math today. But her quick-n-dirty return number is 0.46. I said 0.46!
With $960,000 I could have approximately 20 homes in and around Kansas City bringing in cash flow and earning whatever appreciable equity growth KC will do. Your risk would be spread out across 20 properties instead of 1. If after buying and rehabing and renting I had created a harvestable equity position of about 12%-15% (our average – difference between what it’s worth and the all in price) I would have created an equity gain of $138,000. That’s better than the $90,000 we mentioned above, right?
California real estate investing or Kansas City? C’mon out to KC. The first BBQ sandwich is on me.