Bay Area new investor

[Jack Jiang]

Hi all, I am Jack, a super rookie investor based in the Bay area. My partner and I earned fairly ok on W2s, and we have just started buying real estate since 2021 - bought our primary home (3B TH) in Mountain View in May 2021, and bought our first investment property (4B SFR) in GA in March 2022. We made tons of mistakes buying our first two properties (I can share them in another post if you are interested), but it is what it is, and we are planning for the next steps.

Goal:

1. (mid-term) Change to another SFR in the Bay area in 2-5 years (mainly for family purposes).

2. (long-term) Continue to grow investment property portfolios in GA (or other states). I personally like GA since I went to college there. 

3. (long-term) Involve in slightly larger real estate projects (e.g. apartment, storage, development etc.) while not quitting my job (yes I kinda enjoy my day job).

Challenges:

1. SFRs in the Bay area are crazy expensive, the down payment and mortgage payment would be a huge gap to fill.

2. My primary home has a limited upside (after all, it's a TH), and we don't see the rent outgrow the mortgage payments in 2-4 years (it's ~$4600 vs $7500 now). Most likely there's no way for us to afford the new SFR without selling the current home.

3. The investment property in GA is barely cash flowing right now. I am not confident that I would be able to cash-out refi in 2-5 years given the rising interest rate.

Questions:

What should be the right strategies for long-term planning? Currently, I have 2 thoughts: 

1) Rent out my primary home as much as possible (which would bring us ~1500-1600/month), save, and invest conservatively in the next few years (both in stock and RE). We can probably afford the new SFR in 2-5 years after selling my primary home.

2) Invest aggressively into crypto, syndication, private fund, RE, etc., and potentially delay the SFR purchase plan according to the status of the investment.

It's a hard decision to make since the economy this year is a bit flaky. I have some cash reserve on hand, but I am not sure if I should go all-in right now (or any soon). Experienced investors and senior members please advise me on how the plan could be made, and what mistakes I should avoid. Thank you all so much in advance!

Also feel free to reach out if you want to connect. I am a bit shy but I am trying to overcome that :).

[Allan C.]

@Jack Jiang I'll provide the contrarian views based on my experience. First, don't get out of CA as others suggest. If you have good W2 income you'll see your wealth accelerate faster in CA once you get into REI. Second, I would ditch the TH. As you noted the appreciation is worse than for SFH or MF, and you'll get stuck with increasing HOAs that don't add value.

Third, I would not pursue the ADU route if you have a high income and demanding W2. You are in a good financial position because of your primary job, so it's likely better you keep your bed focused on doing that well and passively investing in RE. Doing large value-add plays are good when you have experience or more time to give. Doesn't seem to be the right fit for your situation.

House hacking a 4-plex is an option if you don’t mind more shared walls and mixed income neighbors. Otherwise, get into syndications as a LP to build up your equity position to buy nicer assets down the line.

The key to winning in CA is time and patience. Early years of owning a property are ugly from a cash flow perspective.