Guide to Investing Out of State for Commercial Real Estate Investors in Los Angeles, California
Isn’t real estate supposedly one of the best categories of investment classes in the world? People always need a place to live, right? So why does it seem nearly impossible to invest in real estate in California, which is known along with New York and Florida as one of the best places in the world to invest in real estate, unless you have a few million dollars? It is because they are densely populated and in the case of Los Angeles they have already increased dramatically not only in the last six years by 40% but they have quadrupled, 400%, in the last 30 years. (S&P Index LA) Those are great returns for an asset that is considered safe and moderate growth. So what should a person do today if they live and grew up in Los Angeles and want to invest in real estate but don’t have a million dollars to invest? The solution is simple, invest out of state!
Many people think that it is difficult to invest in a state like Texas. You have to manage property, collect rent, and make the right long-term investment decisions in a state you’re only familiar with right now, right? Well, let me explain why it’s a good thing if someone thinks otherwise, and how a great agent can acquire property for you in another state in a deal where the tenants, those who use the space on the property, manage the property for themselves. you. and even paying your property taxes! Not only that, but these are institutional companies that guarantee you the money they promise you for periods of up to 10-15+ years, by contract. This is just the beginning of my explanation of how investing outside of your comfort zone with the right advice can benefit you and your family.
What about the security of these investments? I don’t want to lose my hard earned dollars. You neither. So why would you invest in something outside of the Los Angeles or California region? A region that has proven itself for decades and is showing promising signs of growth in certain areas. These are definitely valid points in the eyes of an avid investor, but it may be time to reconsider. I already mentioned that property prices in Los Angeles are expensive, which is one of the main reasons to invest elsewhere.
Haven’t you noticed that many people who have been living in California are moving to neighboring states where it is much cheaper to live and to places where new and old business industries are beginning to thrive? I personally know a few people who have moved. Texas alone has added more than 5 million people to its population in the last thirteen years according to the Texas Department of State Health Services, and it’s still growing. With that in mind, doesn’t it sound like a lot to buy commercial property in a state where you can buy commercial real estate for around $150,000-$300,000 down? You couldn’t dream of that in Los Angeles unless you wanted to buy an old run-down building.
Are you beginning to understand how easy it can be to invest outside of your state and why it’s more lucrative? If it does, great, if not, here’s another way to understand it in a situational scenario with numerical figures.
My friend Jack has $500,000 right now that he wants to invest.
Here’s what would happen if Jack invested in a Los Angeles commercial property between 2015 and 2020.
Let’s say Jack does not take out a Loan and buys a Single Fee Business Property.
$500,000 x 4% annual interest = $20,000 Income/year (before taxes) x 5 years = $100,000
During this time period, the value of the property rises to $600,000 by 2020, and Jack sells his property to Jenner. That makes a profit of $200,000 before capital gains and income taxes.
Now, let’s say that Jack stepped out of his comfort zone and decided to buy a property in Texas.
$500,000 x 8% = 40,000 Income / Year (before taxes) x 5 years = $200,000
During this period, the value of the property rises to $750,000 and Jack now shows Jenner how much easier it was to invest out of state due to the structure of this deal. He told Jenner that since Starbucks managed his property and paid him on time without question every month, this made it much easier as an investment. Now, Jenner wants to buy this investment from Jack, because he sees the benefit and Starbucks wants to re-sign for 10 more years with a rent increase.
Jack has just won another $250,000, on the increase in property value.
In total, Jack has now accumulated $450,000 before taxes over the last 5 years investing in Texas. Get it?! Do you understand the benefits and financial rewards? Not to say you can’t have these structured deals in Los Angeles, but remember that they offer half the interest in a market that is already up 40% in the last six years.
Jack made $450,000 investing in Texas vs. $200,000 investing in California with the same amount of money. That’s an additional 125% increase in profit, giving you an even staggering amount of money on his next big investment!
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