Understanding the incredible diversity and nuances of California’s micromarkets is critical to the success of flippers and real estate developers throughout the Golden State.
Nowhere in the union is there a state as geographically, culturally or socio-economically diverse as California.
And it is those attributes that influence the multiple micromarkets that span its 163,600 square miles.
From inner city jungles to inland desert resorts, spectacular coastlines, ski fields and mountain lakes, California has it all.
But it means that to successfully buy and sell real estate in California, there is no one strategy that can be applied across the state.
Sometimes, those very strategies need to be flipped after travelling just a few blocks.
Each economic region possess buyers with their own unique psychologies and fall under very different local regulations.
These regulations often dictate wildly differing timelines for permitting, constructing and selling properties.
What applies in San Diego won’t fly in San Francisco.
What works in Carmel doesn’t apply in Carlsbad.
The rules and roadmaps to success are never the same.
Why California’s micromarkets vary
Property flippers in California need detailed knowledge of local areas to be successful.
Those operating solely in one locality can benefit by building contacts from real estate agents to local government representatives who help them develop a deeper understanding of the area.
But stray too far in any direction and everything changes.
The key factors driving change across different micromarkets are:
Housing supply – coastal areas face severe supply shortages due to geographical constraints, the influence of over-zealous NIMBYs and strict land-use regulations due to the CEQA (California Environmental Quality Act).
Job markets and income – the tech boom in the Bay Area and the entertainment industry in southern California drives high demand and prices in those areas. Inland areas generally yield lower prices from lower demand but that doesn’t mean there are not opportunities.
Affordability and migration – many people are abandoning more expensive coastal urban cores, driven inland seeking cheaper accommodation and reshaping demand in those micromarkets.
Mortgage rates – while they are consistent across the country, higher rates tend to have a ‘lock-in’ effect on real estate. Existing homeowners are reluctant to sell, reducing inventory across multiple micromarkets.
Considerations for flippers
There are many factors that impact the basic metrics every flipper analyzes when assessing the merits of a property.
Among the chief considerations are:
ARV accuracy – it is critical to assess this accurately. But this becomes harder to achieve in an unfamiliar micromarket. That’s why it is so important to thoroughly understand the needs of local buyers.
Price ceilings – even in big-city markets, buyers will have blocks where they will walk away at certain price points. Research carefully and don’t set your asking price too high or you risk losing your margin.
Days on market (DOM) – this impacts your holding fees and the cost of your loan. Get it wrong and your profit margin can quickly erode. Irvine, Orange County and San Diego are among the state’s ‘hottest’ markets at present due to very high demand and rapid turnover.
Permitting speed and local regulations – LA can take weeks for a basic permit to be approved and remains problematic. Conversely, some Central Valley cities will issue permits within days. It can make another considerable difference to your holding fees and loan cost.
Inventory levels and price pressure – sourcing properties in LA and San Diego remains difficult with pressure on prices remaining high. But it has eased in some markets with the likes of Sacramento and Bakersfield giving buyers greater leverage.
Renovation expectations – the style and expectations of a renovation from buyers in Fresno differs significantly from those in Orange County. Young tech buyers in the Bay Area demand modern finishes. Inland Empire families prefer space and practicality. That’s why it is so important to know your local market and renovate accordingly.
Contractors – their availability and cost varies significantly across the state, based primarily on location, demand and the local cost of living. Do your homework and prepare accordingly.
Lender risk tolerance – this can fluctuate depending on the ARV and type of renovation for the location. Local demand, building regulations and hazards like wildfires are also assessed. Hard money lenders will always take on greater risk than traditional lenders.
Seasonal demand patterns – spring and summer are typically the busiest seasons in real estate but how much so is governed largely by local climate. Warmer, drier regions report a much smaller drop in activity in winter. Desert markets often peak in winter and shut down during the hottest months.
How knowledge of micromarkets improves profitability
A flipper’s profitability may not just be boosted by a wider knowledge and appreciation of California’s micromarkets – it will likely rely on it.
A better understanding of these micromarkets avails flippers many benefits:
- the ability to make better and more accurate offers on properties
- tailoring projects to markets without under or over-renovating
- better prediction of DOM (days on market)
- planning exit strategies accordingly
- reducing holding cost risks
- securing better deals from lenders (who also evaluate micromarkets)
How to research micromarkets
You can never have too much knowledge about local micromarkets and trends.
But sometimes, it’s difficult to know exactly where to start.
Here are some practical tips to help grow your knowledge base so you feel confident about flipping anywhere in California.
- track DOM on Redfin, multiple listing services and other local reports
- visit open houses weekly
- talk to local agents to gain unique insights into the behavior of local micromarkets
- study local permitting portals
- look closely at renovation trends among active listings
- analyze list-to-sale ratios by ZIP codes
- compare properties within 0.25 miles rather than an entire city
Get finance and support today
Flipping houses is a solid wealth-building strategy as well as a great way to help ease California’s housing crisis.
But without careful planning, you may torch your profit margin and find yourself working for nothing.
There is so much to consider when working multiple micromarkets in California and plenty of traps for the ill-prepared.
That’s why having an experienced funder AND mentor in your corner can be the difference between prosperity and failure.
And in California, that is Equidy.
Equidy has an intimate and personal history with all aspects of property development in California and has done so for more than four decades.
They are well versed on the specific characteristics, features and habits of buyers across California’s micromarkets.
Equidy will offer you robust financial support to help set you up for property success without putting yourself at unnecessary financial risk.
The best part about Equidy is that they are also a hard money lender who can finance flippers and developers in as little as 48 hours.
They stand by their core belief that anything is possible and they are determined to prove it every single day.
Even in difficult economic times, they love to reward entrepreneurship and strive to help their clients realize their wealth creation dreams.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimize the risk to all parties.
Contact Equidy today to book your free strategy call.
