My home state is California. Over the past 10 years or so I’ve made an active decision not to invest here, particularly in real estate. There are several reasons for this, some are California specific and some are general investment principles.
- California is not a friendly state to investors in general. There are many rule and fees that other states simply do not have. It is rare to find a process in California that is simpler than it is in other states. Real Estate in particular has many additional requirements, such as soft form of rent control, incredible renter protections, as well as many other smaller measures all meant for some good along the way. As one person put it once, you put your money (basically the an extension of yourself in the form of your saved effort) in places that respect it and want it. California does not fit the bill for me on that one.
- California is no longer growing. Its funny to hear Californian’s talk about this, because either you love California and nothing is ever wrong here, or you hate California and everything you see is a sign of how bad it is. The fact though is that California has had very slow growth, and more recently negative growth in population. People, despite what some people want to hear, are leaving the state for a whole host of reasons. From a real estate perspective, a declining population is a very very bad thing over a long period of time. If this process does not stop California real estate prices will suffer. That might take a while but if you don’t have the people to force up house prices that will slow the growth of appreciation here as compared to the places people are going.
- The last major reason I’ve looked outside the state is just for plain old diversification reasons. Diversification is generally just a good idea and that includes real estate. There is a real argument for investing in Real Estate near by, and having your hands more directly involved in the process. I could see how that offsets some of the risk of having all your eggs in one geographic basket, but in the end I would like to preserve my money as well as grow it, so I error on the side of diversification and safety.
If you live outside the state of California, investing in it might not be a terrible idea. Its a huge diverse economy, California has all the advantages, so its very possible that a small shift in attitudes could propel the state to new highs, but at this point it would need to be a change in trend. Personally I’ll wait to see that shift before doing anything more here.