More real estate investors are asking us whether it makes sense to redeploy capital out of California, and into states considered to be more business- and tax-friendly.
Before making that call, here are four questions we consider:
1. What does the tax picture actually look like for this specific gain?
Before geography enters the conversation, get clear on the numbers: depreciation recapture, current bonus depreciation rules, and the actual timeline a 1031 exchange requires. The tax strategy should drive the decision, not follow it.
2. Is the growth story real for the specific submarket, or just the state headline?
Texas and Florida both offer no state income tax, and both continue to see strong population and business migration; according to U.S. Census Bureau data, Texas added more new residents than any other state in the country last year, with Florida close behind. But state-level growth doesn't guarantee submarket-level demand. The diligence has to happen at the metro and property level, not the state level.
3. What asset type and management profile fits where you're headed next?
A change of state is an opportunity to reconsider what you’re holding, not just where. For one of our Clients, that meant selling a 24-unit Redwood City multifamily property and redeploying into two newly built, triple-net-leased restaurant assets: a Chipotle in the Tampa Bay area and a Chick-fil-A in Austin. The move paired the tax and geographic benefits of Texas and Florida with a shift to a more passive, hands-off income stream. That combination was the win.
4. Would scaling within your current market solve the same problem?
Don't assume leaving is the only path forward. Bay Area fundamentals still have a strong case: return-to-office mandates are firming, and AI-driven demand is tightening multifamily across San Francisco and San Jose. For some Clients, the answer that comes out of this same framework is scaling up locally, not leaving.
Considering your next real estate move? Reach out to Adam Levin and Robert Johnston at Levin Johnston of Marcus & Millichap to learn more about your options.
