I live in California. Real estate is a big game here in California… this has a lot to do with the fact that it is by far the most populous state with just over 39 million people.
When most people think about California real estate, they think about appreciation and high property values. This is very true, especially in the bigger cities. Take San Francisco for example, where an average median family home is valued at about $1 million.
People still like to talk about the early 2000’s when they were flipping homes almost weekly and making enormous gains. Everyone and their mother was investing in California real estate. That is until the big bust of 2007-2008 happened and everyone lost their shirts.
I bought a 1,200 square foot 3 bedroom, 2 bathroom house in 2013 for $195,000. Just a little more than three years later it is worth almost $300,000. That is some serious appreciation and ROI!
My problem with California is that property values once again do not seem to be affordable to most folks. This usually is a signal that prices may start to slow down, taper off or even start to fall back down to more reasonable levels. Today if I were to try to buy an investment property for cash flow, it would be very difficult. You are lucky to find something that breaks even.
California is a very liberal state. There are enormous amounts of regulations and red tape on business and investments here. Also the landlord tenant laws are horrific. Did you know that if you have a tenant that stops paying his/her rent, it can take up to a full year to complete the eviction process? How much money will a landlord lose if they have a tenant that decides they want to live for free in their property for a year?
I get people all the time that ask where I like to invest in real estate, and when I tell them that I like Utah they always give me a funny look and say “Utah? Why in the world did you choose Utah?”
Here are the big reasons why I like investing in Utah over California, or anywhere else for that matter:
1. POPULATION GROWTH: Utah is the #1 fastest growing state in the nation
According to businessinsider.com, Utah experienced a 2.03% population growth between July 2015 and July 2016 which put Utah in the #1 position on their list. Nevada came in second place with 1.95% population growth. Compare this to California which only had a 0.66% population growth over the same time period.
People are moving into Utah faster than in any other state. If Utah continues to keep up this rate of growth, the state’s population would grow by a massive 20% in just 10 years. What does that do to real estate values in Utah?
2. JOBS: Utah has the 6th lowest unemployment rate in the nation
According to the Bureau of Labor Statistics, Utah had an unemployment rate of just 3.1% as of November 2016. California had an unemployment rate of 5.3%, which landed it in 39th place out of 50. Job growth in Utah is great and the outlook over the next several years couldn’t be better.
3. BUSINESS FRIENDLY STATE: Utah has low business regulation compared to other states
Utah is a very business friendly state. Unless you are operating an alcoholic establishment or a strip club, government doesn’t get in the way very much and allows businesses to grow without much interference. To form a limited liability company within the state, you can expect to pay about $70 and about $15 per year each year after that. In California, it will run you a minimum of about $800 per year, just to maintain the status of the legal entity with the state…. not business friendly.
4. LOW TAX STATE: Utah has favorable tax rates compared to other states
Utah’s state income tax is a flat rate of 5% for everyone, no matter your income. This is very reasonable for most people. Compare that to California where the maximum state income tax bracket is effectively 13.3%. There are literally people leaving California specifically to save money on taxes. Obviously state income tax is what people pay in addition to their federal income taxes. Long story short, Utah is much more affordable to live in from a state income tax perspective… so more people want to live there.
Also, property taxes in Utah are very low in comparison to other states. This means lower operating expenses and more net income.
5. LANDLORD FRIENDLY LAWS: Utah has landlord friendly landlord-tenant laws
Utah is known for having very landlord friendly landlord-tenant laws. This is very appealing to any real estate investor because it will save you stress, time and money. Some states give way too many rights to tenants even to the point where they are absolutely ridiculous and absurd. I couldn’t imagine being a landlord in a place like San Francisco which has rent controls and very strong tenant rights laws. That sounds like a landlord’s nightmare.
6. FAVORABLE NUMBERS: Utah real estate is very affordable compared to other states
In many different areas of Utah, rents are high in comparison to property values. This means that the likelihood of getting a good positive cash flow on your investment is much more of a possibility. Most of the small multifamily properties that I am investing in all pass the 1% rule, which says that the monthly rental amount is equal to or more than 1% of the purchase price of the property. My most recent triplex that I purchased this past October, the monthly rent was equal to 1.3% of the purchase price. This is very favorable from an investment standpoint.
Also, in general property values are more affordable in Utah than here in California. Many of the same type of properties that I am buying in Utah are double or even triple the price here in California…. and although the rents are a bit higher here in California… the rent/value ratio does not even come close in comparison.