With the current market participants in Coastal California being largely comprised of Asian buyers that think in terms of wealth building in generations, not ten years, and are anxious to get their capital away from their home governments, you have a lot of people that buy independent of current cash flow. You will be outbid every time if you make offers based on cash flow. In the next major downturn, particularly if those folks have the ability to export wealth restricted, you will find buying opportunities. What you may not find are properties that meet the 1 percent rule. If you are willing to risk relying on appreciation, there is a lot of money to be made if you can outlast the downturn.
The other group of people in your way are people that have owned for a long time. Because of high rents, large capital gains, and the potential loss of low property taxes under Prop 13, a lot of people, me included, have chosen to keep their existing properties, despite the low percentage yields on current value. I paid $350k for a house 30 years ago that is worth at least $1.5 million now. The capital gains tax would be unpleasant, even after the exclusion. Remember, California taxes capital gains at the same rate as ordinary income and there is an additional 3.8 percent federal tax over a certain amount. The market rent is $4,500. The equity is not dead money, either. I can borrow out equity and buy more property for cash in a better cash flow market. The interest is deductible because it's used to buy rental property. My choice and that of many others that don't need the money is to stiff the government, let the heirs inherit with a stepped up basis and then they can deal with it. Waltworks thinks I'm "dumb," but I disagree, as do all the other people doing the same thing.
I own a number of rentals, most of which do not meet the one percent rule today, even in lower cost but still desirable markets. Do I sell? For the most part, no. I don't see opportunity in another asset class that makes it worthwhile to sell. I take the income from that portfolio and buy asset classes that are undervalued, or failing that, stock up on cash for the next asset class sale.