Back to Phoenix….one good thing about rentals in Coastal CA is you get a lot of “pop” in rent. Rent in CA goes up over time nicely. Rents in endless suburban sprawls like Phoenix are not much higher then they were 15 years ago. Stucco box SFR’s in the burbs of PHX are still renting for $900-$950/mo.

You also get much better tenants & demand in Coastal CA (even in lower end neighborhoods) vs. places like Phoenix. With rentals in a lot of out of state areas with higher vacancy rates, you lose so much money on turnover, evictions, vacancies that what looks like a high return on paper turns out to be a much lower return in reality. In CA a lower return on paper can end up being a higher return as you have so much more demand for your rentals and better rent increases and appreciation over time. However I still would never buy a negative cash flow rental in CA just hoping it appreciates. That is bad business.

But that being said, the window has mostly closed to be able to cash flow a rental in Coastal CA with 20% down. Late 2008 to late 2011 there were a lot of opportunities to get great cash flow right in San Diego in great rental areas. But in those years the sentiment towards real estate was that it was “a bad investment that would never go up again”. LOL. So you had to go against the negative crowd mentality to be buying back then (like usual). And like usual, now that prices are going up, everybody wants it again. It’s “Animal Spirits” at work, just like Robert Shiller says.