Hello fellow investors! (Oakland, Orland: real estate market, apartment, foreclosed)

[misterwhat01]

I have just joined the BP family and have researched and educated on REI a few months now. The biggest question I have now is - should I invest somewhere local (2 ~ 3h drive) or out-of-state?

The market in the Bay Area is difficult, and I do not seem to find offers locally that give me the right number. Of course, I would prefer local for a sense of security and I can deal with problems if something goes south. However, I should mostly have PM manage the property for me as I work full time and travel abroad often. So maybe it does not make a local difference or out-of-state.

Where would you guys recommend to invest in Northern CA and where for out-of-state?

[phantompilot]

Originally Posted by misterwhat01

I have just joined the BP family and have researched and educated on REI a few months now. The biggest question I have now is - should I invest somewhere local (2 ~ 3h drive) or out-of-state?

The market in the Bay Area is difficult, and I do not seem to find offers locally that give me the right number. Of course, I would prefer local for a sense of security and I can deal with problems if something goes south. However, I should mostly have PM manage the property for me as I work full time and travel abroad often. So maybe it does not make a local difference or out-of-state.

Where would you guys recommend to invest in Northern CA and where for out-of-state?

I am reducing my exposure to CA...because I think the state is headed for a massive fiscal collapse that will require significant tax increases; because of that, the forecast for residential RE here is gloomy at best. A 50% haircut is not unlikely. It will be deeper and longer than the 2008 crash. So, because of that, I've been putting more energy into residential and light commercial in Nevada, Utah, and Idaho, and have two deals ready to close next quarter that will offset a CA REIT I'm unwinding. My minority partnership share is worth enough to cover both my new deals that should have net cash flow in excess of the CA investment, and I will be the lead partner and majority shareholder, which is much better for me.

I still have a primary residence in CA and a rental but the rental is already paid for, so if it takes a dump I don't mind since I don't have much expense on it, only about 8K/year in tax, maintenance, and fees. Oh, the other benefit of non-CA stuff, is if you create the right trust structure you can avoid owing any CA tax...so that's a huge plus particularly if you plan to flip a lot.

I think a lot of CA people are going to get wiped out completely in the crash because they are going to lose most or all of their equity and then get further in the hole when they have to sell or are foreclosed and wind up caught in the exit/sale traps the legislature has already created.... and will be creating more of shortly.

Think of the Beserkeley-Oakland transfer fee but statewide and 5x the current rate.

[Oakformonday]

Originally Posted by phantompilot

I am reducing my exposure to CA...because I think the state is headed for a massive fiscal collapse that will require significant tax increases; because of that, the forecast for residential RE here is gloomy at best. A 50% haircut is not unlikely. It will be deeper and longer than the 2008 crash. So, because of that, I've been putting more energy into residential and light commercial in Nevada, Utah, and Idaho, and have two deals ready to close next quarter that will offset a CA REIT I'm unwinding. My minority partnership share is worth enough to cover both my new deals that should have net cash flow in excess of the CA investment, and I will be the lead partner and majority shareholder, which is much better for me.

I still have a primary residence in CA and a rental but the rental is already paid for, so if it takes a dump I don't mind since I don't have much expense on it, only about 8K/year in tax, maintenance, and fees. Oh, the other benefit of non-CA stuff, is if you create the right trust structure you can avoid owing any CA tax...so that's a huge plus particularly if you plan to flip a lot.

I think a lot of CA people are going to get wiped out completely in the crash because they are going to lose most or all of their equity and then get further in the hole when they have to sell or are foreclosed and wind up caught in the exit/sale traps the legislature has already created.... and will be creating more of shortly.

Think of the Beserkeley-Oakland transfer fee but statewide and 5x the current rate.

Can you explain in a little more detail why you think the CA real estate market is going to crash harder than 2008? That is quite a bold prediction and needs to be backed up. Thanks.

[phantompilot]

Originally Posted by Oakformonday

Can you explain in a little more detail why you think the CA real estate market is going to crash harder than 2008? That is quite a bold prediction and needs to be backed up. Thanks.

Sure. It is really about the taxation authority being abused under the Democrat supermajority - a condition which wasn't around back then.

They won't be able to exercise any restraint. And they will react to a predictable tax exodus caused by any downturn in the broader economy, by imposing high exit penalties and raising rates which will spiral into a cascade of equity losses. The only thing propping up these taxes in the first place is the high wages, which companies can export without any penalty or other barrier. Unlike real property, employees are totally fungible. Just an accounting entry. So it follows that companies will refuse to play this game and will simply move jobs out of CA (and the employees that want to keep their jobs, with them). Why would they want to jeopardize their company just to bail out California government?

[Harpaint]

You may have to file income taxes in 2 states if you invest outside of the state you reside in. Try investing in a nice moderately priced senior apartment building with a manager and some activities on site. Our population is aging.

[phantompilot]

Originally Posted by Harpaint

You may have to file income taxes in 2 states if you invest outside of the state you reside in. Try investing in a nice moderately priced senior apartment building with a manager and some activities on site. Our population is aging.

You personally still have to file taxes in your state of residence, but with the proper trust structure, you won't have to report the income of the foreign trust, that's the point I was making.

[bmw335xi]

Originally Posted by misterwhat01

I have just joined the BP family and have researched and educated on REI a few months now. The biggest question I have now is - should I invest somewhere local (2 ~ 3h drive) or out-of-state?

The market in the Bay Area is difficult, and I do not seem to find offers locally that give me the right number. Of course, I would prefer local for a sense of security and I can deal with problems if something goes south. However, I should mostly have PM manage the property for me as I work full time and travel abroad often. So maybe it does not make a local difference or out-of-state.

Where would you guys recommend to invest in Northern CA and where for out-of-state?

I think any investment property now needs to be a fixer upper. Those are the only areas I see you making a good return right now because prices are so high. It seems like the economy will do pretty well under Trump, despite rates increasing, so we might not see a housing collapse anytime soon. The other thing you can look at is properties with good rental income. It's difficult to invest in a property out of state unless you used to live there before, but even then it's still difficult because you would have to outsource everything from repairs, renovations, property management etc.

I recently bought a property in Orlando for $530k and am renting it out for $3,750 month. It's also one of the largest homes in that neighborhood, yet priced near the bottom, so there still are good deals around the country, you just have to be patient. The Bay Area is a bad area to invest right now unless you have A LOT of money.

[Harpaint]

Originally Posted by phantompilot

You personally still have to file taxes in your state of residence, but with the proper trust structure, you won't have to report the income of the foreign trust, that's the point I was making.

What type of trust? When I lived in Hawaii and had a rental in Oregon, I still had to file Oregon income tax. Would have liked to avoid that!

[phantompilot]

Originally Posted by Harpaint

What type of trust? When I lived in Hawaii and had a rental in Oregon, I still had to file Oregon income tax. Would have liked to avoid that!

It is an incomplete gift trust. I don't know anything about a Hawaii to Oregon scenario though - every state combination is different due to state laws - consult a tax and trust professional for guidance.

[Harpaint]

Originally Posted by phantompilot

It is an incomplete gift trust. I don't know anything about a Hawaii to Oregon scenario though - every state combination is different due to state laws - consult a tax and trust professional for guidance.

Thanks!