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How to Make Money from the California Real Estate Gold Rush
What do the Californians know that we don't?
What is so special about California? Why is the average price of a house there five times higher than nationwide? Why on a salary of $100,000 per year, you can hardly afford to rent a decent apartment in the large cities there?
It is true, Californians have a nice looking Pacific coastline. They also have a pleasant climate. But they are not the only one. Oregon to the north has a Pacific coast just as nice. The Oregon's climate is even better and their taxes are lower. Still everyone wants to live in California.
The Californians are a special bunch. They must know something that other folks don't. Otherwise, how can they market themselves so successfully? Marketing, you said? It can't be that simple. Or is it?
How the Gold Rush made California (or was it the other way around) ?
California became a state in 1848. Almost at the same time the Gold Rush stories made California a world-wide symbol for instant riches. The stuff dreams are made of.
How did it happen? How did the California myth started? If you were to discover gold, would you mine it yourself, or would you tell everyone in town about your discovery?
Well, when we learn about it, the first Californians were not that stupid. They tried to mine the golden hills around San Francisco on their own. Very soon they discovered that mining gold is hard labor. Big nuggets were few and far in between. The miners had to crash tons of rocks for few specks of gold.
What was the Californians' next step? Stories about gold nuggets lying on the ground started to appear in every newspaper in the world. If those stories were true or not, no one could care less. Those stories sold newspapers and they also started an avalanche of fortune seekers descending on California.
While those new immigrants took upon themselves the hard labor of extracting the gold from the ground, the Californians enjoyed their new economic prosperity. They sold tools and services to the miners. Never mind that the miners had to pay for a head of lettuce about hundred times what it cost in New York. The real fortunes were built on services to the miners. Their profits built San Francisco.
How to market houses built on an earthquake fault?
Fast forward 150 years. California is still the most successful state in the Union. The value of their economy is comparable to China, which has 25 times more population. How do they manage to do that?
Let's look at California's Real Estate. The most expensive are the houses that overlook the spectacular Pacific coastline. Those are the places, where small three bedroom bungalows can fetch millions of dollars.
Yet the California coast is also the most problematic ground for building a Real Estate anywhere in the whole world. Numerous seismic fault lines run parallel to the coastal line of California. In simple terms - the California coast is slowly moving North, while the ocean bed of the Pacific is moving South. That contradiction produces the most powerful earthquakes.
How do they manage to sell all those million dollar homes in spite of the dangers? Earthquake shocks are quite frequent, smaller ones happen few times a year. Chances are that one of them can happen during an open house. How do they deal with that?
Their marketing tactics have not changed much from the times of the Gold Rush. They spread stories about California riches, then stand back and collect the money from the newcomers eager to make a fortune. The effect is a self-fulfilling prophecy.
When the Gold nuggets are gone, sell the land
For example, the San Francisco Examiner ran a story about an illegal Mexican worker, who bought an old house in East Palo Alto in 2002, very cheap. He rented it to other Mexican workers, and after a while was able to buy another cheap house in the same area.
Three years later he is still an illegal immigrant, but his two houses increased in value by 300% and are worth now more than a million dollars.
Stories like that make us dream of moving to California. What do the Californians do? Let's see another example.
In 2003 a retired Spanish lady from San Jose bought a lot in the Montclair area of Oakland for just $18,000. The price was cheap, because the lot was on tax sale and $18,000 was the amount of back taxes owned to the county.
Why would a previous owner abandon this lot? He discovered that it was impossible to build a house upon it, so he stopped paying taxes. The Spanish lady put it on the market only one year later, and it sold for $78,000 (yes, this is 433% profit in just one year).
What did the buyer do? I remind you that it was still impossible to build upon this lot. The buyer immediately put the lot back on the market for $230,000 or three times more than he paid. For a lot in Montclair this is an attractive price.
The last time I had seen it, this lot generated lively interest among prospective buyers, who were eager to join in the California Real Estate boom.
P.S. All the numbers are accurate. I can give you this lot's APN number, so you can check for yourself in the Alameda county Tax Assessor office
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