Episode 80 -Out of State, Out of Mind: Commercial Real Estate via Remote Locations

Out of State, Out of Mind: Commercial Real Estate via Remote Locations              


Investing in commercial real estate can be challenging within itself. However, oftentimes it is the regulations within a particular state that make commercial real estate unappealing.  Here at Goodlife HP we’ve taken a liking to the Lone Star state of Texas as it is very “ commercial investor” friendly and the restrictions are not as limited as well. 


So Why Texas? 


One of the most common questions that the Goodlife team has encountered is why we have chosen to focus our investment strategy on properties mainly located in Texas, despite our headquarters being  in Los Angeles. As mentioned previously, this is due to the lower amount of regulations on commercial real estate within Texas. Also to boot; there is no rent control.  There is tremendous upside and opportunity in the big state of Texas and to date Goodlife HP has done a fantastic job on capitalizing on those opportunities. 


COVID-19 and Eviction Moratoriums


We only need to look at California as an example of where strict regulations impacted owners and impeded their ability to collect rent.  Owning a commercial property in California during covid was very costly and with limited help from the government the financial burden took its toll. While Texas did not impose an eviction moratorium during COVID-19 (instead providing financial assistance to both tenants and landlords)  the California state legislature took another path and continued to extend eviction moratoriums protecting the tenants while offering no aid to property owners to date.  The owners continued to face financial hardships and their obligations did not cease as it related to their property. 


In contrast to this, at our properties in Texas, Goodlife HP has been able to manage operating expenses effectively and operate with limited impact. 


Texas and Rent Control/Stabilization


Additionally, one regulation that Texas lacks that is present in states such as California is rent control. In Los Angeles (where the Goodlife HP team is located), yearly rent increases on most apartments built pre 1978, which can only be made once per year, are limited to 8%. For buildings in Los Angeles built from 1978 to 2005 in Los Angeles, the statewide rent stabilization law applies, which caps rental increases on tenants at 5-10%.


Given the historic levels of rent growth that are currently being experienced in Texas (with rental growth rates hitting 12-15% in the Irving submarket in Texas, where we own 416 units at the Ayva), these rent control restrictions limit the ability of commercial real estate owners to maximize income. 


Additional Benefits of Texas


Moreover, the population of Texas continues to expand rapidly, growing by over 300,000 people from 2020 to 2021, making it the second fastest growing state in the United States, and increasing the potential renter base. This contrasts sharply with California, which had a net loss of approximately 260,000 people from 2020 to 2021. Lastly, Texas’ large levels of job growth (especially in comparison to California) and increasing levels of higher education suggest that this increasing potential renter base is also more likely to be employed and have a higher level of education, both of which correspond to a higher ability to complete their rental payments.