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By Sensei Gilliland
Investors Are Leaving The Golden State & Big Apple In A Stampede. Here’s What’s Driving Them And Where They Are Going…
We’re seeing a macro shift in migration, capital flows and investor relocation at incredible new levels. Keep reading to learn how wise investors are adapting to this incredible event.
The One Thing You Can Count On Is Change
As much as you might like it to sometimes, nothing ever stays the same forever. Change is the one thing we can bank on.
There are mini cycles and economic rotations which go around every 7 to 15 years. Then there are macro shifts. There are evolving eras, which we’ve seen go from hunter gatherer to agricultural societies, to the industrial era, and now the internet. We are currently experiencing one of those mega shifts which only comes around every 100 years or longer.
The dinosaurs couldn’t adapt to it. All that is left of the great Egyptian civilization is crumbling pyramids. Ancient civilizations that once thrived in Machu Picchu and Tulum have left only ruins. Detroit has literally become an urban waste land since the end of the industrial era too. If you haven’t been lately, there are real ruins, weeds and vines taking over once vibrant neighborhoods, and a few urban farmers trying to stick it out among the remnants of a once economic powerhouse.
According to a new report from the Pacific Research Institute and many others, not only is San Francisco, but also Los Angeles, California is checking off all of the boxes on the way to becoming the next Detroit.
This includes increasing taxes, regulation, harassment of businesses, rising crime and riots, and distrust of leaders are some of these signals that lead up to these massive shifts, and the downfall of once great cities. Perhaps some of these things sound familiar to you?
This Exodus Is Far More Significant Than You Think
This isn’t just a few low wage workers who are teachers or restaurant workers leaving high cost states for somewhere they can afford to live.
Almost 700,000 people moved out of California in 2019, before COVID hit. A Berkley study reports that half of registered voters in California have been considering moving out of state. 44% of New Yorkers making $100k a year or more (not even a living wage there) say they plan to move out of their state.
We are talking about millions and tens of millions of people leaving these states. If you thought it was bad before they left, wait until the remaining few realize they have to pick up the tax bills to cover the void by the other half who left. If many are leaving for safety, then crime rates will also be expected to dramatically rise, with the per capita risk of you being a victim of a crime at least doubling.
It’s not just the amount of people leaving either. It is who is leaving that is also making a huge difference. We are talking about the wealthiest and smartest individuals and their companies that employ millions of people. It is a massive wealth and brain drain.
We’re talking about people like Elon Musk and Peter Thiel. Even the New York Stock Exchange has said it will leave NY if newly proposed taxes are implemented.
Those who are left are at least sending their money out of state for safety and better returns.
What’s Driving Them?
There are now many factors driving people and their cash out of coastal states and other major cities, and pulling them to other destinations. These are just some of them.
Sheer lack of affordability is one of the top factors driving out residents and capital. Even in Florida, which seemed cheap in comparison to NY and LA at the beginning of 2020, the massive surge in migration has driven up property prices by at least 1,000% in some areas. In Miami some builders are finding excuses to kick out pre-construction investors to be able to resell those same units at top of the market prices. Even in the most rural and cheap areas it has become so expensive that investors are buying distressed homes, and are renting them out at top of the market rents, while leaving tenants to make the homes livable.
It’s not just housing prices either, it is overall cost and quality of living.
When it comes to investing, affordability is the number one factor that analysts look at to gauge where a market is in the cycle, real value, and future potential growth or decline.
Profits & Returns
In addition to these coastal cities, even international investors are looking for smarter places to invest with more value and better returns. Even in Denver investors have been resorting to negative cash flow properties due to such high prices.
It is true rents and house prices may float down in California and New York as millions leave. Yet, they have long been too high to make sense for investors. You should never invest for negative cash flow. If you are just going to gamble, it is probably a lot more fun to go to Vegas and play the games, than go through all of the work to invest, and in something which may have less odds of going up in the short term.
Real estate has taken off in a big way over the last year, not only due to the huge amount of moving activity, but also as people see the stock market and things like Bitcoin just go crazy with no real fundamentals to support them. They are running on vapors and speculation. They offer no downside protection, and rarely reliable passive income.
Anti-Investor & Anti-Business Climate Change
An extremely litigious climate, lack of physical protections for businesses, and a regulatory pattern of trying to crush businesses, entrepreneurship and investors is forcing capital flight and the movement of talent.
These are beautiful places, dear to our hearts, but just make no sense to live and invest in anymore. At best they just want to bleed us and our children dry financially.
Why not go somewhere you are wanted, and that wants you and your family to prosper.
You can always go back home on vacation if you can stomach it.
Personal safety, property protection, and wealth preservation are all compounding this trend.
While many have been working from home and running fully remote businesses, even in real estate for at least 16 years, many are just walking up to the fact that they can live in the Midwest, and get a three bedroom house with a yard for a quarter of the cost in California, while still making NYC and San Fran level wages. They also no longer have to put up with lockdowns and restrictions if they choose not to.
Where Are They Going?
Cleveland, Ohio stands out as one of the top places for people to move and invest in 2021.
Here are just some of the reasons it stands out and it drawing savvy investors:
● Ranked one of the top 2 most affordable cities in America for 2021
● Ranked one of top 10 markets to watch this year by Forbes
● $1B in stimulus being invested in infrastructure and attracting new residents
● Low volatility
● Rental property investors can still achieve the 1% rule
It just makes sense. There is positive cash flow to be had, with plenty of room for assets to appreciate over the long term, and low downside risk.
How To Do It
One of the best ways to invest in Cleveland, OH today is in turnkey rental properties. Handsfree investments, producing passive income, with professional management and boots on the ground to support your assets.
In addition to market rate, cash tenants, there are also strong local Section 8 and other housing programs through which the government pays your rent and profits. No worrying about another pandemic.
With prices so cheap, many real estate investors will find they can sell a single unit in California, and buy 7 houses with yards in Cleveland’s suburbs for the same price. Only with a whole lot more cash flow and much better returns and growth prospects. Within an IRA or through a 1031 exchange this can even be done without any tax hit on your capital gains.
It’s the chance to exit mature investments, and diversify for consistent returns. Or more importantly, the ability to sleep well at night, knowing you are set financially.
You can buy a second home to Airbnb while not there, and start spending some vacation time exploring the city, and acquiring more deals. Or go turnkey and handsfree and spend your time in Mexico, traveling the country in your RV, on your own private ranch, while your rentals put money in the bank.
Black Belt Investors is a real estate firm offering education, coaching and turnkey rentals. Get started now by visiting www.BlackBeltInvestors.com or call us at (951) 280-1900.