Cash Flow Market Hotspots: Navigating the West Coast’s Most Lucrative Real Estate Markets
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May 1, 2024

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Real estate investments have long been considered a lucrative, passive cash flow opportunity.

Despite the market’s ebbs and flows, real estate remains a strong source of income that can weather many economic challenges—especially on the West Coast.

In this article, we’ll dive into the top cash flow markets on the West Coast and the factors that influence these markets.

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Cash flow in real estate investing

Cash flow is the net cash amount transferred in and out of an investment over a specific period. It’s an indicator of the financial health and profitability of your investments.

For example:

  • Positive cash flow means the total income generated from the property exceeds the expenses required to own, maintain, and manage it
  • Negative cash flow means the expenses to manage the property exceed the amount of income it generates

Key to maintaining healthy cash flow is a strong investment strategy and a diversified portfolio.

While negative cash flow isn’t ideal, investors may be able to temporarily tolerate it if they have other positive cash flow properties to offset the negative.

As long as the investor expects the negative cash flow property to appreciate in the future, it may still be a worthwhile investment.

How to calculate cash flow

Cash flow involves an understanding of the following:

  • Gross income: Includes all income from your rental property, including parking or laundry fees 
  • Operating expenses: Includes all costs involved in operating the property, but does not include your mortgage payment
  • Net operating income (NOI): Subtract your operating expenses from your gross income
  • Cash flow before taxes (CFBT): Take your NOI and subtract any mortgage payments

How to estimate cash flow

One of the best metrics for measuring cash flow is the cash-on-cash return (CoC), which measures the annual pre-tax cash flow on the property concerning the total amount of cash invested.

However, another popular metric that helps investors more quickly evaluate the potential return on an investment property is the rent-to-price (RTP) ratio.

The RTP ratio compares the rental income a property could generate to its purchase price or current market value.

RTP Ratio = Annual Rental Income / Purchase Price or Market Value

Investors can also calculate RTP monthly.

What factors influence cash flow in West Coast markets?

In general, location, property type, rental demand, and economic conditions impact the cash flow of real estate investments.

For West Coast markets, the following region-specific factors are at play:

  • Population growth that fuels housing and rental demand
  • Heavy tech industry presence, including Silicon Valley and other emerging tech hubs
  • Major tourist destinations
  • Desirable climate and lifestyle

These factors also make the West Coast more competitive.

Investors interested in the West Coast must carefully weigh the risks vs. rewards in these markets.

This includes conducting due diligence via thorough market research and understanding local trends and regulations.

Top 5 best cash flow markets on the West Coast

The West Coast has strong potential for significant property appreciation over time due to the growing tech industry and population.

Let’s look at the top five cash flow markets on the West Coast that stand out with their unique attributes.

1. Seattle, Washington

Seattle is home to tech giants such as Amazon and Microsoft. As a result, its high-income tech jobs support a robust rental market with significant demand.

The city’s quality of life and the cultural scene also draw young professionals to the area, further fueling the rental market.

Average rent: $1,995/month

2. Portland, Oregon

Portland attracts a diverse population attracted to its livability and sense of community.

The city has a rich cultural scene and plenty of green spaces to fulfill its residents, as well as a strong economy supported by the tech and manufacturing industries.

Average rent: $1,472/month

3. Sacramento, California

Sacramento offers a more affordable entry point for real estate investors and is attractive to residents priced out of more expensive markets.

This factor has resulted in increased rental demand for the area.

Average rent: $1,493/month

4. Oakland, California

Renters who want to access the economic opportunities in the Bay Area but need a more cost-effective option are flocking to Oakland.

Growing sectors in Oakland include technology, healthcare, and education.

Average rent: $1,990/month

5. San Diego, California

San Diego is a major tourist destination and is considered a highly desirable place to live.

As a result, investors have options for both short-term and long-term rental properties.

Average rent: $2,259/month

The role of hard money in your investments

Your financing options will influence your cash flow, so investors need to choose wisely.

Hard money loans from private lenders are key for real estate investors.

Hard money loan features include:

  • Collateral-based lending focuses on the property value vs. the borrower’s creditworthiness
  • Processed and funded in a matter of days or weeks, depending on your project
  • Short-term and long-term options

The greatest benefits of hard money loans are speed and flexibility.

Ultimately, these loans are structured to fit an investor’s unique needs, whether fixing and flipping properties or holding long-term.

How to evaluate cash flow markets

Investors must conduct due diligence to ensure their future properties generate the cash flow needed.

Besides the RTP ratio, the following metrics and indicators can help investors evaluate cash flow markets:

  • Capitalization rate (cap rate)
  • Vacancy rates
  • Job growth and unemployment rates
  • Population trends
  • Average rents and local supply and demand
  • Neighborhood data such as crime rates and schools

Investors should also build a team of experienced local experts to help them, including a real estate agent and property manager.

Apply today with Park Place Finance

Park Place Finance is your trusted hard money lender.

We lend nationwide, with over $1 billion in loans funded across 17 years in business.

Provide us with information about your next property, or call (866) 407-1599 to speak with a dedicated account executive now.

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